the property management shop

by Marc Wilson

Q. We have an apartment unit, which we rented four years ago to three students. Every year, two of the three tenants move out and are subsequently replaced by new tenants. The paperwork is killing us: 6.14 notices, keeping track of occupants, etc. We didn’t sign up for all of this work! What should we do?

A. At one time or another, most of us sign up for managing revolving tenancies. We sign up when we either purchase a unit with perpetually revolving tenancies or when we voluntarily create such a tenancy. You know what I am talking about. Remember? You tried to get the highest possible rent for your five-room flat, and the only applications you received were from groups of three or four single people. If you had a lower asking rent, you would have received some applications from married couples, two-person occupancies and maybe even a single occupant. Most of us knowingly create revolving tenancies because of the higher rent; whether it’s actually worth all of the trouble is another discussion all together (by the way, it’s not). The short answer to your “Do we really have to do all of this?” question is “yes.” It usually doesn’t pay to originate revolving tenancies, but it always pays to manage existing revolving tenancies. I am constantly reviewing tenant files, either in a real-estate brokerage or management capacity, and the most consistent short-comings are related to the management of revolving tenancies.

You have three simple goals when it comes to managing revolving tenancies: you want to achieve market rent the split second that your last original occupant vacates the unit; you want your tenant file to be abundantly clear as to the occupancy status of the unit at all times, with no ambiguity as to who is in possession and what, if any, the occupants’ rights are; and you want to do these things while expending the least amount of time and energy. Like most issues in this business, the key lies in reducing all tenant communications to writing. There should be no verbal communication when it comes to revolving tenancies.
Here’s how it goes: You rent your flat to original occupants A, B and C. Much later, tenant A calls and says that C is moving out and will be replaced by D. Simply tell the tenant that absolutely all information regarding vacating tenants, proposals for new occupants, etc. must be in writing. Ask your tenant to place each and every detail in writing and get it to you as soon as possible. Upon receipt of the tenant’s letter, you send my standard revolving tenancy package. This package contains three parts: a cover letter, a subsequent occupant (with greatly reduced rights) application and a 6.14 notice.

The cover letter basically focuses on three points. First, I appreciate the fact that you contacted me regarding this issue. As you are aware, moving a subtenant or subsequent occupant into the apartment without my written consent is a breach of the rental agreement, which could result in the termination of your tenancy. Please instruct the vacating occupant to mail me a notice of intent to vacate. Second, if you want me to consider your new roommate/subsequent occupant, please have the proposed occupant complete the enclosed application and sign the application and associated 6.14 notices. Please have the applicant enclose a photocopy of their picture I.D. Please mail these documents back to my office. Upon receipt of these signed documents, I will inform you of my decision. Third, you should be aware that any approved subsequent occupant will not have a landlord-tenant relationship with the management of the property. This means that no rent will ever be accepted from the new occupant and any communication of a non-emergency nature should take place only between you (an original occupant) and my office.

The subsequent occupant application is a basic request for information: rental history, employment, authorization for credit check, etc. This document plainly states that, “the undersigned acknowledges that this is not an application for original tenant status. The undersigned is applying for subsequent occupant status. Subsequent occupant status entails greatly reduced tenancy rights. You will have no non-emergency communication with the management. You will have no right to tender rent payments directly to the management. Your rent will be increased ‘to market’ or you will be asked to vacate at the management’s sole discretion when the original occupant vacates.” Are you starting to get the picture? This is not a normal tenancy. This is a tenancy with greatly reduced rights.

Many attorneys frown on owners having this kind of interaction with proposed subsequent occupants. They are anxious that an owner will inadvertently grant original occupant status to a subsequent occupant just by virtue of accepting an application or some other equally risky interaction (like accepting a rent check, accepting verbal or written repair requests or, God forbid, exchanging pleasantries in the hallway). Many attorneys advocate the simple service of a 6.14 notice and then closing the file. I don’t think that’s enough. I want the new occupant’s written agreement to subsequent occupant status; in other words, I want their agreement to a virtual second-class tenancy. The San Francisco Rent Board is absolutely awash with tenants insisting that they never received a 6.14 notice, that they didn’t understand the notice or that the owner has waived his rights. It’s absolutely nauseating. They should just say what they mean: “I don’t want to pay market rent!”

Believe me when I say that no one will argue with the tone, tenor, intent and enforceability of my revolving tenancy package. When your tenant approaches you about exchanging roommates, your tenant is asking you for something: your approval of a new subsequent occupant. At this juncture, your tenant and the proposed subsequent occupant are in the mood to sign just about anything and everything because they want something from you. Why not take this opportunity to have them permanently sign away their rights?

The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Marc Wilson has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275.If you are interested in receiving the revolving tenancy package discussed in this article, email wilsonproperties@aol.com. Copyright © 2008 by Black Point Press. All rights reserved.