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REAL ESTATE Q & A

Can the New Apartment Owner Raise Rent During Tenant's Lease?

March 26, 1989|ROBERT J. BRUSS

QUESTION: Last year, I signed a two-year lease for my apartment. The landlord agreed to give me a 10% rent discount in return for my prepaying my rent for the two years. Recently, the building was sold, and the new owner says my lease doesn't apply to him because it was not recorded. He has sent me a rent raise notice, which I think is invalid. When the sale closed, the new owner received the amount of my prepaid rent from the previous owner, so he should have no complaint. In addition to the 10% discount, my rent is about $50 a month lower than comparable apartments. Can the new landlord raise my rent for the remainder of my lease?

ANSWER: No. Valid leases are binding on the new owner of a property. Recording a lease is not required to make it applicable to a new owner. If the rule were otherwise, a landlord could get out of a lease just by selling the building so that a new owner could raise the rent or evict an uncooperative tenant.

I suggest that you retain a real estate attorney to write the landlord a letter explaining your lease is binding on the new owner and he must honor it without any increase in rent until the lease expires. If the landlord carries out his threats, your attorney might have to get an injunction to stop him, but I doubt that will be necessary after it becomes apparent you know the law.

Can a Lease-Option Be Assigned to Seller?

Q: We leased a home with an option to buy. Everything is going great, and each month we get a 50% rent credit toward the down payment. However, we have decided not to exercise the option as we have better job opportunities that will require our moving out of town. However, my brother would like to take over our lease-option, including the down payment credit. But the landlord says the lease-option cannot be assigned. There is nothing in the agreement either allowing or prohibiting assignment. Can we assign the lease-option to my brother who will pay us $2,000 for the assignment?

A: Consult a real estate attorney. The general rule is all contracts are assignable unless prohibited by the contract terms or there is a "personal service" element, such as extension of credit by the seller based on your income and favorable credit history.

To illustrate: If the landlord agreed to finance your purchase of the house by carrying back a second mortgage when you exercise the option, that might make the contract non-assignable. However, if there is no seller financing involved and if there is no prohibition against assignment, the lease-option probably is assignable without the landlord's permission.

IRS Says Your Labor Has No Tax Worth

Q: We recently purchased our first investment property, a rather run-down house that needs lots of work. However, we got "a real steal deal," so we can't help but make money. My husband is very handy and plans to do most of the work in the evenings and on weekends. We estimate the materials will cost about $10,000, but how do we value his labor when we calculate our cost basis for income tax purposes?

A: The IRS considers your husband's labor to be worthless for tax purposes. You can add the $10,000 materials cost to your investment property's purchase price, but you cannot add anything for the time and labor your husband will spend on the project.

It is usually best to hire out improvement work rather than do it yourself. Although I once painted every apartment in my nine-unit building because I couldn't afford to hire painters, I would have been much better off borrowing the money to pay professional painters. Another benefit of hiring workers is that the job is usually completed faster and more professionally than when the owner does his own work.

Financing Rural Land Sales Can Be Difficult

Q: Two months ago, we contracted to buy 24 acres of rural land where we want to build a home and perhaps do a little farming. We are having trouble getting a mortgage although we are making a 20% cash down payment. The farmer, age 85, says he is too old to carry back a mortgage. We don't want to lose our $1,000 earnest money deposit. Where can we get a mortgage?

A: Few if any lenders will make mortgage loans secured by rural land. I don't know of any who will loan the 80% loan-to-value you need.

Most sales of small parcels of rural land, like yours, are financed by the seller. However, you might consult mortgage brokers in nearby towns to see if they know of any lender who will make the loan you need. But you should expect the interest rate to be high and the term will probably be short, not more than five years.

Why Local Residents Often Miss Best Buys

Q: I live in a growing town where most of the real estate is being developed by out-of-towners. As a longtime realtor, this greatly concerns me. For example, about two years ago, a mid-size shopping center was built by a New York developer who managed to get the rezoning that local people couldn't get. What can we do to stop these realty bargains being taken over by outsiders?

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