Some tenant laws can be so obtuse as to be funny and make for sitcom fodder. In fact, the rush around to seize rental units from recently deceased tenants has humorously been played out on popular comedy shows such as Seinfeld, Friends and Fraser.

These scripts are based in the sadly true ways properties can change hands in localities that have very stringent rental regulations. In New York City, increasing rent is a cumbersome ordeal, thus, stories abound of children and grandchildren scurrying to move into grandma’s apartment when she kicks the bucket, but they hide her death from the landlord.

In most landlord-tenant laws, the property can be sold at any time, usually subject to the lease, meaning that the new owner must abide by the lease until it is fulfilled and that the former owner is no longer liable for anything required in the lease. In the case where the property is being converted into condos or converted from a rental to a private residence, such as a town house or single family home, some tenant protections require the landlord to at least offer the sale of the property to the current tenant before offering the property on the open market. This is usually called a Right of First Refusal.

An example of how these laws can bite real estate investors was played out recently in Washington, D.C., which has such a law. In many instances, this decree has helped many properties change hands effortlessly, as well as maintain affordable housing for some tenants.

On the other hand, some unscrupulous folks will take advantage of any loophole to make a quick buck. To sew up these loopholes, it is important for investors who want to become landlords to read up on the law, have a real estate professional review your contracts and get legal advice on what is required of you as a landlord.

A letter was forwarded to me from a buyer in our nation’s Capital who states her transaction has been hi-jacked by the tenants living in the house she and her husband are trying to purchase. As I talked with the buyer and reviewed the D.C. tenant laws, (though I’m not an attorney) I saw that the seller overlooked some protections for herself, and it may cost her some money.

In a nutshell, the single-family house was rented by four people – and here’s the first mistake – without a lease. Since the landlord wanted to sell the property as a single-family home again, she must first give notice to the tenants and allow them Right of First Refusal.

The story is quite fascinating. The buyers (an attorney and an editor with their first child on the way) were amazed to watch this tenant law played out before them:

“In accordance with D.C. law , the tenants were given ample notice that [the owner] was interested in selling the house. However, after reviewing our ratified contract, they decided to exercise their right of first refusal. (This is after they demanded that the seller pay them to leave. She offered them one month's free rent, their security deposits, and $500 each, which they flat-out refused.)

“Their intent, as we have been informed, is to sell their right to another buyer/developer and make a fast buck. In the meantime, because of such liberal tenant laws in the district, we all are forced to wait them out. The tenants' attorney told us today that most of these cases are ‘resolved’ when the parties get so frustrated they pay the tenants to leave. In our case, these three guys want $20,000.”

At this point, the parties involved are playing a game of legal chicken, a stare down to see who blinks first, as it were.

Basically, the tenants are operating within the law and their rights.

Unfortunately, the buyers are facing a delayed settlement, which could cost them more money. The seller should have taken more precaution, planned the sale accordingly and these headaches would not have happened.. Without a lease, she had no closure capability in place to make sure the tenants had a firm date when they must leave.

If you’re considering the real estate investment track, read up. Cornell Law School’s Legal Information Institute has plenty of links to state landlord and tenant Web sites. Get ready for some slow, deliberate reading when you visit http://www.law.cornell.edu/topics/landlord_tenant.html, as you will find it has a lot of headings, subheadings and tedious legalese. But if you crawl through these statutes, you can learn a lot about what you can and cannot do as both a landlord and a tenant.

Published: July 19, 2002

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Mr. Carr has covered real estate since 1989. He is the author of Real Estate Investing Made Simple. Got a personal real estate issue? Post your questions and comments at Anthony’s blog: commonsenserealestate.blogspot.com.