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Q&A Regarding Lease Lengths

Q. Is it legal to reject a new tenant because he only wants to rent the unit for one year? I would prefer a minimum two-year lease agreement.

A. A landlord is generally entitled to decide how long they wish to rent their property, whether month-to-month, year-to-year, or for longer periods. It is possible for local ordinances to impose a specific rental obligation, such as in the City of Alameda, which requires every tenant to be offered a one-year lease at least once, but this obligation has not been adopted in San Francisco.

Landlords should consider for themselves what length of tenancy best suits them. Month-to-month tenancies give the most flexibility, whereas longer tenancies offer the stability of relatively reliable long-term income and fewer turnover costs. From a tenant’s perspective, a long-term lease sacrifices flexibility by offering a promise that the landlord won’t terminate the tenancy on short (30/60 day) notice.

Eviction controls upend this calculus by allowing month-to-month tenants to keep the option to vacate on short notice and the security that landlords will not unilaterally terminate their tenancies. This confers much of the benefit of a long-term lease to short-term renters, and accordingly makes long-term leases typically disadvantageous to landlords.

Since eviction controls tend to make even month-to-month rentals into long-term tenancies, the main difference with a long-term lease is that a year-to-year lease is harder to change than a month-to-month lease. For instance, if a landlord wanted to remove an attorney’s fees provision from a year-to-year lease, the landlord would have to give a year’s notice in advance of the change, whereas a month-to-month tenant would only get 30 days’ notice. Similarly, a landlord with a tenant on a two-year lease would not be able to terminate the tenancy for an owner move-in until the existing two-year tenancy expired.

On the other hand, a tenant who signed a two-year lease and vacated after 18 months would be liable for the remaining balance of unpaid rent, except that a landlord would be obligated to try to re-rent the unit as quickly as reasonably possible to mitigate the damages of the early breach. By then, the absconding tenant may have disappeared without recourse, or have few assets to attach. Usually, most of the value of a residential tenancy is in the property itself, not the value of the occupants.

The San Francisco Rent Ordinance does allow landlords to evict tenants at the end of a fixed-term lease, but only if the landlord offers another lease of “like” duration and under terms that are “materially the same” as the prior lease, and the tenant refuses. This requires the landlord to strictly adhere to a year-to-year (or more) renewal schedule with their tenants, never rolling over to month-to-month, and always offering leases that are substantially the same each and every time. These inflexible requirements are seldom, if ever, practical, and still give tenants all the decision power in the exchange.

Shorter tenancies may mean more screening and more turnover, but they also create opportunities to adapt and update your rental agreements to suit current market conditions. Relying on a long-term lease to guarantee income may miss the mark if the damages for vacancy are offset by being able to re-rent the property at a higher monthly rate. However, if rents are declining, or if the premises is difficult to keep occupied, then a longer-term lease may offer better protection.

This Q&A was originally featured in the SFAA Magazine February 2019 Issue.

© 2019 by Fried & Williams LLP. All Rights Reserved. The information contained in this article is general in nature. For advice on any particular matter, please consult with our attorneys because the facts of your situation may be unique and the law changes from time to time.

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