[Oakland, CA] Tenants in Unit But No Lease Agreement

[Calvin Kwan]

Hey Guys,

I came across a duplex in Oakland that may be a great opportunity for my first investment property.  It's a duplex that currently has an occupied and  vacant unit.  The occupied unit doesn't have a lease agreement in place with its existing tenants.  The owners are absent, so they haven't been actively managing the property, and they actually don't know what's going on or who's living in the unit.  

Ideally, I'd like to get the property vacant so I can reno both units and rent it out at market.  With the occupied unit, what's the best strategy here?  How would I go about establishing who has legal tenancy if there's no record of a lease?  Do I just have to get the tenant/s to start a new lease with me once I take over the duplex?

Thanks for any guidance!

[DG A.]

Hey Calvin, 

Once you move into a building of 3 units or less, you change the legal structure of the building. Technically, you are no longer subject to measure EE just cause for eviction in Oakland. Again, "technically" you could simply evict the tenant the day you move in and establish that specific building as your primary residence. That does open up a bit of a risk with regard to the rent control ordinance in Oakland. Technically, you as the owner are exempt from rent control after living in the building for 1 year continuously. So, after you've lived there for a year, you can raise the rent to what ever you want. 

That said, if you were to move in, and evict because you're not subject to measure EE "just cause for eviction," there's a bit of a grey area with regard to "bad faith" and the rent control ordinance. A tenant (with a lawyer) could potentially argue that the grounds of the eviction were on "bad faith" and intended to get around the rent control ordinance which you are still subject to until after your first year living there. That specific type of situation would probably go to a hearing with the Oakland RAP board, and who knows what that outcome would be. 

My lawyer told me the safest thing to do is bite the bullet for a year, and then just raise the rent to market rate. So you're coming out of pocket for more of the mortgage year 1, but then you can get the market rate. And if the tenant can't pay market rate, that's not a problem, tell them the day you move in that you intend to charge them market rate on your 1 year move-in anniversary. They'll either leave before then, or be easy to evict, because they can't pay market rate rent. They could also pay market rate rent at that time, and then you're getting market rate rent, without having to rehab. 

Also the tenant estopel certificates "kind of" serve as a lease. Essentially, what ever the tenant has control of (garage, back yard, etc) is what's "included" in their lease. So, when you move in, you draw up a lease based on what they control in the property on that date, and make them sign. If they refuse to sign a lease that's not "materially different" that's actually solid grounds for eviction, and you could evict them. I definitely agree that you should look for historic rent checks, etc. 

One last thing, I spent $500 bucks for a couple hours of a lawyer's time. All the information I got, I would've had if I would have just invested ~3 hours into reading the Just Cause for eviction ordinance. In-fact, I did go read the whole thing, from top to bottom, after the consult with the lawyer, and it really gave me a deep understanding of what's what and what you can't do. It's a pain in the neck to read, and to google all the "notwithstandings" and other legal mumbo jumbo, but it gave me a really solid understanding of what my rights are as a land-lord. 

Here's the PDF of the Just Cause ordinance: www2.oaklandnet.com/w/OAK036393