Author Topic: New Building, problem Tenant  (Read 6553 times)

Denver Landlord

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New Building, problem Tenant
« on: November 19, 2015, 09:56:34 AM »
I just bought an 11-unit building.  6 of the units are leased up until later next year.  They are rented at $650 - roughly HALF what they should be.  I have to live with it for a while.

I just found out that one tenant has an unauthorized occupant.  Her lease ends at the end of July.  I told her that I would do an addendum, raising the rent to $875, and ending the lease after 6 months - at the end of May.  I told her that all month-to-month tenants were now at $875 while we renovate units, and that I would waive the extra $50 tenant charge for her.

She writes back that she wants to pay the $50 extra tenant charge, but not the higher rent (of course).

I talked to my lawyer, and he confirmed that I can kick them out after a standard 3-day notice if they don't comply.  I think I should enforce the higher rent.  After all, it's 2 people.  They can easily afford it.  $875 is dirt cheap in Denver.

I tend to take a hard line and be heavy-handed, but I thought I'd check here.  Any thoughts?
Thanks.


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Re: New Building, problem Tenant
« Reply #1 on: November 19, 2015, 10:00:46 AM »
It sounds mean to do it but you have to keep it all business.  You bought that 11 unit building for a reason, to make money!  The tenant shouldnt dictate what they want to pay.  Raise the rents, if they dont comply, send the 3 day notice.

This is definitely the "hard" part of dealing with rentals.

Denver Landlord

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Re: New Building, problem Tenant
« Reply #2 on: November 19, 2015, 10:19:47 AM »
That's what I thought.  I appreciate the response. 

Cathy

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Re: New Building, problem Tenant
« Reply #3 on: November 19, 2015, 10:29:11 AM »
I talked to my lawyer, and he confirmed that I can kick them out after a standard 3-day notice if they don't comply...

To be clear, in Colorado (as elsewhere), a landlord generally needs to obtain a court order before he can "kick out" occupants, whether the occupants are lawfully present or not. The requirement of a court order "recognizes the desirability of having a neutral, detached, and disinterested person dispossess a tenant through eviction procedures ... Landlords are therefore precluded from independently exercising self-help evictions...". Christensen v. Hoover, 643 P. 2d 525, 528 (CO Sup Ct 1982). There is actually a published opinion in Colorado where part of the factual background involved a lawyer who was not aware of this basic principle of law. See Clark v. Morris, 710 P2d 1130, 1132 (CO 1st Ct App 1985) (recounting that "the landlord's attorney ... was frustrated and therefore recommended that the landlord exercise self-help"). "The landlord's reliance on the advice of his attorney ... could be considered as a mitigating factor in the award of damages ... but it is not a complete defense". Id, at 1134 (citation omitted).

Intriguingly, back in 1982, the Colorado Supreme Court upheld a provision in a lease agreement through which a tenant waived his rights to due process under the law. "The legislature has not forbidden a waiver of [this requirement] and, in the absence of any evidence of public policy to the contrary, we see no valid reason to ignore the waiver provision and rewrite the lease agreement." Francam Bldg. Corp. v. Fail, 646 P2d 345, 349. Strangely, the majority did not explicitly consider whether allowing a tenant to waive his rights to due process of law was contrary to public policy, but seemingly just assumed that such a waiver was consistent with public policy. It is not clear whether this decision remains good law.

Denver Landlord

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Re: New Building, problem Tenant
« Reply #4 on: November 19, 2015, 10:34:23 AM »
Cathy, thanks, but I don't think self-help evictions are legal anywhere.   When I mentioned a 3-day notice, it is actually a demand for compliance or possession.  Eviction takes place AFTER the tenant has not complied with the demand and a judge has ruled in favor of the landlord.


Another Reader

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Re: New Building, problem Tenant
« Reply #5 on: November 19, 2015, 10:50:04 AM »
My guess is your choices are to accept the $50 until the end of the lease or order the unauthorized tenant out.  If the unauthorized tenant does not vacate, you can evict the unauthorized tenant if you can get a court to agree to do that.  Trying to renegotiate the lease contract because there is an unauthorized occupant would not fly in the states with which I am familiar.

Denver Landlord

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Re: New Building, problem Tenant
« Reply #6 on: November 19, 2015, 10:56:52 AM »
I guess I don't see how I would have to accept the tenant's counteroffer, but she doesn't have to accept mine.  I believe that a lease, like any contract, can be renegotiated whenever all parties are in agreement.  As long as there are no illegal clauses, I don't know why a court would disallow such an addendum.

Another Reader

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Re: New Building, problem Tenant
« Reply #7 on: November 19, 2015, 11:09:28 AM »
She's not in agreement, and she is probably correct in asserting her position.  You state that she wants to pay the $50 charge for an extra tenant.  If the current lease contract calls for a $50 charge for an extra tenant, that's what you can collect.  In your shoes, I would accept the $50 increase through July or try to get a court to evict the extra tenant if s/he does not move voluntarily and there is an issue with the person, such as criminal activity.  That will cost you far more than the rent loss for 8 months.

In July, raise the rent to market, under the assumption the two tenants will continue to live there.  And review your leases before you renew with your attorney to make sure what you want to be included is.

Denver Landlord

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Re: New Building, problem Tenant
« Reply #8 on: November 19, 2015, 11:19:21 AM »
I wasn't clear. Her current agreement was with the previous owner.  Of course it survives any sale.  It states that only she can live in the unit.   Normally I charge an extra $50 for an additional occupant.

I am hoping to get her to agree to my terms, as she is breaking her lease by having someone else living there.  If she doesn't agree, I will file for eviction.

I should also mention that her lease states that she can't have a pet in the unit without landlord authorization, but she has a large dog.  She said that she will get a copy of that letter from the former owner.  I will be interested to see what she produces.

My leases were written by my landlord law firm.

Another Reader

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Re: New Building, problem Tenant
« Reply #9 on: November 19, 2015, 12:06:47 PM »
How long have you been a landlord?  Is this your first rental?

Over 20 years of multiple rental property ownership, I have found that working cooperatively with people and staying out of court whenever possible saves me time, money, and aggravation.  It's important to understand how your courts deal with landlord-tenant issues.  Landlord-tenant law is subject to court interpretation, and that can vary widely.  Again, in your shoes, I would look at the cost of trying to evict versus dealing with this in July.  If you get a reputation for being a jerk, you are going to have tenant problems ad nauseum, especially in a six unit building where the tenants see each other every day.

« Last Edit: November 19, 2015, 12:36:22 PM by Another Reader »

Matumba

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Re: New Building, problem Tenant
« Reply #10 on: November 19, 2015, 12:12:57 PM »
If the tenant doesn't comply now,  who says she will comply in July?

therethere

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Re: New Building, problem Tenant
« Reply #11 on: November 19, 2015, 12:24:16 PM »
I can see how your request is a little outrageous in the tenants view. You are "waiving" the extra person monthly fee so that you can increase the rent by $200+ in the middle of a lease (4x the extra person fee!!)? That would seem crazy to anyone. Hey you have an extra person, I normally charge $50/mo but I'll cut you a deal and raise your rent 35% instead and shorten your lease... Did you really expect them to agree to that willingly? Especially after they have gone through all the stress of living in a building in the process of a sale.

I would say the pet issue is much worse than the extra person. While I agree they have violated some terms of the lease. Is it really in your best interest to jerk them around? If you're planning to evict they can easily just stop sending you a rent check at all and live for free for a month or two before being forced out. Sounds like a lot of aggravation for little reward to me. Although you could be technically "right" by the law to renegotiate the lease it does all seem in poor taste.

As an aside. Is charging rent on a per person basis normal? I've never heard of such a thing.

Another Reader

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Re: New Building, problem Tenant
« Reply #12 on: November 19, 2015, 12:26:36 PM »
In July it does not matter, because the lease ends.  You can notice a tenant to move at the end of a lease by following the contract notice provisions and the state and local laws.  Getting a tenant out if they refuse to move at lease end is much more straightforward.

In the case of this landlord, s/he believes the units should be renting for twice the current rents.  To achieve that will require all new tenants, as the current tenants are probably unwilling or unable to pay that level of rent.  This should be interesting to watch, and I hope the OP will stick around and update us occasionally on the progress.

Cathy

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Re: New Building, problem Tenant
« Reply #13 on: November 19, 2015, 12:28:09 PM »
As an initial matter, a lease is not an ordinary contract. In fact, historically a lease was not viewed as a contract at all, but rather as a conveyance of a property interest, namely a leasehold estate. This is why the common law rule is that a landlord is not under any obligation to mitigate damages relative to a tenancy: the duty to mitigate damages is part of contract law, not property law. However, most US states no longer adhere to the common law view of a lease as being purely a conveyance, and instead, they view a lease as both a conveyance and a contract. See, e.g., Schneiker v. Gordon, 732 P2d 603, 608 (CO Sup Ct 1987) ("Colorado law in this area, though once exclusively rooted in property law principles, has gradually come to recognize that contract principles can sometimes play a role in resolving landlord-tenant disputes.").

In order for the purchaser of a property to enforce a covenant in a lease -- such as a covenant to refrain from moving in new residents -- it has to be established that the covenant in question "runs with the land" rather than being a mere "personal covenant", the latter of which is only binding between the parties to the actual contract (i.e. not the subsequent purchaser). In Colorado, a covenant runs with the land if (1) there is an intent by the parties for the covenant to run with the land (such as a provision stating that the covenant is binding on successors of the parties), and (2) the covenant "must closely relate to the land, its use, or its enjoyment". Cloud v. Association of Owners, 857 P2d 435, 440 (CO 2nd Ct App 1992). The right of the landlord to receive rent is a covenant that runs with the land. DR/CR FAMILY, LLLP v. Burger, 80 P3d 948, 952 (CO 5th App Ct 2003) (citing White v. Short, 794 P2d 1110, 1112 (CO 3rd App Ct 1990)). There does not appear to be any Colorado case addressing the precise question of whether a covenant to refrain from moving additional people into the unit runs with the land so as to be enforceable by purchasers of the property.

(I discuss Colorado law because the OP's name suggests he is in Colorado.)

Denver Landlord

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Re: New Building, problem Tenant
« Reply #14 on: November 19, 2015, 01:18:05 PM »
Therethere, you sound like a tenant or a very new landlord.  Most of you other folks understand the situation and see where I'm coming from.

I want to get rents to where they should be. In one month I have poured $120K into renovations for this neglected, classic property.  I want to get fair market rents.  That's not unreasonable.

The tenant that I mentioned has violated her lease.  I have the right to serve her with a notice and then follow through with eviction if she doesn't comply.  I am also offering her a workaround.  Even $875 is well below market.  I also allowed her to break her lease any time while it's in effect.

I just heard from the lawyer whose firm handles my evictions and he said I am in the right.

I will let you all know how it goes.




Another Reader

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Re: New Building, problem Tenant
« Reply #15 on: November 19, 2015, 01:46:44 PM »
What's your win/loss ratio for the cases you have gone to court with for similar issues?  Don't count the straightforward non-payment evictions, those are different.  What's the same ratio for your attorneys?  How much are you spending on average per case?

Denver Landlord

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Re: New Building, problem Tenant
« Reply #16 on: November 19, 2015, 01:55:53 PM »
I VERY rarely go to court.  I have good tenants and I treat them well.  It's the occasional bad ones that I take action against.

This appeal was expensive.  I don't mind, as I have great cash flow and paid a lot in taxes last year - even with a new boiler, thanks to depreciation.

Another Reader

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Re: New Building, problem Tenant
« Reply #17 on: November 19, 2015, 02:03:05 PM »
You haven't answered my questions.

I don't follow your last sentence.  Depreciation should reduce your taxes and increase your cash flow.

Denver Landlord

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Re: New Building, problem Tenant
« Reply #18 on: November 19, 2015, 02:16:16 PM »
You can't write off a $25,000 boiler for that taxable year.  It has to be depreciated, which means that the annual write-off is minimal - $900 or so.  I wish I could have instead taken that $25K right off the top for last year.  Can't do it.
« Last Edit: November 19, 2015, 02:29:35 PM by Denver Landlord »

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Re: New Building, problem Tenant
« Reply #19 on: November 19, 2015, 02:22:56 PM »
OK, in context that now makes sense.  Did your CPA have fun with the new IRS rules about what can be expensed versus depreciated?

Denver Landlord

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Re: New Building, problem Tenant
« Reply #20 on: November 19, 2015, 02:27:59 PM »
OK, in context that now makes sense.  Did your CPA have fun with the new IRS rules about what can be expensed versus depreciated?

Probably.  I tend to stay out of that stuff - way too complicated.  I have to say that I was disappointed that I couldn't expense the thing.

Kaspian

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Re: New Building, problem Tenant
« Reply #21 on: November 19, 2015, 02:48:16 PM »
I would fight tooth and nail against a 35% rent increase + an extra $50/month too. ...If not just to piss off the landlord.  Is there any middle ground if she's a good tenant and pays rent on time?  Raise it only 10% or something?

I pay $550/month rent and I'm sure my landlord would love to get rent where it's "supposed to be"--around $850.  I've lived where I am for 16 years and under rent control laws in Ontario he can only gouge me an extra 1.6% a year maximum.  Hehehe...

Denver Landlord

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Re: New Building, problem Tenant
« Reply #22 on: November 19, 2015, 02:49:57 PM »
I would fight tooth and nail against a 35% rent increase + an extra $50/month too. ...If not just to piss off the landlord.  Is there any middle ground if she's a good tenant and pays rent on time?  Raise it only 10% or something?

I pay $550/month rent and I'm sure my landlord would love to get rent where it's "supposed to be"--around $850.  I've lived where I am for 16 years and under rent control laws in Ontario he can only gouge me an extra 1.6% a year maximum.  Hehehe...

Yes, I'd work with her on something lower.

beltim

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Re: New Building, problem Tenant
« Reply #23 on: November 19, 2015, 03:03:33 PM »
The tenant that I mentioned has violated her lease.  I have the right to serve her with a notice and then follow through with eviction if she doesn't comply.  I am also offering her a workaround.  Even $875 is well below market.  I also allowed her to break her lease any time while it's in effect.

Restrictions on the number of occupants are very difficult to enforce.  If there's at least one bedroom in this unit, federal laws require leases to allow at least two occupants.

A tenant not obeying an unenforceable restriction in a lease is not "violating the lease."

Again, assuming the unit has at least one bedroom, I don't see how you win this case.

Beaker

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Re: New Building, problem Tenant
« Reply #24 on: November 19, 2015, 03:49:09 PM »
I want to get rents to where they should be. In one month I have poured $120K into renovations for this neglected, classic property.  I want to get fair market rents.  That's not unreasonable.

It's not unreasonable in the long run. But this set of tenants presumably rented there in part due to the low/affordable rent, and probably did not demand that you put in $120k of renovations. You're not doing them any favors, you're just some guy that came in and screwed up their living situation to make a buck, and now you're looking for excuses to jack up their rent mid-lease.

There's been a lot of unhappiness in Denver lately about the rapidly rising rent, and a lot of populist talk about "greedy, heartless landlords kicking people out." Frankly, you come off as one of those. And I wish you'd stop, because this kind of behavior is what gives the rest of us a bad name and eventually leads to landlord-unfriendly laws.

Although you're just so sneeringly smug and mustache-twirlingly evil about the whole thing that I wonder if you're trolling.

Bearded Man

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Re: New Building, problem Tenant
« Reply #25 on: November 19, 2015, 08:30:16 PM »
One of my tenants, I found out, had her sister living there toward the end of their 2 years and 2 months of occupancy. I let it go, since their lease was up in a few months. Just raise the rent when the time comes, and this loser tenant will move on. I agree with you it is not unreasonable for you to expect to be compensated for your expenses, your tenant is getting a better unit, and is reducing their housing costs with an unauthorized occupant, more than likely. Sadly, dealing with these types of losers is best to avoid the courts and just move them along peacefully when their lease expires.

Another example of why I don't do annual leases. So many so called "experts" that people regard on the various forums do annual leases, not having thought it through. People who have nothing and break a lease are not going to magically cough up the money if you take them to court. They can break the lease and leave you hanging. Meanwhile, with a lease, you are stuck in situations like these. I would merely give any problem tenant that was a big enough headache a 20 day notice to vacate and let that sink in for them. I've found lot's of tenants think they are somehow in charge, when they can barely come up with the money to move in to a house I paid cash for. Think again.

Bearded Man

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Re: New Building, problem Tenant
« Reply #26 on: November 19, 2015, 08:31:41 PM »
OK, in context that now makes sense.  Did your CPA have fun with the new IRS rules about what can be expensed versus depreciated?

Repairs can be expensed. Improvements cannot. Replacing a boiler is an improvement, not an expense. As such it must be depreciated per the IRS depreciation schedule.

supomglol

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Re: New Building, problem Tenant
« Reply #27 on: November 25, 2015, 11:07:40 AM »
You only have 2 options:
  • Evict for the lease violation (extra tenant).
  • Come to some other kind of agreement. 
I agree with some other's suggestions above to look at her rental & payment history.  Is this person someone worth keeping around, even at a reduced rate.  While renovating you are likely to incur greater vacancy during construction than you normally would, so perhaps "some" money is better than "none.  Obviously nobody here knows the full financial picture like you do.   

If you file for the eviction (which of course won't be as cut and try as a non-payment eviction), she may decide that its worth paying up to avoid moving; or maybe not.  Be prepared for either outcome.  You were right to call her on the lease violation, but she may not agree to such a large increase with just a threatening letter.  She may also just choose to get rid of the extra occupant and keep the lease as-is.  But now you have an angry and potentially vengeful tenant in your new building.  Food for thought. 

Personally, I would charge her the $50 extra fee through the end of her lease (assuming the other occupant passes all relevant checks), then renegotiate on level ground or find a new tenant with your own lease and at your own rate.  The cost of legal action is too great when you are only talking 6 months against what I assume is an otherwise compliant tenant. 

zephyr911

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Re: New Building, problem Tenant
« Reply #28 on: November 25, 2015, 12:02:48 PM »
Is $225/mo for 7 mos ($1575) worth the hassle? What will it cost you to pursue eviction?

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Re: New Building, problem Tenant
« Reply #29 on: November 25, 2015, 01:47:33 PM »
Be a good person.  You'll make better money that way.