Renewing lease to assume the rights of garage and driveway

[Courtney T.]

Hi there 

I am reaching out to the group with what I *think* might be straightforward... but more input would be helpful here.

I have long term tenants that I have loved having. They are in an old craftsman I bought several years ago. Since they moved in, the area has experienced a lot of growth. Now that CA allows for one ADU per parcel, I have decided this would be an excellent opportunity to invest in. I am planning on renewing my tenants to a month-to-month lease (which is what they are on now) but am going to be taking back the driveway and the single-stall detached garage that the driveway leads to in order to create an ADU.

I know they love the yard and the garage for their plants, but it is time and I deferred this project since just prior to the pandemic. I would like to keep the tenants at the same rate (market rent is about 20% higher than what they are paying) in order to keep them through as much of the construction as they are willing to put up with. If they intend to move at any point, we could actually move in ourselves and remain as we get the ADU up and running on AIrbnb. Their yard would still be their yard - albeit a small yard. But I imagine with the construction scene that it would be really difficult to enjoy.

Question - has anyone done this? Would you do anything differently either in terms of the lease itself, or the handling of the construction team or area?

[Dan H.]

ADUs in virtually every location is CA are deed restricted to rentals less than 30 days.  I suspect this is true for Oakland and Sacramento.

The post seems to imply that the property is currently a SFH. This means the state wide rent control does not apply. If it did, you cannot materially change the existing terms on a lease other than raise the rent as allowed. Verify that the location where you property is located does not have rent control. If it is rent controlled, you have a lot less rights and likely cannot force the tenant into giving up the garage/driveway.

Assuming it is not rent controlled, the lease is month to month.  You can terminate the lease or change the lease terms with two months notice (long term tenant to me implies over a year).  The tenant really has two obvious choices: 1) accept the terms of the new lease 2) state the new terms on unacceptable to them and that they will be moving out.

As for the ADU addition, make sure you understand the value that will be added by the ADU. In many areas ADU are adding significantly less value than the hands off costs of the ADU addition. This makes them a value subtract (the opposite of a value add).

Good luck