Q: I’ve been told it’s important to update leases with existing tenants. Why does it matter? How is it done? How often should it be done?
A: Even with careful and prudent planning, it is not always possible to anticipate all the changes that may arise in a tenancy, especially over a long period of time. A rental property owner’s relationship with their tenant may become loose and casual as trust grows, or become more rigid and formal as conflict rises. Capital improvements or even changes in technology may allow an owner to provide brand new services that were not contemplated when the lease was signed. If a term of the tenancy becomes a point of legal dispute between the owner and tenant, the court will generally start with the written agreement as part of its analysis, but it will not end there. If the terms of the agreement do not match the actual behavior of the parties, the court will also take the actual pattern and practice of performance as key evidence to help construe, as a legal matter, what the agreement actually was. For example, suppose a landlord routinely accepts rent on the 15th instead of the 1st, as stated in the agreement. If the landlord issues a 3 Day Notice to Pay Rent or Quit when the tenant fails to pay rent on the 1st, a court may rule the notice invalid, because the owner’s own behavior contradicts their own contract, and therefore the owner cannot rely on the written agreement to establish the rent payment schedule. To avoid confusion, either in court, or just between owner and tenant, it is good practice to update your agreement with your tenants whenever a change is necessary, either to codify an existing practice not mentioned in the agreement, or clarify a change in practice from how it was originally stated. This is done through a “Notice of Change in Terms of Tenancy”, delivered to the tenant, which clearly sets forth what the change is, and when it becomes effective. Under California law (CC § 827), the terms of a tenancy may be changed by the landlord by giving written notice to the tenant at least as many days in advance as the term of the tenancy rental period. For a standard month-to-month rental agreement, that is at least 30 days’ written notice. However, this means that fixed-term leases cannot be modified unilaterally by the landlord before they expire, since the notice period would be at least as long as the original rental term before the modifications take effect. Instead, the landlord should obtain the tenant’s consent to modify the lease with an amendment or addendum, and have both parties sign it. If the tenant signs off on the change as a lease amendment or addendum, no additional notice is required, and is effective immediately. Before any change, review the agreement carefully to ensure that the agreement does not include any terms special procedures for notice or modifications. In Oakland, any notice of change of terms of tenancy should be accompanied by a Rent Adjustment Program (RAP) notice, available online from the Oakland Rent Board. In addition, with the recent passage of Measure JJ, modifications to increase rent for any reason other than a CPI increase or banking, served on or after February 1, 2017, must first be approved by Rent Board petition. Once the notice is effectively served on the tenant, the notice itself becomes a binding term of the agreement, without any further actions. For changes of terms of tenancy not relating to rent, the notice may be served personally on the tenant, or by posting on the premises, accompanied by mail. For increases of rent less than 10%, the notice may be served personally, or by mail, with a 5 day extension of the effective notice date (35 days). For increases of rent greater than 10%, the notice must be given an additional 30 days in advance (60 days), and may be served personally, or by mail, with a 5 day extension of the effective notice date (65 days). Note that posting notice on the premises is NOT sufficient for notices of rent increases, and that any mailed notice must have a notation of the date and place of mailing, or be accompanied by an unsigned copy of the affidavit or certificate of mailing. See California Civil Code §1013 for details on the methods of mailing notice. Keeping leases and rental agreements up to date is as much a form of maintenance as inspecting your roof or your foundation. If you rely on an agreement that does not match the patterns and practices that you have renting your property and supplying your services, it will not shelter you when the legal storm comes. As an owner, take advantage of your ability to set the terms of tenancy to ensure that they will be ready to work for you when you need them.
Copyright © 2016 by Fried & Williams LLP. All Rights Reserved. The information in this article is general in nature and should not be considered legal advice. For any specific matter, please consult with an attorney.