Tenant Landlord relationship

[Nick1985]

Just want a little clarity on my opinion here. Does only the fact that a landlord is selling to a tenant constitute a non arms length transaction just because they are considered related parties (via business relationship)? I would say no if there were no other signs of undue influence. There is obviously no requirement to to buy or sell that can be forced without specific prior arrangement. One could say there may be incentives for that sale, such as not having to move for the tenant, or a landlord selling to current tenant to avoid having to find a new tenant or having the property sit vacant. However, if a property appears to be selling at fair market value and you find no undue influence, would you consider it non arms length just because of the tenant/landlord relationship?

TLDR:
Is tenant/landlord a related party?

 

[DTB]

TLDR

NO

 

[Terrel L. Shields]

Yes, especially if rent is taken off the price. I have seen a lot of deals where the seller (usually a builder) rents a house to someone for a year and after a year, they can buy the house for a set price with the rent deducted. And if they don't buy the rent contract expires.

 

[DTB]

Yes, especially if rent is taken off the price. I have seen a lot of deals where the seller (usually a builder) rents a house to someone for a year and after a year, they can buy the house for a set price with the rent deducted. And if they don't buy the rent contract expires.

How does that differ from any other sales concession? Still arms length, no?

 

[CGinMN]

A lease renewal agreement between the parties is still arm's length, so I see no reason why a sale is any different.

 

[J Grant]

Groundhog day same topic a zillion times over - look it up, non arms length definition is a sale between related parties either by blood ( family) or relationship -friends, boss and employer/landlord tenant.
There is one definition floating around that has the word duress in the sale which never made sense to me.
The price does not have to be a discount , the price may be the same $ amount as what another buyer would pay, but it is the relationship that defines the AL or non AL. and keep in mind sometimes the price, even if same $ amount as other prices, might have a not disclosed element to it, such as a silent second mortgage or gift of equity/down payment from seller, or forgiveness of rent or putting a rental deposit toward the closing costs etc

Most of the time it also turns out a non AL sale was offered only to this one buyer and was not put on the market to other buyers.

 

[J Grant]

A lease renewal agreement between the parties is still arm's length, so I see no reason why a sale is any different.

Because they are different transactions with different influences and comparisons.

By the time, landlord agrees to sell to tenant, the two have had a relation via being landlord tenant which might influence price /terms on either side. Most times, the landlord offers it only to this tenant it is not listed for sale on open market. Then factor in landlord does not have to pay a RE commission, hold the house vacant for sale or pay to fix up. The tenant does not have to move and spend time house hunting. In addition to other which might or might not be there such as landlord applying rental deposits applied as a concession

 

[CGinMN]

Because they are different transactions with different influences and comparisons.

By the time, landlord agrees to sell to tenant, the two have had a relation via being landlord tenant which might influence price /terms on either side. Most times, the landlord offers it only to this tenant it is not listed for sale on open market. Then factor in landlord does not have to pay a RE commission, hold the house vacant for sale or pay to fix up. The tenant does not have to move and spend time house hunting. In addition to other which might or might not be there such as landlord applying rental deposits applied as a concession

Can't the same be said of a lease renewal? The parties have an established lessor/lessee relationship, the property is never listed on the open market, no expenses for repairs, no rent loss due to vacancy, and no broker commissions (in the markets that use brokers for leases). In a lease renewal, the tenant has the benefit of not leaving etc.

 

[The Warrior Monk]

Does only the fact that a landlord is selling to a tenant constitute a non arms length transaction just because they are considered related parties (via business relationship)?

I would reword the question. The mere existence of a contract between parties does not make those parties related parties.

For example,

• You don't become a related party with your bank because you have a contractual obligation to pay your mortgage.
• You don't become a related party with your State because you have been issued a license and have made a contractual agreement to abide by the terms of that license.
• You don't become a related party with a restaurant because you order food at a sit-down restaurant (implicit contract).

TLDR:
Is tenant/landlord a related party?

Maybe or maybe not, but the determining factor is not the mere existence of a contract between the parties. The determining factor boils down to the parties acting in their own best interest. There are some obvious exclusionary exceptions, such as familial relationships.

 

[J Grant]

I would reword the question. The mere existence of a contract between parties does not make those parties related parties.

For example,

• You don't become a related party with your bank because you have a contractual obligation to pay your mortgage.
• You don't become a related party with your State because you have been issued a license and have made a contractual agreement to abide by the terms of that license.
• You don't become a related party because you order food at a sit-down restaurant (implicit contract).

Maybe or maybe not, but the determining factor is not the mere existence of a contract between the parties. The determining factor boils down to the parties acting in their own best interest. There are some obvious exclusionary exceptions, such as familial relationships.

How ridiculous an analogy .(Besides fact that AL is to addresses RE transactions in an appraisal and not other transaction such as ordering a meal.)

But to address this, a contract of a person with an institution,( bank for a mortgage or a driver license from a State) is not comparison to a negotiation of a contract of sale between two INDIVIDUALS

Though an applicant might be said to have had a normal course of business "relationship" with a loan officer, the intuition of the bank or lender approves or denies and establishes terms of a loan . The UW dept decides, not the personal loan officer.
AND if loan for an applicant results in atypical for market loan terms/ not the norm, it is no longer considered prevailing financing and gets treated as special or creative financing in the appraisal.