Posted by ray@lcorn on September 29, 2003 at 08:04:26:
You are correct in your assessment of current leases being the main factor in stabilizing cash flow, hence increasing value, for an income property. However you’re dealing with a situation that may or may not lend itself to a standard solution. No one is going to tell you to boot out a long time tenant that refuses to sign a new lease, but neither would a potential buyer give the property the same valuation without leases that would inure with leases.
I assume that you have tried to reason with the tenants, to no avail. I would also assume that you have examined the old lease documents for remedies, and found the document silent on the point? So you’ve likely been advised that under state law the tenancy reverts to a 30-day, month-to-month, tenant-at-will relationship, providing the parties with mutual rights of thirty-day termination notice. I would guess that you are reluctant to drop the hammer with an eviction notice to a paying tenant that is in all other respects a good tenant. If the tenant cannot agree to your reasoning to stabilize the property with a new lease, and you can’t make an argument that it is in their best interest to do so, then you have a choice of either accepting the status quo, or use the only legal recourse you have available to force the issue. The alternative is to come up with some incentive for the tenant to sign. In my experience there is a point at which you have to call their bluff, or risk your position being exposed as just that.
For future reference, this situation is avoided by use of a holding over clause in the lease. The lease should provide that in the event the tenant holds over beyond the lease term, then the rent is double, or maybe 150%, (varies with the situation) of the current rent for as long as the holding over condition persists. This provides considerable incentive for the tenant to negotiate a new lease.
I don’t know all the particulars of your situation, but absent any compelling reason to accept the status quo (like a weak market for the space), I would take the position that I am the owner of the building and no tenant will be in my building without a lease. Back it up with a notice to terminate, and most likely the tenant will come to the table.