Tenant in foreclosed home in Calif has a lease with multiple extension options...at below market rent


#1

A house I am interested in is occupied by a very nice 90 yr old lady whose son negotiated the lease for her. As a commercial broker, he included in the lease 5 extension options, each for 2 years. She has exercised the first option to extend. The rent is fixed at $1500/month…and the market is at $2800-3200/month for that size/type house.

The current lease term (under the first extension option) is through March 2013. I understand the lease will remain valid until then, but what is the legal validity of the options to extend? Do they continue to be valid?

I can live with the tenant until Feb 2013, but will try to buy her out of the lease before then. If that effort fails, can the tenant continue to demand the lease be honored through multiple options to extend?
Thanks.


#2

Hmm. Good question. Outside of my field of expertise. One question to ask - I “think” long term leases may have to be recorded to be valid - but I’m not sure.
Also, is there a term limit under the “tenant protection” law? I can’t see if someone had a 2 or 3 or more year lease would be able to stay for a period of years.


#3

OK. What I was thinking was a lease of over one year has to be in writing. It does NOT have to be recorded.


#4

To be a bona fide lease under the Protecting Tenants at Foreclosure Act, the rent $ needs to be at “fair market;” the tenant can’t be an immediate relation; and the lease must be a product of an arm’s length transaction (i.e. no special deals for friends).

In your case, it would seem that you could challenge the lease on the “fair market” provision. Your tenant’s rent is evidently below market. However, the term “fair market” is nebulous (whim of a judge) and I would not want to challenge this in court vs a 90-year-old tenant. But the multi-year extension options may make it necessary to dispute the “fairness.” Probably best if you can work a lease buyout deal with the tenant. Given the age of the tenant, I would advise involving the tenant’s son in any such negotiations.

The PTFA also has a provision which nullifies a tenant’s lease when a new owner is “moving in” to the property (occupying as a primary residence). But unless you legitimately want to move in and live there, I wouldn’t try to exercise that escape route. Instead, I would explore a lease buy out negotiation.

http://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/ptfa.pdf

The protections of this law apply to tenants under a ?bona fide? lease or tenancy. A lease or tenancy is ?bona fide? only if:
(1) The mortgagor or a child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) The lease or tenancy was the product of an arm?s-length transaction; and
(3) The lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized due to a federal, state, or local subsidy.