What to Include in Your Purchase Contract When Buying an Occupied Property in Orange County
Buying a property with tenants already in place can be one of the smartest moves you make as a real estate investor — you're acquiring cash flow from day one instead of starting at zero. But occupied properties come with a layer of complexity that vacant properties don't, and the purchase contract is where you have the most leverage to protect yourself.
This is your window to ask questions and get answers on paper. Because if you don't ask before closing, you'll find out the hard way after.
Here's what should be in — or attached to — every purchase contract when the property has tenants.
Request the Income and Expense Statement
The first thing to ask for is a complete income and expense statement — at least 12 months, ideally 24. This isn't just a formality. If the seller has been accurately tracking it, you'll see exactly how the property has actually performed: what rent has come in, what it's cost to run, and how consistent the income really is.
More importantly, a well-kept income statement is essentially a payment history report. You can see which tenants have been paying on time every month, which ones run late, and whether anyone has a pattern of partial payments or gaps. That information changes how you think about a unit — a tenant paying $2,200/month sounds great until you notice they pay on the 20th every month instead of the 1st, and there's a three-month gap from last winter with no explanation.
If you're underwriting this as a rental investment, lenders will want to see documented income anyway. Getting clean records upfront gives you a head start on financing and prevents surprises during underwriting. This matters especially if you plan to use the property's rental income to qualify — how lenders count ADU and rental income on your mortgage application depends heavily on whether that income is documented with real lease agreements and verifiable rent history.
Require Copies of All Leases Before Closing
Every active lease needs to be reviewed before you sign off on this deal — not skimmed, actually read. You're looking for several things:
When is rent due? The lease will specify a due date and, often, a grace period before late fees kick in. California law allows landlords to charge late fees, but the lease has to spell out the terms. If the seller's lease says rent is due on the 1st with a 5-day grace period and a $50 late fee, that's what you're inheriting. If it says something different — or says nothing — you need to know that before you close, because California Civil Code §1947.3 limits how you can collect rent and what payment methods you're required to accept.
What's included in the lease that isn't obvious? This is the one that catches buyers off guard more than anything else. A tenant might be paying $1,800/month — but that number could include a parking space, a dedicated storage unit, a garage, or landscaping. If the lease says the tenant has exclusive use of the two-car garage and you were planning to use that garage for a future ADU conversion, that's a problem you need to understand now, not after you've closed and handed over keys.
Read every line of what the seller has promised the tenant in writing. Verbal agreements between landlord and tenant don't typically survive a sale, but written lease addenda do.
Are there any rent concessions or deferred rent agreements? Post-2020, a lot of landlords entered into repayment plans or rent reduction agreements that aren't visible from the rent roll alone. If a tenant owes back rent under a written agreement, you need to know whether that obligation transfers to you or stays with the seller. This should be addressed explicitly in the purchase contract.
Get the Security Deposit Accounting
Security deposits are the seller's liability until they become yours at close. Make sure the contract specifies the exact deposit amount held for each tenant and requires the seller to transfer those funds to you at closing. California Civil Code §1950.5 caps deposits at two months' rent for unfurnished units and three months for furnished — if the seller collected more than that, they're already in violation and that's now your exposure if you don't fix it.
Get documentation of what was deposited, when, and what (if anything) has been deducted from any tenant's deposit during the tenancy.
Ask About Pending Maintenance, Violations, and Complaints
Before escrow closes, ask the seller to disclose:
Any open code violations, habitability complaints, or notices from the city
Any tenant-initiated repair requests that haven't been addressed
Any pending or threatened legal action from tenants
In California, tenants have strong habitability protections. If a unit has a known issue — a broken HVAC, a roof leak, a mold concern — and you close without disclosing it, you inherit both the problem and the liability. If the seller has been ignoring a repair request, you'll be the landlord on record the next time the tenant calls code enforcement.
This is also the moment to verify whether the property's rental units are properly permitted. Unpermitted units come with real complications at appraisal and with lenders — and tenants in unpermitted units have additional legal protections under California law that could limit your options.
Clarify Tenant Protections That Apply to the Property
Depending on the city and when the property was built, your tenants may be protected under AB 1482, California's statewide just cause eviction and rent increase cap law. Properties covered by AB 1482 limit rent increases to 5% + CPI (capped at 10%) annually, and require just cause for any eviction after a tenant has been there 12 months.
Many cities in Orange County and LA County have additional local tenant protection ordinances that layer on top of state law. Some of those cities — including Long Beach — have multi-unit rental markets where tenant protections affect the property's long-term income potential in ways that show up clearly in an honest income analysis.
Understanding which protections apply before you're in contract determines how realistic your pro forma actually is. If you're planning to raise rents, reposition the property, or eventually move into one of the units, the answers to those questions live in California law — not in the seller's marketing flyer.
Use the Contract to Get Answers, Not Just Signatures
The purchase contract isn't just a formality — it's the only time the seller is legally obligated to disclose and deliver. Once you close, the leverage disappears. Any question you don't ask now is a question you'll have to live with later.
That means the contract for an occupied property should include, at minimum:
Copies of all current leases and addenda
12–24 months of income and expense statements
Documentation of all security deposits held
A schedule of all included amenities per unit (parking, storage, etc.)
Disclosure of any open repair requests, code violations, or legal notices
Confirmation of each tenant's rent payment history
Written confirmation of which tenant protections apply
Before you go under contract on any investment property in OC or LA, running through this checklist isn't optional — it's the difference between a deal that performs the way you underwrote it and one that surprises you on the other side of close.
If you're evaluating an occupied property and want to walk through what the numbers actually look like — or what questions still need answers before you write an offer — reach out. That's what the pre-offer analysis is for.
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Schedule a Consultation with Dylan Serna through call or text at (714) 860-2868
