Posted by ray@lcorn on August 16, 2005 at 14:35:24:
CoinOp,
A lease is a binding contract and is not voided upon change of ownership unless there is specific language in the lease that allows for the terms to be changed in the event of sale. I can’t imagine any lessee agreeing to such language, but stranger things have happened. Normally the new owner/Lessor is estopped from doing anything except honoring the terms of the original lease.
Now, the situation you describe is confusing to the point of being almost impossible to follow. If the various lessees did not comply with the terms of sub-lease or substitution, then the original lease could be void or in default. If so, then the owner is entitled to set whatever terms he pleases for a new lease.
If you are one of the parties already in this mess, then see a lawyer immediately. If you’re not a party to the mess yet, either drop the deal or get the mess cleaned up before you commit.
I am looking at a 13 unit apartment building in Los Angeles, w/ average rents at $730.00. In this area, with some minor improvements, these rents should be at a minimum of $1,200.00. My question is, what are the regulations for Rent Stabilization in vacating these tenants when I purchase the property? What strategy would you suggest in being able to get these rents to where they are supposed to be? Thanks!
LA has rent control. You may raise the rents only 3% per year, plus an extra 1% if you (the landlord) pay the electricity or gas (so 5% if you pay both on master metered buildings). The 3%-a-year obtains until the unit is vacated. Then, with the new tenant you may set it any where you want i.e. market. Unfortunately you can only evict a tenant for cause, which usually means non-payment. So in a climate of rising rents you will definitely fall behind the market rates, and the tenant will not want to leave because if they do they’ll pay market rent in their new place. Unfortunately, it does not work the other way: in a falling rent market, you cannot “keep” the tenant; they will just move to the place with lowest rent.
I have about 140 units in LA that are rent controlled. I do not avoid buying them because of rent control; this is just part of the whole valuation equasion. In other words the same building in a non rent control area will cost more. I buy them if they cash flow adequately, and I do expect (and have found) that the rents can be increased substantially OVER TIME. This occurs not through the small allowable annual increments but because there is a certain amount of attrition of old tenants where rents can then be raised. These units are in low income areas, and these are the kind of tenants most prone to default on the rent. When they do, we start an eviction as soon as possible and do not let them make up the overdue rent. Then we raise the rent on the new tenant. (An unintended adverse side-affect of rent cotrol from the tenant’s standpoint is that whereas we may sometimes give tenants some slack if they need to pay late occassionally, we have zero tolerance under rent control because ths is the only chance we’ll get to bring the rents up to market. In our non rent controlled units we tend to be a little lenient if we like the people.) A point to remember is, with rent control tenant selection is especially important since once you accept them you cannot get rid of them, which kind of puts the tenant in charge.
Thank you, that was very helpful. I am probably confused as to what I heard, but is there some type of compensation you can pay the tenant to legally ask them to vacate? i.e. $5,000 if you want to evict them?
Hawthorne is not part of the City of LA. Most of the cities neighboring Los Angeles do NOT have rent control so Hawthorne probably doesn’t, though I’'m not positive. If there is no rent control you can raise the rent to whatever you want provided there is no lease in place that fxes the rent.
Generally speaking, you cannot require a tenant to vacate even with payment. Only under some very narrow exceptions may you do so. For instance, if you are planning on permanently removing the units from the rental housing stock such as for a condo conversion; or if the property is a 2-4-plex (not more) and you wish for yourself or a family member to occupy ONE of the units (not more) as a principal residence. In those rare situations a landlord may require a tenant to leave, and pay a stipulated amount for “relocation” (very expensive relocation). The required amount used to be $2,000 a unit, unless there was a child, or elderly or handicaped person in which case it was $5,000. I am not sure if these amounts are still accurate.
That said, you always have the right to OFFER tenants money to move. It’s still a (somewhat) free country. They might just take it. But be careful how you go about it so it does not appear you are “telling” them to leave. LA’s plitical climate is blatantly pro-tenant and the legal procedures favor the tenant. You can get into trouble for attempting “wrongful evictions.”
The main point is, once you accept a tenant, they can leave whenever they want (unless there’s a lease), but they are entitled to stay forever so long as they comply with the rental agreement or give you “just cause” to evict them such as by damaging the property.
Re: Raising rents in Hawthorne. - Posted by CoinOpMan
Posted by CoinOpMan on August 15, 2005 at 06:34:18:
Situation:
Leasee 1 Leasor A
Leasee 2 Leasor B and C
Leasee 3 (Contingent) Leasor C
If the original leasee 1 had a fix rent with option to renew for another six years with leasor A and that business was sold to leasee 2 can the leasor B change the terms for leasee 2 simply because the property has been sold? Leasor B also sold the property to leasor C and leasee 2 now wants to sell because laesor C has threntend to increase rent by 212%. The increase of 212% will result in negative cash flow for the business and potential leasee 3 wishes to purchase only if the leasee 1 terms that had option to renew in early 2006 for an additional sixty months are avaiable. Can you suggest a solution?