When Your Tenant Pays After a Three-Day Notice

July 20, 2018 by Marty Orefice | Rent to Own

When you've served your tenant a three-day notice, and they pay you, you have to move forward with the rent to own lease term.

During the lease term of a rent to own deal, the buyer falls under the classification of tenant. Should the buyer pay rent late or miss a payment, the seller of the property needs to put on the hat of landlords and evict the tenant.

Evictions start with three-day notices. Three-day notices give a tenant three days to pay rent. After those three days have passed, eviction proceedings can begin.

Three-day notices often serve as a wakeup call for tenants. They realize the consequences of their actions, which leads to payment.

You can evict a rent to own tenant if needed.

When a rent to own tenant pays rent after a three-day notice has been served, there is no longer a need for eviction; however, the contract has been broken. Thus, the seller can terminate the lease-option deal…but is that the right call?

Should a Seller Terminate a Lease-Option?

Whether or not to terminate a lease-option after a tenant has paid rent late depends on what’s important to you.

Reasons Not to Terminate a Lease-Option

There’s a lot to lose by terminating a lease-option. Consider what you’re giving up before you make the decision

You’ll Need To Find a New Buyer

You’ll be back to square one of selling your home. It could take a lot of time and effort to find a new buyer; whereas, there is no guarantee that things will not work out with the buyer you already have.

More so, if the purchase price you’ve worked out with the seller is good, you could risk earning less money from the sale of the home.

The Buyer May Not Want to Leave

While you do have the right to end the purchase option on the home, you may not have the right to end the lease aspect of the deal.

If you’re not in a position to evict the tenant under your state’s landlord-tenant law, you may need to continue renting to the tenant until the end of the lease term. At which point, unless you no longer want to sell the home, wouldn’t it make sense to give the buyer the option to purchase?

If the buyer is able to buy the home, your selling journey would be over and you wouldn’t have to worry about finding another buyer!

Reasons To Terminate a Lease-Option

There are reasons why you may want to terminate the lease-option that would make sense too.

Have You Changed Your Mind About Selling?

If you no longer wish to sell your home, this is a good time to terminate the lease-option. The buyer has violated the terms of the agreement and, thus, you can legally end the deal. This would give you control over the home again.

You’d also be able to keep the option fee and any premium payments because the termination was as a result of a breach of contract on their part.

Has the Seller Paid Late More Than Once?

A big part of rent to own is a trusting relationship between the buyer and the seller. Neither party should take advantage of the other. However, if the buyer is consistently paying rent late, they are taking advantage of your good nature.

If the seller has paid late more than once, then, they might believe they can get away with doing it every time.

The issue with this is that when the buyer pays you late, you may end up paying other people late because you depend on that money. If you feel that the synergy between you and the buyer has been broken, it may be a good time to terminate the lease-option.

Another alternative is to charge the buyer a late fee to make up for the late payment. That would serve as a consequence for late payment, but also give the buyer the opportunity to continue the rent to own deal.

The Bond of Trust Has Been Broken

There’s a layer of trust between a buyer and a seller because you’re both working toward the same goal.

Nonetheless, you might worry that you’ve gone too far by threatening the buyer with a three-day notice. They paid once they saw the notice, maybe they just needed a few days to get finances in order.

You are entitled to your tenant’s rent payment every month, regardless of how good your relationship with the buyer is. The buyer violated your trust by taking advantage of that.

You definitely shouldn’t feel guilty about posting a three-day notice; however, it can make your relationship uncomfortable from here on out if you and the buyer were friends before.

Country Club Heights by Bill Wilson is licensed under CC BY 2.0.

Marty Orefice

About The Author

Marty Orefice

Martin Orefice is a real estate investor who has been in the industry for over a decade. He has experience with rent to own deals from all sides—as a buyer, seller and investor. He created RentToOwnLabs.com to provide the #1 resource where people can find information about all things rent to own.

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