Tenants are underpaying. What to do while in a pandemic?

Question

Hi everyone,

In the midst of everything going on I was finally able to purchase my first house which happens to be a three family apartment. I’m going to try to keep it short but also while giving you the full scenario. My family and I will be occupying two units and rent the other one. The current tenants have been here for over 20 years so the previous owner kept their rent fairly low. Per my realtor the current market rate is $1100 and they are paying $850. The tenants seem like good people but are all heavy smokers (stair case reeks cigarette smell), they are also using the attic for storage (I have no access) and occupying the majority of the side lot for parking. How should I best proceed from here knowing that I cannot evict them (due to covid19) should they stop paying rent or give me a hard time for trying to implement changes? They have no lease.

Patricia Steiner · Answer

@John Chace

You won't need a real estate attorney for this but I do recommend pulling up your state's Landlord Tenant Laws (an online search will provide them) and confirming the month-to-month tenancy notice.  You might also want to include it with your notice to the tenants.

What you're dealing with is actually quite common.  The longer you wait to address the tenants on the changes, the more resistant they will be.  The only legal issue here is with giving the proper amount of notice to terminate the month-to-month tenancy.  You're good to go...

Colleen F. · Answer

They are smoking, using the attic, taking all the parking and paying undermarket. Maybe you will need new tenants.  You can change the rules during a pandemic although in some locations you can't evict or increase rent. I would send/give  them a introduction letter saying you are taking over. In the letter be nice and positive,  let them know you will be offering them a new written agreement. Let them know however some property rules will change and give them a timeline for adjustment. Set a date for converting to non-smoking, and for providing assigned parking as well as removal of attic storage (if you want to do this).  (if you don't have attic access to me the attic issue might not be worth fighting with this tenant).  In addition, when you can do so by law, let them know the rent increase making sure you  give the length of notice required in your state.  There are alot of discussions on here about all at once vs step increases.  My guess is the smoking will not change and you will need to ask them to leave.

Dave G. · Answer

@John Chace Yes, you have multiple problems here. You'll get better info from this site if you indicate the location of your property. There are different laws/executive orders affecting rentals that vary by location. So for me in AZ here's my responses:

The COVID restrictions are near-term only and not a major problem. After our Gov exec order expires next month, I think its back business as usual.

Having no written lease in AZ means they are on M2M and can be given 30 day notice of non-renewal. Or, give them the good old "raised rent eviction" where you raise the rent significantly and they just move out on their own because they don't want to pay that increase.

Going forward of course, you'll want a solid lease. And it should define specifics on parking rights, use of common areas (smoking), storage space and access rules, etc. All my properties are specifically identified as non-smoking inside the unit too. For a multi-unit property, I would prohibit smoking (unless unlawful) anywhere on the property including outside. Make the tenants go to the public sidewalk or street where they won't bother other tenants, inside or out.

Good luck.

Theresa Harris · Answer

@John Chace  Congrats on your purchase. I agree with the others to get them on a lease.  Increase the rent price, but with the current tenants, you are unlikely going to be able to get it to market value in one go.  You should be able to find a lease online or there are some on BP that you can use as a starting point. As others said, read up on local laws to make sure you and the tenants are following them.

The shutdown has complicated things, but give them notice that in 60 or 90 days (longer than you'd normally have to do) they need to make a decision and give them a copy of the lease now.  I don't know what things are like in MA for covid and bans.

Hopefully you got their deposit from the previous owner.

Filipe Pereira · Answer

@John Chace welcome and congrats on your purchase. These are challenging times, especially in MA. It's never a bad time to buy a good deal, but this is about as close as it gets. That being said, until we have a clear understanding of what the governor's plans are regarding eviction moratoriums and "reopening" phases, I recommend treading water. Are the tenants paying on time? If so, good. Keep it that way until the fog clears. We actually had a few of our Springfield leases expire during the pandemic and elected to (we first educated the owners of the pros and cons) not renew any leases for the time being. Not because this is necessarily good business practice, but it's probably good practice for right now. We all know it's easier to evict a month to month tenant vs a tenant on a 1 year lease, so we wanted to leave our options open for the time being. Once things "normalize" a bit, we will have tenants sign leases or renewals per regular operating procedures. Always protect yourself first. Where in Massachusetts are you? Are you local to western MA?

Douglas Snook · Answer

BE VERY CAREFUL what you do at this time. There are no evictions in MA for the time being (except for criminal activity)

Introduce yourself for sure. I do not believe you can increase their rent at this time. To increase rent in MA you end the current tenancy and then offer a new one at the higher rate.

These sound like tenants you may want to get rid of sooner rather then later. I would not offer them a 12 month lease at all.

Check the Attorney General sight for the rules and regulations. The fine for violating is $5000.

I don't think there is much you can do beyond introducing yourself and prepare for the day the emergency is over. Prepare your papers to end the tenancy and what the new one will be (no smoking, where to park etc etc) and be ready to go when it is over.

Colleen F. · Answer

Since you are in Massachusetts know that it is likely it could take a while to get them out if this goes to an eviction. Massachusetts is tenant friendly.  Keep it as cordial as possible until its not possible to do otherwise.   Landlord laws should be on Mass.gov for the official source.This Mass landlord site had a lot of info for mass landlords and I have heard the organization is good:  https://masslandlords.net/laws...  I think the introductory letter is fine to do on your own after you read up and make sure you follow the local guidelines including COVID ones.  Also you are an owner occupant so find out what if any exceptions are for owner occupants.  Maybe if family health is an issue that is something that works in your favor.

Patricia Steiner · Answer

First and foremost, congrats on your acquisition.  The most important thing to remember is that you're running a business - and, as such, you will be making business decisions.  In this case, I would send/deliver a notice to them to let them know that the following changes will be implemented in the next 45 days:

Month-to-Month leases will be terminated and the property will be operated under a 12-month lease. Advise that this will provide tenants with rent price protection during the term of the lease and formalize the terms of the tenancy such as designated parking spaces, smoking will not be allowed on the property for the health of all occupants, and the attic space they currently utilized will no longer be available to ensure that insulation and pest control can be performed.

Also the rent will be increased to the current market rent which is $1100 monthly effective on that date.

Note that you hope they will stay on as tenants and that you so value their 20 years at the property. Stress that the changes are to bring the property up to current market standards and will be effective on (the 46th day).  Ask that they contact you within the next 5 days to review the new lease and to answer any questions they might have. Remind them that 30-days notice is required to terminate their current month-to month lease.

Remain factual, stress market rent and standards have changed in the past 20 years, and that all is to bring the property to a professionally managed/operated building. If they say they will not comply, advise that will not be in their best interest as it will force an eviction that neither of you will enjoy.  If it were me, the smoking and consumption of the property would be deal breakers and I would give them the extra time to find a new place instead of giving 30 days notice.

Hope this helps.  And, more than that, I hope you'll take the business steps today to take control of your property. Right now, the tenants are running the place. For them, all good things must come to an end...including $850 rent, smoking, consuming the parking, and taking over attic space.  You're the greater stakeholder. You're the owner. You call the shots.

John Chace · Answer

@Colleen F. Thank you for the feedback! I agree that new tenants might be needed because of the smoking issue. Being new to this whole thing I feel bad about interrupting their way of being but then again its necessary for our health and well being. Do you think it is necessary to have a real estate attorney look over the letter? I'm afraid they will give me a hard time about using it specially knowing I cannot evict them at the moment because of the virus.

@Patricia Steiner Thank you for the feedback! Do you recommend going to a real estate attorney for the lease to make sure it is fully legal? Or is this usually not required?

John Chace · Answer

I am in MA and from my understanding the bill will last for 45 days after the emergency is lifted. This being said would you advice waiting until then and do nothing now? Or should I give them a month to month lease now with defined terms (parking, no smoking, etc) while I wait for the pandemic to be over and raise the rent then?

Tenants are underpaying. What to do while in a pandemic?

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