Hello,

This is a crazy situation where the city rental law may end up harming the tenants. We would like to purchase this property but need to figure out how to navigate the  significantly below market rates.

The Situation:

- Small multifamily of less than 6 units.  The current rents are currently 40%+ below market rate.  All leases expire this summer

-City rental law restricts increases of more than 9% upon renewal.

-If a tenant has been there for more than 2 years, 90 days notice of non-renewal is required.

-Seller has agreed to provide notice of non-renewal if we request it.

The problem:   The tenants may want to stay, but we need to achieve market rate to pay the bills.  One tenant has been there for 10+ years and is paying 75% below market rate.   If they stay, we will never catch up to market rate because of the City rental law.  If the seller issues them a non-renewal letter we will be showing the apartment to future tenants while the current tenant is still there.  Even if the current tenant wants to stay and signs a lease at the current market rate they can get mad in the future and say that we violated the City rental law's limit on annual allowable rate increase and they would win in local court (based on what I'm hearing from other people in the market).  Obviously the ideal thing would be for the current tenants to agree to the rate increase and not use the City rental law's limit on rate increases against us in the future, but this seems like a risk.

Solution:  Not sure what to do.  Any insight and/or ideas will be appreciated.

Thank you for any help on this matter!