To Avoid Problems, Be Careful Wording Lease Termination

Question: I have been having many problems with the house I am renting. We suffer with inadequate heating, leaking pipes and poor insulation. Because these problems were so severe, my landlord actually sold the house a few months ago.

Now I have new landlords, and I asked them to allow me to break my lease. Finally they agreed to let me.

What should I do as the tenant to legally break this lease without having problems in the future? I was told by a friend to write a letter to my landlords and have them sign it. But what should I say in the letter?

Attorney Steven Kellman replies:

The documentation to “break” the lease, as you put it, can be fairly simple. You need merely put in writing that you and the landlord mutually agree that the lease termination date is changed from the stated date in the lease to the agreed upon new termination date.

It gets a little trickier if you cancel or rescind the lease, because you may be giving up valuable rights given to you by that lease. On the other hand, you may have incurred liabilities under the lease that could be removed by cancellation or rescission.

Be careful about rent incentives that apply only when you stay for a minimum number of months. Terminating the tenancy early could forfeit such benefits. If you are unsure about drafting the document, consult an attorney experienced in such matters.

Benefits of Owning Rentals Are Many

Q: Besides the tax implications, what are some of the benefits of owning rental property?

Property manager Robert Griswold replies:

There are many benefits. For most owners, real estate allows for diversification of investments. Though the stock market recorded some excellent returns until this year, real estate remains an excellent part of an asset allocation strategy.

There also can be pride of ownership and even appreciation--although until very recently many owners of rental property might not have agreed. Historically real estate has also been an excellent hedge against inflation as it typically will hold its value in real terms in an inflationary economy. And don’t forget about the equity build-up as part of a retirement income or estate planning strategy.

A discussion of real estate as an investment must involve potential tax benefits. Those typically include depreciation deductions that provide for tax deferral and the potential to use a limited amount of losses to shelter other earned income. Also, a new tax law provides for an investment strategy to generate tax-free income by moving into a rental property for a minimum of two years before selling at a gain.

You need to have a thorough understanding of any local ordinances, such as rent control, before purchasing investment real estate.

Attorney Ted Smith replies:

As an attorney who represents landlords in the eviction process, I often remind clients not to get too frustrated with the legal aspects of rental property ownership. Although California’s eviction laws are fraught with legal traps for the unwary, you won’t be faced with this problem too often, provided you’re doing adequate screening of prospective tenants.

I’m convinced that the tax and wealth building concepts of rental property ownership far outweigh the occasional legal hassles in dealing with tenants.

Board Raises Concern in Withholding Papers

Q: I own a rental condominium and have a great renter. Unfortunately, a neighbor who is conducting business activities out of his unit is disturbing my renter. I have verified my tenant’s allegations but have been unable to find out the names of the owners and/or renters of the offending unit.

I believe my rights of access are confirmed by my association bylaws as well as by civil code sections under the Davis-Sterling Act. But the management company refuses to cooperate unless the board of directors approves, and the board refuses to release any documents for review other than the basic invoices for association operating expenses. The board claims all other documents are exempt based on attorney-client privilege.

Is the management agent for my homeowners association required to share the accounting records even though the board of directors won’t authorize their release?

Griswold replies:

The association management company is the agent for the board of directors and may be in a very uncomfortable position based on the facts you present. Though you definitely have rights of access to records, these rights are subject to limitations.

Under California Civil Code 1363 and the California Corporations Code sections 8330 to 8338, all members have the right to inspect the records of the association upon reasonable notice during normal business hours, as long as the request is for a purpose reasonably related to the person’s interests as a member.

The code does clarify which records are required to be kept and prohibits certain uses of membership lists and other records. Assuming that your request meets these requirements, suggest that the board contact legal counsel to clarify its rights and responsibilities concerning your request.

If the board is still unwilling to cooperate, then you may need to seek legal counsel or representation.

Kellman replies:

Certain association records should be made available to condo owners. The bylaws usually set forth the procedure for access to these records. It is very suspicious that your records are being concealed behind the attorney-client privilege.

This privilege protects communications, including writings, between an attorney and his client. Routine association and accounting records should not fall into this category unless there is some ongoing litigation with the condo association (not uncommon these days).

It is certainly unfair and improper to have an attorney handy to “communicate with” about the records to cloak them from view by those entitled to such a view. If the bylaws do not have a procedure to resolve your dilemma, the courts certainly may oblige you.

$500 Rent Hike Shocks Tenants

Q: Recently our one-year fixed-term lease was due to expire, and we had some casual conversations with the owner about staying. She wanted us to sign a new one-year lease and we wanted to convert to a month-to-month tenancy. Four days before the end of the lease term, the owner sent us written notice of a $500-per-month rental increase.

We were shocked and immediately contacted the owner, who informed us that she needed the security of having a long-term tenant. She said we could keep our old rental rate if we would just commit to the one-year lease. We were firm in our position as well and paid the additional $500 at the same time we provided our written 30-day notice.

We are no longer there, but this just doesn’t seem right. Can the owner do this?

Smith replies:

There is no legal requirement that a lease be extended. Unless arrangements are made to continue, you must vacate the premises at the end of the lease. Furthermore, once a lease expires, the landlord has the right to raise the rent, and there is no legal upper limit on the amount of the increase. A landlord’s verbal promises may be worth some weight in court, but you would have a tough row to hoe in trying to prove a binding oral agreement not to raise the rent.

That $500 rental increase four days before the expiration of the term? That wouldn’t be valid for 30 more days. You could have legally paid the old rate for the month immediately following the expiration of the lease. Once the 30 days elapsed from receipt of the written notice of the increase, you would have had to pay the increased rate or vacate the premises.

Kellman replies:

Though I commend you on your dedication to principle, your actions may not have been in your own best interests. The long-term lease usually confers more benefits to the tenant than to the landlord. Many landlord attorneys will recommend only month-to-month tenancies to their clients for just that reason.

In a lease, the tenant gains important protection against the 30-day notice to evict, which may be served any time in a month-to-month tenancy but not in a tenancy with a lease. Also, the rent cannot be raised during the lease period if it is specified for the term in the lease. In a month-to-month tenancy, the rent may be raised at any time and for any amount (with certain exceptions like subsidized housing and mobile homes). In this market, with rents on the rise, a lease with a fixed rent would be ideal for most tenants.

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This column is written by property manager Robert Griswold, host of “Real Estate Today!” (KSDO-AM [1130], 10 a.m. to noon Saturdays), and attorneys Steven R. Kellman, director of the Tenants’ Legal Center, and Ted Smith, principal in a law firm representing landlords.

If you have a question, send it to Rental Roundtable, Real Estate section, L.A. Times, 202 W. 1st St., L.A., CA 90012. Or you may e-mail questions to rgriswold.latimes@retodayradio.com. Questions cannot be answered individually.