@Joe Xie let me make this simple for you: as the new owner, you are basically stepping into the shoes of the old owner when it comes to dealing with the tenant. Sure, you can ask the tenant to sign anything, but they do not have to. Their old lease is the default, and in CA leases automatically go month to month after they expire.
First, you should have gotten a copy of the tenants lease in the disclosures. Read it over carefully, because you are bound to those terms. If you did not get a lease copy, did the tenant at least fill out the estoppel?
Basically, if you have the existing lease, and it is basically a decent lease, I'd just stay with it. You can see if the allowable rent increases were given, etc.
If the old lease is substandard, or you only have the estoppel, I'd talk nicely with the tenant, once you take possession, and see if they are open to signing a new lease, so you guys have all your terms straight. But remember, they don't have to agree to do this.
You need to be careful with rent control, as some tenants, especially if their rent is low, will assume you're trying to take advantage of them. And, if this property is in San Francisco and the rent is low, you'll need a lot of luck getting a tenant to sign a new lease!
It's cleaner to draft new and execute a new one since the old one already expired. I know the Bay Area and rent control. If you are going with the existing rental terms, make sure that covers your expenses. Another way to do this is to have the seller execute the lease and assign it to you effective the current date. Make sure you double-check everything with a real estate attorney in the local area.
@Joe Xie Local laws apply, so read up the city rent control rules. For now, as a perspective buyer, no need to do anything, as you have no authority to change lease until you own the building. On the day of close, the MTM lease is valid and still in play, until a new lease takes its place. Read the lease, and know the local laws, to prepare how you will give notice of any changes. We have Seller sign and submit a letter telling the tenant of the property sale and the name and address of new owner and property manager. This letter is sent to tenant so that tenant knows where to send the next month's rent payment and to let them know that the lease and all terms will transfer with the sale.
As new owner, we also give the tenant a hello letter with a very similar message. Details of the lease might be changed with an addendum, no need to enter into a new lease until you know what you want to do - give notice to vacate, or renew for a new term. Negotiations for a new lease should take place with the tenant so that you each get a bit, of what each of you wants.
@Joe Xie Although I have experience with this, I am not an attorney yet, so I do not want to give advice that would be better addressed with an attorney and you would have the benefit of attorney-client privilege. Based on experience on real estate cases, transacting real estate and being a property manager, the month-to-month term is still a contract, but that means that tenant is not obligated to you as the new owner under new terms, unless such new terms are established. So, if you are comfortable with month-to-month and gamble on what happens after closing, then do nothing. The seller should be the one to execute a contract now. If you are already set on getting the tenant to renew (perhaps at a higher rate), then that contract could be assigned to you. Contracts are assignable unless specified otherwise. It's best to know you have a solid tenant rather than to go through an eviction or squatter scenario. I've gone through both (as an agent and a property manager) and I was quite fortunate because I knew what I was doing and my clients were happy that I knew. Anyway, even if you are drafting a contract by yourself and the seller agrees, you still need to double-check with a real estate attorney who is well-versed with all aspects of what you are trying to accomplish. I hope this helps.
@Joe Xie let me make this simple for you: as the new owner, you are basically stepping into the shoes of the old owner when it comes to dealing with the tenant. Sure, you can ask the tenant to sign anything, but they do not have to. Their old lease is the default, and in CA leases automatically go month to month after they expire.
First, you should have gotten a copy of the tenants lease in the disclosures. Read it over carefully, because you are bound to those terms. If you did not get a lease copy, did the tenant at least fill out the estoppel?
Basically, if you have the existing lease, and it is basically a decent lease, I'd just stay with it. You can see if the allowable rent increases were given, etc.
If the old lease is substandard, or you only have the estoppel, I'd talk nicely with the tenant, once you take possession, and see if they are open to signing a new lease, so you guys have all your terms straight. But remember, they don't have to agree to do this.
You need to be careful with rent control, as some tenants, especially if their rent is low, will assume you're trying to take advantage of them. And, if this property is in San Francisco and the rent is low, you'll need a lot of luck getting a tenant to sign a new lease!
@Joe Xie you don't need to do anything! The current lease is valid as a written agreement. It is month to month now. And if the tenant is paying below market rent, you want to keep them month to month...so it's easy for them to move out!
The one thing I would put effort into though is understanding if the former owner increased their rent every year by the allowable amount. This should also be documented. If they didn't, call the Oakland rent board (free), or if the situation is complicated call a lawyer (hundreds of $$$) to figure out how much "banked rents" you have. Then you can raise the tenants rent, according to the rent board regulations. Could be extra money for you there.
That's how the game is played in rent controlled cities!
I didn't jump in earlier, because @Amit M. was kicking ***. Great info. Now that we're down to the nitty gritty in Oakland.. (btw, Amit, fortunately, you do not need the entire history of rent increases, which could be harder for the prior owner to document.. just the original lease date and rent, current rent, and if there were any prior capital pass-throughs - because the calculator calculates the cumulative maximum from the start date (or last 10 years), then see how much it can be increased from the current rent level, along with caps.)
*Not legal advice. Consult your own expert and refer to Oakland website*
"@Amit M Thank you so much on the details. This really a good idea and I know the former owner have not increased rent every (since 2012). One issue though, it looks like the former owner did not registered with the rent board (hence not paying fees), is that will in any way affect me?"
Prior Owner
First, don't sweat what the prior owner did too much.
If you have the leases and estoppels, you have your bases covered.
Just make sure you your notifications out as soon as you buy the building. You shouldn't have to pay "back fees" for the prior owner - like a trash bill lien - just for your ownership.
Before all that..
**IMPORTANT** - before closing
Make sure you get the original leases from the owner, from when the tenant originally moved in. If they created a new lease during the tenancy, and you don't have the original lease document, obtain it. You will need the original lease start date and original lease $ amount to do your banked rent increase calculation. Also, find out the date of rent increase for each unit before closing if possible, as you can only raise rents once in a year. If they did any capital pass-through increases, that will also help you with the calculator. The calculator is here on the City of Oakland RAP website.. (I recommend you fill this out before you buy the building)
http://rapwp.oaklandnet.com/resources/calculators/
(Use the banked rent increase calculator, as it's unlikely you're passing through capital costs or other things right now..) Note: RAP is the Rent Adjustment Program (rent control & just cause evictions)
**Notifications** - Immediately after closing
#1) Give them the RAP notice right after you buy the building, and post the Harassment notice in a common area.
#2) Pay your RAP fees for each unit
#3) Register for your Oakland business tax license.
(These are also required for rent increases. Downloads are here: http://rapwp.oaklandnet.com/resources/required-not...)
You should do these when you first buy the building anyway, as you're not sure what notices were provided by prior owner. In addition, if all 3 of these are not done, any rent increase you provide to the tenants is invalid. Also provide the RAP notification when raising rents. (And don't push a rent increase until you have completed these things)
General RAP info: http://rapwp.oaklandnet.com/
Owner's Guide to Rent Control: http://www2.oaklandnet.com/oakca1/groups/ceda/docu...
Rent increases: http://rapwp.oaklandnet.com/issues/rent-increase/
Required Notices: http://rapwp.oaklandnet.com/resources/required-not..
Calculators: http://rapwp.oaklandnet.com/resources/calculators/
These are all the resources you need to be successful, and a specific action plan to get you set with the city so you're paying what you owe, in compliance with notification requirements, and have the tools to calculate and submit valid rent increases to tenants.
Best of luck!
@Katie P. organized a meetup with a bunch of BP folks on Sunday in Oakland if you want to join us.. :)
J. Martin thank you very much on all all these details. This is an awesome write up and I really appreciate your time to do that and feel other person here in BP who read this will benefit as well.
Just leaned the seller only raised rate 2016 and 2017 (in Jan). That mean that I can not do another raise till Feb 2018, right?
I do have one more follow up question, if I may. - "Immediately after closing #1) Give them the RAP notice right after you buy the building, and post the Harassment notice in a common area. " what "RAP notice " do you refer to in above? Is that all the RAP documents or give notice of my intent to increase rent on Feb 2018?
http://rapwp.oaklandnet.com/resources/required-not...
Read the info at this link. The RAP notice is called: "
Give it to them after you close, and with any rent increase.
The "Tenant Protection Ordinance" also needs to be posted in a common area.
If the last rent increase was in January 2017, you cannot raise the rent again until January 2018, no earlier than the same day it was raised in Jan 2017.
"This is an awesome write up and I really appreciate your time to do that and feel other person here in BP who read this will benefit as well."
Thanks Joe.
Happy to help out :)