Navigating the Complexities of Selling Tenant-Occupied Property in California

In the realm of real estate, selling tenant-occupied property in California has evolved into a carefully navigated process filled with potential pitfalls. Gone are the days when owners could easily terminate a tenancy to ensure a vacant unit at closing. With the introduction of complicated landlord-tenant laws and changes fueled by the COVID-19 pandemic, it has become essential for sellers and agents alike to adopt conservative risk management strategies. Donny Piwowarski, a seasoned real estate expert with extensive experience in this field, has successfully sold hundreds of tenant-occupied properties while minimizing liability issues for his clients.

Understanding Tenant Rights and the California Residential Purchase Agreement

To begin, it’s important to note that the California Residential Purchase Agreement (C.A.R. Form RPA) has undergone significant revisions to address the complexities of tenant-occupied sales. Indeed, the prior guarantee of occupancy at closing has been removed. Today, sellers are now only required to make “good faith attempts” to vacate tenants before closing. If unsuccessful, liability is limited to reimbursement of specific costs for the buyer, such as appraisal and inspection fees. This shift emphasizes the necessity of including the Tenant Occupied Property Addendum (C.A.R. Form TOPA) to clarify these obligations.

As an owner-investor himself, Donny Piwowarski understands the nuances of these agreements deeply. By ensuring that the TOPA is attached to the RPA, sellers can significantly reduce the burden of liability. Without this addendum, sellers remain obligated to present a vacant property at closing, risking financial repercussions if they cannot fulfill this requirement. Adaptation to this new landscape is not merely strategic; it's essential for a successful transaction and peace of mind.

The Implications of the Tenant Protection Act

Furthermore, the enactment of the Tenant Protection Act (TPA) has created additional hurdles for property owners. This law specifically outlines just cause eviction rules, restricting the grounds on which a tenancy can be lawfully terminated. Surprisingly, selling a property is not a valid reason under the TPA; thus, owners must navigate their options carefully. Properties deemed exempt from the TPA, such as single-family homes or condominiums not owned by corporations, can offer some flexibility, but only if the appropriate exemption notice is included in the rental agreement.

In this context, using the Rent Cap and Just Cause Addendum (C.A.R. Form RCJC) is critical. If the necessary box is checked, an owner can regain pre-TPA eviction powers, enabling termination for legitimate reasons. However, many property brokers encourage a cautious approach to initiating termination procedures, as non-compliance can lead to increasingly severe penalties, including triple damages and attorney fees. Consequently, mitigating risks through negotiation tools, such as cash-for-keys agreements, becomes advantageous, allowing landlords to approach problematic tenants without the threat of litigation.

Handling Hostile Tenants and Making Informed Disclosures

In light of these regulations, how should property owners proceed when faced with hostile tenants? While prior consent via legal notices can facilitate access to showings, uncooperative tenants can complicate the sale process. If the tenant resists all efforts for access, the seller must weigh their options: evicting the tenant prior to sale or marketing the property with current tenants in place. Regardless of the decision, adapting to the complexities of this landscape is essential for guiding clients effectively.

Moreover, even when transcendental challenges arise, compliance with disclosure requirements remains a crucial aspect of selling tenant-occupied property in California. The TOPA provides comprehensive disclosure details, requiring owners to furnish a complete account of all current leases and rental agreements. As part of this process, shared knowledge and insight from seasoned professionals like Donny Piwowarski, who owns his property management company, can be extremely beneficial for navigating the complexities of tenant relationships and legal requirements.

By ensuring adherence to TPA and disclosing all pertinent details, sellers can not only avoid liability issues but also foster productive relationships with tenants and potential buyers alike, ultimately leading to smoother transactions and successful outcomes.