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Tenants Secure Passage of Law Limiting Owner’s Ability to Take Away Services and Amenities

Effective July 27, 2006, the San Francisco rent law is amended to provide that a landlord may not take away a tenant’s use of garage facilities, parking facilities, driveways, storage areas, laundry rooms, decks, patios, or garden access without “just cause.” This list is extended to kitchen facilities and lobbies in single room occupancy (SRO) hotels. Where such a severance does occur, the tenant is entitled to a reduction in base rent.

Why This Law Was Passed

Since the adoption of San Francisco’s rent and eviction control ordinance more than 27 years ago, owners were severely restricted as to how much rents could be raised and whether a tenant’s tenancy could be terminated. The current law states that a tenancy can be terminated by the owner for only 14 “just cause” reasons. Some of these grounds call for a temporary suspension of the tenancy, with the landlord having to re-offer the unit back to the displaced occupants. Others, like the Ellis Act and the Owner/Relative Move-In provisions, place onerous restrictions on the landlord’s subsequent use of the property. Yet under all of the just cause reasons, the landlord must serve a detailed eviction notice and, if the tenant does not vacate after the notice period expires, file a court action; if the litigation is successful, the tenant must surrender the entire unit.

Over the years, owners, many of whom were new purchasers, faced the dilemma of having to change the terms of a tenancy by removing an occupant from a garage space or storage area. In these instances, possession of the entire rental unit was not sought, and the tenant was welcome to remain in occupancy of the actual apartment with a reduced rent. For example, a purchaser of a four-unit building might have to reclaim a parking stall for his personal use from a tenant who was not displaced by an owner move-in but, nonetheless, had control over a garage area that the new ownership wanted to use exclusively. Under state law, the landlord would simply serve the tenant with a thirty day notice changing the terms of the tenancy. Local regulation further required that the landlord reduce the tenant’s rent in proportion to the value of the service being withdrawn. The Rent Board provided a forum to adjudicate these rent decreases in the event the parties could not reach an agreement.

Sometimes, a tenant would not consent to relinquish the parking/storage space, thereby prompting the landlord to file an eviction action for the just cause of breach of lease agreement that, if successful, would terminate the tenant’s tenancy and award the landlord possession of the entire rental unit, even though the landlord simply wanted to change the extent of housing services being enjoyed by the tenant. As such, for most landlords, employing a “just cause” for eviction was a method of last resort when the tenant refused to cooperate.

Then, about ten years ago, certain superior court judges began a pattern of denying landlords the ability to evict a tenant simply because the tenant refused to relinquish a service. Oftentimes, the court’s rationale was that a parking space or garage in San Francisco is tantamount to a kitchen or bathroom, and therefore it could not be forcibly withdrawn unless the landlord had just cause to terminate the entire tenancy under the rent law. These decisions added to the uncertainty that consistently pervades property ownership in San Francisco: While state and local law, and even the Rent Board, seemingly permitted a landlord to withdraw these incidental services of tenancy provided a fair reduction of rent was offered, an owner forced to take the matter to superior court faced a judiciary that was less sympathetic.

Thus, in an attempt to stop owners from interfering with housing amenities, tenant groups lobbied Supervisor Mirkarimi to pass legislation that would, once and for all, eliminate the owner’s ability to withdraw services. The public policy argument used to justify this proposal was the assertion that many speculators and tenancy-in-common (TIC) developers were buying buildings and then forcing tenants to vacate by taking away their parking, storage, and use of gardens and patios. In these situations, it was argued, tenants would not want to stay in an environment where they were once afforded the ability to park and store their belongings, and instead opt to move elsewhere. In addition, tenant advocates pointed to instances where elderly, disabled, or otherwise vulnerable tenants were displaced when a new owner withdrew these services and thereby made continued occupancy virtually impossible, as parking for an elderly tenant or garden use for someone who is ill may be a crucial component of the tenancy rather than just an incidental luxury. While there are no known statistics or findings to verify these beliefs, the majority of the Board of Supervisors felt compelled to take action.

The Legislative Process

The initial legislation that was proposed, and passed on first reading by the Board of Supervisors, was extremely restrictive and potentially devastating to the landlord community. The submitted draft suggested that an owner could not under any circumstance interfere with parking, storage, or any access to common areas, including lobbies and patios. This meant that owners doing remodeling or extensive work on their buildings would be subject to a wrongful eviction lawsuit, as taking away such amenities without a required just cause would be unlawful without question. Indeed, any perceived interference in the tenant’s service, whether it is an inconvenience caused by scaffolding or a temporary withdrawal of a deck for improvement work, would have been illegal. Moreover, since many of these owners would not be Ellis Acting the building or withdrawing the offended tenant’s unit by way of an owner or relative move-in action, there could be no just cause to justify the withdrawal, thereby placing the landlord community in a quagmire.

Fortunately, your industry leaders at the San Francisco Apartment Association, Coalition for Better Housing, and other related organizations sprung into immediate action. The first stop was the Mayor’s Office, where Mr. Newsom and his staff paved the way for a series of consultations with Supervisor Mirkarimi. The second leg was meeting with Supervisor Mirkarimi and his assistants. The Supervisor was receptive, and he understood the dilemma created by his new law: Owners would effectively be prevented from improving their property. Thus, during the second reading before the Board of Supervisors, the language in the law was modified. More importantly, with the assistance of Supervisor Sean Elsbernd, a legislative intent statement was read into the record, thereby establishing that the law was not meant to deter improvement projects and capital rehabilitations. Although the ordinance amendment is still vague and potentially over-reaching, there is now a real possibility that it can be implemented with legislative guidance that addresses the ambiguities.

Unanswered Questions

However, there are certain aspects that require clarification. For starters, the legislation still states that “just cause,” as defined by the rent law, is required before garage facilities, parking facilities, driveways, storage spaces, laundry rooms, decks, patios, or gardens can be severed from the tenancy. The housing industry has maintained that the narrow definitions, and onerous requirements, of the Rent Ordinance’s just causes are much too restrictive to constitute the sole justification for withdrawing or altering tenant housing services. Moreover, many owners do not want to terminate a tenancy simply to gain partial or full control over a common area or tenant amenity.

In response, the landlord commissioners on the Rent Board have expressed their intent to adopt Rules and Regulations that expand the definition of “just cause,” when applied to removing or altering tenant services, beyond the current eviction parameters. The motivation to pursue this amendment will hopefully be shared by the tenant side, for without amendment, owners who need parking and storage, or simply want to remodel common areas, may be forced to terminate the entire tenancy, as you cannot relegate an owner move-in to a storage area or Ellis Act the parking garage only.

In addition, there will undoubtedly be legal challenges to this legislation, as state law permits an owner to change the terms of a tenancy after expiration of the initial lease term. If an owner is prevented from altering the size of a laundry room, or cannot re-allocate storage space so as to improve the fire safety of the basement, the integrity of this rent law amendment may come before the California Court of Appeal, or perhaps even the California Supreme Court. Incidentally, throughout the legislative debate, the Supervisors were presented with a myriad of situations where a well-intentioned owner would be lawfully prohibited from actually improving the apartment house because of an inability to re-define and re-assign tenant services. And to compound the inequity, is it fair to subject such owners to wrongful eviction lawsuits simply because incidental and minor changes to a building are implemented? Clearly, such a result would be patently unfair and unproductive.

Conclusion

The housing industry cannot dwell on why this legislation was passed. To the contrary, our advocates should be complimented for successfully engineering crucial changes to the legislative text that, if not implemented, would have resulted in a far more onerous creature than what is now in effect. Instead, the focus must be on working with the Rent Board Commissioners to adopt rules and regulations that respect the new policy prohibiting the unilateral withdrawal of certain amenities, but at the same time allowing the situations where an owner must change a service of an existing tenant for the benefit of the building. The tenant community should also acknowledge that forcing a landlord to invoke a just cause ground for termination of the entire tenancy in order to modify a service will inevitably result in more tenant displacements from housing. Therefore, there are compelling motivations on both sides to ensure that implementation of this law is fair, just, and sensible.


Ask an Attorney Questions for March Perspectives

Question: If a person with a disability wants to move in to one of our rental units (i.e. a person in a wheelchair) are we responsible for installing the bars in the bathrooms, wheel chair ramp, or any other needs at our expense?

Answer: You are required to allow the resident to make the modifications at the resident’s expense. You may also require the resident to pay to have the unit restored to its original condition, unless the modifications would be of use to any resident.

Question: I just served a Three-day Notice to Pay or Quit. Does the three days include weekends or just business days? If the tenant moves within the three days still owing rent, what is the next step?

Answer: If the three-day notice expires on a weekend or holiday, the period is extended to the next business day. This means that if the third day is Saturday, the resident may still pay rent on Monday, and if it is not paid, an unlawful detainer action may be filed on Tuesday. If the resident moves out and the security deposit is not sufficient to cover outstanding rent and damage to the unit, you may file a small claims court action to recover any additional amounts you are owed by the tenant. You must still provide the itemized disposition of security deposit within 21 days after you have regained possession of the unit.

Question: Does the Owner/Landlord have to provide Rental Agreements in other languages if the Tenant is non-English speaking?

Answer: California law only requires the provision of a contract, i.e., the rental agreement, in Spanish, Tagalog, Chinese, Vietnamese, or Korean, if the contract is negotiated in that language. If you negotiate in English, you may provide the contract in English.


My elevator needs servicing and will not be accessible for two weeks. My top-floor tenants are wheelchair bound. How should I address the situation with them?

This is potentially a very serious situation. Normally, the withdrawal of the elevator service for two weeks would entitle non-disabled tenants to seek a rent reduction for a decrease in housing services. The owner should, in that instance, allow a reasonable rental rebate for the inconvenience so as to avoid a Rent Board hearing for decrease in housing services without a corresponding decrease in rent.

However, in this case, the tenants are wheelchair bound, so the withdrawal of the elevator effectively precludes them from meaningful access to their unit. Therefore, the landlord must meet with the tenants well before the anticipated date of closing down the elevator and inquire as to how the tenants wish to be accommodated. Most certainly, the tenants will need to be provided with alternative housing. This substitute lodging could include an empty unit on the first floor of the landlord’s building, but in all likelihood would entail a hotel with full disability access. The owner must give serious thought to ensuring that the tenants are placed into acceptable lodging during the two-week period, and the costs associated with the replacement housing should be borne by the owner.

Failure to make this offer of replacement housing could subject the owner to a claim of constructive and wrongful eviction. If the tenants cannot access their unit because the elevator service has been terminated, they have been deprived of the use of their rental unit. Even though the owner may be acting properly by servicing the elevator, a wheelchair bound tenant has no realistic ability to enter and exit the dwelling during this work. Thus, the landlord is obligated, both legally and ethically, to provide reasonable accommodations.

Paying for the substitute hotel room is a matter of courtesy and would probably be ordered if the tenants sued the landlord. The disabled tenants are able to live in a multi-story building because of the elevator. Without this service for an extended period of time, they have no ability to use their home. Thus, they will be greatly inconvenienced by having to relocate for two weeks, and a good landlord will minimize this stress and hardship by paying for a clean and comfortable place to live until the elevator is running again.

DW


Warning About Rent Incentives

A recent ruling by the San Francisco Rent Board held that a rent reduction granted by a landlord to a tenant will be amortized over a twelve month period and will permanently reduce that tenant’s base rent. The upshot of this ruling is that:

LANDLORDS CAN NO LONGER GIVE ANY TYPE OF RENT CONCESSION FOR TO DO SO WILL HAVE THE EFFECT OF PERMENTLY REDUCING BASE RENT AND ANY RENT INCREASE IMPOSED ON ANYTHING OTHER THAN THAT REDUCED BASE RENT WILL BE UNLAWFUL.

THIS INCLUDES GIVING ONE OR MULTIPLE MONTHS FREE AT THE INCEPTION OF THE LEASE OR DURING THE LEASE TERM AS WELL AS GRANTING A REDUCTION IN RENT AT THE REQUEST OF A TENANT WHO IS EXPERIENCING FINANCIAL HARDSHIP AND CANNOT PAY FULL RENT.


If a neighbor’s tree is blocking the ocean view to three adjacent buildings, do these neighboring owners have the right to have the tree removed or trimmed at the tree owner’s expense?

The answer to this question depends upon where the properties are located. In a recent court case coming out of Tiburon in Marin County, owners of an apartment building sued their neighbors under a Tiburon law to compel restoration of their views. The ordinance, entitled “View and Sunlight Obstruction from Trees,” grants property owners “the right to preserve and seek restoration of views or sunlight which existed at any time since they purchased or occupied a property, when such views or sunlight are from the primary living area or active use area and have subsequently been unreasonably obstructed by the growth of trees.” In addition, “[n]o person shall plant, maintain, or permit to grow any tree which unreasonably obstructs the view from, or sunlight reaching, the primary living area….” Owners of neighboring parcels who violate this act may be ordered to trim, thin, top, or even remove their offending trees.

The California Court of Appeal upheld this legislation, declaring that local governments may protect views and provide for light and air. See Kucera v. Lizza (1997) 59 Cal.App.4th 1141. However, the Court also noted that California law in general does not recognize a landowner’s right to air, light or an unobstructed view. In other words, absent some specific city or county ordinance, a landowner may not have the right to compel a neighbor to trim trees that obstruct a view.

In a more recent case from Southern California, the Court of Appeal considered a similar voter-approved ordinance that limited the height of foliage on residential property so as to preserve hillside views. A property owner who was required to trim eight of his trees sued the City of Rancho Palos Verdes. In siding with the city, the Court held that the purpose of this law represented a legitimate exercise of traditional police power. See Echevarrieta v. City of Rancho Palos Verdes (2001) 86 Cal.App.4th 472.

Northern California jurisdictions that have adopted some form of Tiburon’s view law include Albany, Atherton, Belvedere, Berkeley, Carmel, Fairfax, Hayward, Hillsborough, Lafayette, Livermore, Los Altos, Napa, Oakland, Orinda, Piedmont, Ross, San Anselmo, Santa Clara, and Walnut Creek. Noticeably absent from this list is San Francisco. Oddly, the town with the best views in the world lacks a specific ordinance that would compel owners to keep their trees trimmed. However, with regard to construction, the City’s Planning Department may place appropriate conditions on the approval of a building permit to protect the light, air and view of adjacent properties. Specifically, the City has prevented erection of large rooftop antennae, such as satellite dishes, when these objects pose a threat to neighboring properties’ views. Yet without a specific tree-trimming law on the books, the owner with an obstructed view may have to rely on kindness instead of the courts.

DW


“Us and Them”

As we approach our ninetieth birthday, we should reflect on why the SFAA is unique and distinct from the other “property rights” groups in our community. Indeed, we are not alone: Both in the City as well as the region, there are competing landlord organizations and apartment associations striving for your membership. The SFAA can neither ignore, nor disregard, the fact that it must share the pond with other fishes. Thus, the inevitable question posed on the eve of this celebration is what makes us unique from these other apartment associations, and are we the most deserving of your membership dollar?

Some will argue that the SFAA is not aggressive enough in the effort to strengthen and restore property rights. This contingency claims that a better SFAA would be unyielding in its position, seeking absolute abolishment of rent control without any serious recognition of the enormous and powerful tenant lobby in both our local and state electorates. To them, the war is a simple “black and white” battleground.

While I can understand the genesis this viewpoint given the ongoing erosion of basic property rights, I could not disagree more with those who advocate for such a hard line political stance. Rather, I see SFAA’s primary strength as its ability to craft compromises and settlements in order to avoid catastrophic legislation and rulings. If anyone believes that the environment cannot worsen for us, please think again. Many never see, or conveniently ignore, the “proposed” or “almost passed” laws, and instead choose to focus on the end result. Consequently, these critics attribute any pro-tenant bill to an inability to succeed at City Hall or at the Capitol. Such presumptions belie reality.

What should be lauded is SFAA’s ongoing ability to work with almost every Supervisor, and to garner the respect of just about everyone at City Hall. This hard-earned respect translates into the local government’s willingness to incorporate the housing industry’s most important needs into an otherwise overly hostile and anti-ownership climate. In the absence of such cooperation, the results would truly be dire: erosion of Costa-Hawkins, imposition of the elected Rent Board, elimination of capital pass-throughs, and heightened penalties for code violations are just a few examples of what skillful politicking has managed to avert during the past few years.

So to those who say we should declare war on 100 Van Ness Avenue, I say phooey. With the voters aligned against us, such tact is tantamount to suicide. When you are in the minority, the focus must lie in fostering relationships with those in power, not attacking them. The later, for sure, would easily ensure that our pro-tenant adversaries will lock down this industry in such a manner that we would long for the glory days of 2007.

There is also the fact that we are a nonprofit organization. This is significant because every dollar you spend goes directly to what matters most: rental housing education classes, development of forms, a better presence at City Hall, and litigation to dissipate unconstitutional legislation. No person or groups profit from the SFAA. To the contrary, many of us contribute endless hours of our day to the betterment of this organization, which ultimately translates to the improvement of the industry’s standing in the community. The staff is paid modestly, as I can truly report that their skill set, coupled with the genuine effort they tirelessly put forward each and every day, would pay them more in the for-profit sectors of our economy. From the Executive Director on down, the people you have working for you are, without doubt, first class and of admirable character. Most importantly, their enthusiasm for their work is second-to-none, and even in the face of defeat they eagerly embark upon the next challenge.

The second blessing comes from our volunteers. Every month, you can attend the educational classes, priced modestly so as to cover the cost of the room rental, taught by leaders in the industry. For example, you can learn property management and landlording skills from professionals who exact a premium for their services. Incredibly, these eager volunteers are just that: they give without charge month after month after month. At every general membership meeting, attorneys who command hourly rates well over $300 answer your questions for free. The annual trade show brings in substantial vendors, eager to help you navigate the rough seas of the industry. No one but you really profits from these efforts.

In the end, you must choose where you want to devote your time and financial resources. You should, in essence, judge the SFAA and decide whether or not its structure comports with how you believe the industry should be positioning itself. Unquestionably, we can rightfully conclude that the ongoing assault against our rights remains unabated. To this end, every year brings another law or court decision that smacks of an unjust taking. Yet how we respond to this reality will determine tomorrow’s success or failure. If we wage an all-out assault against our foes, do we undermine our own effectiveness and relevancy? Or, as suggested above, is the better avenue towards an even playing field defined by ongoing efforts to educate the adversary while, at the same time, build a political base that is able to successfully advance the industry’s agenda in a town comprised mostly of tenants? To do the later, I submit that negotiating, effective long-term coalition building, and skillful lobbying will trump the overly aggressive stance some of the other apartment association organizations have employed over the past decade.

In sum, the temptation to resort to strong arm tactics is overwhelming in the wake of the ongoing assaults we are confronted with year after year. The ability to show restraint, coupled with well-planned strategy, is what separates ineffective from effective organizations. You, as the consumer, need to decide what methodology better serves your interest.

In closing, I would like to acknowledge our industry partners who truly compliment the efforts of SFAA. Without their participation, many, if not most, of our successes could not have been attained. First, the Greater San Francisco Association of Realtors should be lauded for its efforts aimed at stemming abusive legislation and erroneous court decisions. The GSFAR, comprised of San Francisco Realtors, has always participated in the housing industry’s political and legislative battles. No one can seriously argue that the purchase and sale of highly valued San Francisco real estate would halt even with the passage of the most extreme forms of rent control, so the Realtors’ partnership with us is truly genuine and not merely motivated by profit.

Second, we should be thankful to the Coalition for Better Housing, or CBH. This non-profit group consists mainly of large apartment building owners, managers, and developers. CBH’s ability to raise funds for elections and legislative battles is unparalleled. To this end, very few politicians run for major office without first testing their candidacy with CBH.

Third, for those in the property management industry, the Professional Property Managers Association, or PPMA, has been a fixture in the City for 25 years. Each month, property managers can inform themselves of the latest in laws, know-how, and tools of the trade at the PPMA lunch meetings. Like the Realtors and CBH, PPMA fights alongside with us at every election and throughout the year. With your SFAA membership, you also become members of the California Apartment Association, or CAA. Once a minor player in Sacramento affairs, CAA today is one of the most important lobbying organizations in the State. As the property rights battle shifts more and more from local debate to statewide showdowns, CAA’s muscles will become increasingly beneficial. Not surprisingly, almost every major urban area in California has a CAA-affiliated apartment association, and SFAA is proud to be a part of this impressive alliance.

So the next time you receive a solicitation in the mail or on-line, think about where your efforts will be best placed. We all would relish the day that these onerous restrictions dissipate, yet the realistic achievement of this objective will be attained only with the right strategy and planning. Stated succinctly, long term victory will not be accomplished by the short term aggression some of our competitors claim we should embrace. SFAA, and its industry partners, consistently display the requisite restraint and skillful politicking, and, while only time will tell for certain, this is the road I submit will lead us to where we need to be.

DW


Ask an Attorney Questions for March Perspectives

Question: If a person with a disability wants to move in to one of our rental units (i.e. a person in a wheelchair) are we responsible for installing the bars in the bathrooms, wheel chair ramp, or any other needs at our expense?

Answer: You are required to allow the resident to make the modifications at the resident’s expense. You may also require the resident to pay to have the unit restored to its original condition, unless the modifications would be of use to any resident.

Question: I just served a Three-day Notice to Pay or Quit. Does the three days include weekends or just business days? If the tenant moves within the three days still owing rent, what is the next step?

Answer: If the three-day notice expires on a weekend or holiday, the period is extended to the next business day. This means that if the third day is Saturday, the resident may still pay rent on Monday, and if it is not paid, an unlawful detainer action may be filed on Tuesday. If the resident moves out and the security deposit is not sufficient to cover outstanding rent and damage to the unit, you may file a small claims court action to recover any additional amounts you are owed by the tenant. You must still provide the itemized disposition of security deposit within 21 days after you have regained possession of the unit.

Question: Does the Owner/Landlord have to provide Rental Agreements in other languages if the Tenant is non-English speaking?

Answer: California law only requires the provision of a contract, i.e., the rental agreement, in Spanish, Tagalog, Chinese, Vietnamese, or Korean, if the contract is negotiated in that language. If you negotiate in English, you may provide the contract in English.


SUP. GONZALEZ PULLS A FAST ONE

The President of the Board of Supervisors, Matt Gonzalez, is promoting a radical change to the Rent Ordinance that would prohibit evictions and rent increases for the addition of occupants. He introduced the legislation recently at the Board of Supervisors, despite his promise to housing-industry leaders not to launch it until he meet with them again. The proposal would permit the addition of occupants to rental units—up to a maximum of two occupants “per habitable sleeping room” except in situations where the total number of occupants would exceed the Planning, Housing and Building Codes. These codes are extremely loose and would allow up to nine people for every 500 square feet. The legislation may be approved as soon as the end of this year.

This amendment completely vitiates lease provisions that specify the number of people who can live in the unit and further erodes the owner’s ability to restrict or prohibit subletting. Essentially, regardless of the provisions in their lease agreements, rent-controlled owners would have to allow their tenants to fill up all rooms in their units with a maximum of two occupants per room. My interpretation of this proposed law is that tenants could convert the living and dining rooms into sleeping rooms.

One-bedroom apartments and studios would suddenly be used to legally house up to six adult tenants. There would be nothing the landlord could do to prohibit this infusion of new dwellers except petition the Rent Board for a slight increase in rent for the higher cost of utilities. No longer would your existing and future leases govern the number of adult occupants who could reside in your units. No longer could you evict when the tenants sublet without permission or move in their friends and exceed the number of allowed occupants. The tenants could unilaterally move anyone into your units as long as no more than two adults sleep in a “habitable sleeping room,” which is every room except the kitchen, bathroom, and closet! Not only would there be rampant subletting and Section 6.14 nightmares, but the extreme (and uncompensated) wear and tear on the building’s common areas and the units could be enormous. In sum, you as owners will be running a fraternity house at rent-controlled prices.

Supervisor Gonzalez claims that this legislation is designed to allow immigrant families the opportunity to live together. This rationale is nonsense. The good news is that the legislation is so unconstitutional that our lawyers will undoubtedly stop its enforcement. The bad news is that this is an election year, so the proposal will probably pass. Therefore, this is now a crucial time for all members to contribute to the SFAA’s Legal Fund. Otherwise, by next year, your units may be converted into crowded dormitories.

– David Wasserman


Suit Filed Against Villas Parkmerced

SAN FRANCISCO-A would-be class-action lawsuit has been filed on behalf of a tenant of Villas Parkmerced, the city’s largest apartment development with 3,456 units. The suit alleges that the operator of the 115-acre, 13-tower development “routinely imposes rent increases that violate San Francisco’s Rent Control Ordinance” and asks for tenants’ rents to be restored to their legal maximums and for restitution of all monies unlawfully obtained. Attorneys for the current owner of the property tell GlobeSt.com their client is not engaging in any illegal activity and that Parkmerced’s incentive program is under review by the Rent Control Board, with a decision excpected later this month.

San Francisco’s Rent Control Ordinance allows a landlord to raise the rent on a unit to market rate after the unit is vacated. Once this new rent is set, however, the rent is again controlled during this tenant’s occupancy, allowing the owner to raise rents based on 60% of the CPI, with a maximum annual increase of 7%.

The complaint alleges that Villas Parkmerced management uses rebate coupons “to obscure the true base rent charged tenants upon initial occupancy.” An example in the filing states that “when tenants agree to rent a unit for $1325 per month, the rental agreement states a monthly rent of $1675 per month subject to a contemporaneous addendum that issues coupons that deduct $350 per month. At the end of the lease term, however, the rent is raised by the amount allowed by the Rent Control Ordinance (which was 1.7% this year) based on the $1675 ostensible base rent (as opposed to the $1375 actual base rent) and without the issuance of corresponding rebate coupons,” which in this example results in an actual rent increase of 28%. “I don’t think you can contract around rent control like that,” the lawyer behind the lawsuit, Peter Fredman of Brayton Purcell, tells GlobeSt.com. “I believe if you look at the definition of rent and rent increases in the ordinances you will see that if one uses the plain meaning of the language, I win.”

The owner of Parkmerced, a joint venture of New York City-based Stellar Management and Rockpoint Group, a Boston-based investment and management firm, inherited the rebate coupon incentive practice when it acquired the development one year ago from a joint venture of locally based Carmel Partners and JP Morgan of Boston for a price believed to be approximately $650 million. Alliance Residential is the property manager.

Stellar management principal Robert Rosania tells GlobeSt.com that the practice of using rebate coupons–which he describes as no different than other free-rent incentives handed out by other apartment operators to attract tenants in a highly competitive marketplace–is under review by the Rent Control Board of Commissioners and that a hearing is scheduled for next week to decide the issue. “It is true that individual tenants have filed complaints with the Rent Control Board over the issue. It is true that a case has been lost. It is also true that we are appealing that case and that we expect to win on appeal,” Rosania says.

Stellar Management’s attorneys David Wasserman and Daniel Stern of Wasserman Stern tell GlobeSt.com that a petition was filed with the Rent Control Board by 12 individual tenants alleging unlawful rent increases. The petition precipitated a hearing in front of an administrative law judge and the judge sided with the petitioners.

The appeal of the administrative law judge’s decision will be heard and decided by Rent Control Board commissioners the evening of Oct. 17 at the Rent Control Board’s offices. The Board’s commissioners include representitives of the interests of landlords, tenants and a neutral parties. Fredman tells GlobeSt.com he was unaware that there is an ongoing case related to the rebate coupons wending its way through the Rent Control Board’s petition process. “If the rent control board decides it’s legal, I don’t know what affect that would have on our case,” he says.

A press release sent out by Fredman calls the rebate coupon incentives “illegal” and a “scheme” and Fredman is quoted as saying the practice is “a blatant attempt to subvert the basic legal rights of San Francisco rentors.” Contradicting that statement, Wasserman says the administrative law judge made clear that there was “no fraud or any other type of funny business” that occurred when tenants signed leases.

Stern adds that it is “somewhat egregious” for Fredman to be making claims with conclusions about the actions of a particular entities when the issue it still being litigated. “These types of statements shouldn’t be made about our clients until we get a determination.”


“Moving Out Subtenants to Increase the Rent”

I just purchased a new building and three subtenants want to sign a new lease. Should I have them move out first?

While it may seem logical and good business to have whomever is residing in your unit actually reflected on the lease agreement that controls the unit, don’t forget that the Rent Ordinance often defies ordinary logic, usually to the detriment of the landlord. Adding people to a lease or creating a new lease with those subtenants will make those individuals the “tenants” of a landlord, and very possibly grants them “original tenant” rights under the Rent Ordinance, and thus would hinder and delay your ability to increase the rent to market rate.

The question does not indicate whether an “original tenant” still resides in the unit along with the subtenants, but since you ask whether the subtenants should “move out,” it seems that there is no longer any “original tenant” in the unit. Presumably, your intention in wanting the subtenants to “move out” and then sign a new lease agreement and move back in is to obtain a fair market rent.

The Rent Ordinance frowns upon any action that can be construed as a sham and/or is a waiver of tenant’s rights. Having three subtenants move out, and then move back in to give the appearance of a new tenancy at a higher rent would violate the Rent Ordinance; the tenants could later argue that they were coerced to sign a new lease agreement and pay higher rent for a unit they already occupied under rent control protection.

That is why the state Costa Hawkins Act may be applicable in your situation. The Costa-Hawkins Rental Housing Act (California Civil Code Section 1954.53(d)), and the local corresponding provision, San Francisco Rent Ordinance Section 37.3 (d), authorizes an unlimited rent increase in some circumstances where the original occupant no longer permanently resides in the unit and the remaining subtenant did not reside in the unit prior to January 1, 1996.

However, subtenants can challenge the unlimited rent increase if they can show that the landlord waived her rights to increase the rent by:

(1) Affirmatively representing to the subsequent occupant that they may remain in possession of the unit at the same rental rate charged to the original occupant; or
(2) Failing, within 90 days of receipt of written notice that the last original occupant is going to vacate the rental unit or actual knowledge that the last original occupant no longer permanently resides at the unit, whichever is later, to serve written notice of a rent increase or a reservation of the right to increase the rent at a later date; or
(3) Receiving written notice from an original occupant of the subsequent occupant’s occupancy and thereafter accepting rent unless, within 90 days of said acceptance of rent, the landlord reserved the right to increase the rent at a later date.

You should review the previous landlord’s tenant files to see whether a “6.14 notice” or other reservation of rights to increase the rent were served on the subtenants, or when actual notice was received that the last original tenant vacated the unit. The presence (or absence) of those documents will determine whether an unlimited rent increase under Costa Hawkins would overcome any challenge by the subtenants.

Even if you are unable to serve a rent increase under Costa Hawkins, do not forget that the subtenants are still bound by the terms of the lease agreement of the original tenant, even though they may not be listed on said agreement.

Marina Franco


Is the landlord responsible for tracking down a tenant who leaves no forwarding address and no phone number in order to give an accounting for the security deposit within the 21-day prescribed timetable?

After the tenant vacates, the landlord has 21 calendar days to provide the tenant, by personal delivery or postage prepaid first-class mail, with a copy of an itemized statement indicating the basis for and amount of any security deposit held and the disposition of that part of the security deposit not being returned. In addition, any refund must be enclosed. The law was recently amended to require the landlord to provide copies of “supporting documents” showing charges incurred and deducted by the landlord for repairing and/or cleaning the unit. The landlord can now even charge for his or her own time cleaning and repairing at a reasonable rate for those services. The landlord must then provide a statement describing the work performed and the rate charged. When the work is done by someone else, a copy of the invoice must be submitted to the tenant, and the invoicing must contain the name and address of the service provider. This itemization requirement applied unless the combined deductions for repair and cleaning do not exceed $125 or the tenant has waived his or her right to receive documentation in a signed writing.

The law requires that any mailing of the security deposit refund and itemization be sent to an address provided by the tenant. If no address has been provided, the owner must mail it to the vacated unit. In most cases, a change of address form has been filed with the Post Office, so the tenant will receive the letter. It is also recommended that a copy of the itemization statement be sent to any known work address.

DW


Second Hand Smoke Now a Nuisance

In September 2005, the California Environmental Protection Agency (“CEPA”) publicly confirmed a report by the California Air Resources Board that links tobacco smoke to a variety of health effects ranging from asthma, Sudden Infant Death Syndrome (“SIDS”), and increased incidences of breast cancer in non-smoking women.

The report cites new evidence that, according to the Office of Environmental Health Hazard Assessment (“OEHHA”), confirms that secondhand smoke is likely to cause serious health problems with non-smokers. “Secondhand smoke is more than just an annoyance. The scientific record is increasingly clear that smokers are putting their families and friends at risk if they regularly smoke in their presence,” said Dr. Joan Denton, Director of OEHHA.

According to CEPA, in California each year, tobacco smoke is responsible for the release of 40 tons of nicotine, 365 tons of respirable particulate matter, and 1907 tons of carbon monoxide. What do all of these findings mean to landlords?

California law requires landlords to keep their tenants safe from foreseeable harms. In recent years, the courts have awarded tenants damages for personal injuries that occur on the property, as well as for criminal acts committed in or around the apartment building. Responsible owners now make sure that their properties are safe, clean, well lighted, and free from known dangers. But should smoking be in the same league as gates, common area lighting, and good locking devices? In light of current scientific findings, probably.

Traditionally, a tenant was allowed to smoke in the unit. Yet a lease may prohibit smoking in the unit and/or in the building. Such a prohibition is lawful. In rent controlled jurisdictions, a landlord may not be able to unilaterally impose a prohibition against smoking inside a unit where the existing rental agreement contains no such a rule. In addition, when a “service” such as smoking is withdrawn, the tenant could petition the local rent board for a decrease in services and potentially receive a rent reduction.

However, given the evidence in support of secondhand smoke’s dangers to other residents, landlords may at least want to prohibit smoking in all common areas. Such a prohibition serves the health and safety interests of the building residents and would most likely comport with the local rent regulations. Landlords should also consider prohibiting in-unit smoking for all new tenancies, and leases such as the PPMA Rental Agreement contain such a covenant.

What happens when a tenant, who is allowed to smoke in the unit, causes secondhand smoke to permeate common areas or, more alarmingly, an adjacent unit? Some practitioners have used such an intrusion to terminate the tenancy if the offending tenant refuses to stop puffing.

Under state and local law, a tenancy may be terminated if the tenant commits a “nuisance.” A nuisance is defined as an act injurious to health or indecent or offensive to the senses, or that which interferes with the comfortable enjoyment of property by others.

The CEPA report stands as a testament to the offensive nature of secondhand smoke. Even if a lease allows smoking inside the unit, if the smoke trespasses into another’s unit, or the common areas, the smoking tenant is probably liable for committing a nuisance. In fact, the landlord could face problems for failure to abate the nuisance if another tenant is injured as a result of the secondhand smoke. Imagine the claim a pregnant tenant could make for being exposed to this toxin.

Another problem for owners arises from tenant exposure to secondhand smoke in buildings that contain ground floor restaurants/bars where patrons frequently light up, either inside the premises or on the sidewalk. Management may not be able to stop in the offending activity in these circumstances. According to OEHHA, secondhand smoke increases the chances of premature and low birth-weight babies, SIDS, bronchitis, pneumonia, and the induction and exacerbation of asthma, as well as middle ear infections in children. Surely the list of harms to babies and children will be expanded in the near future. Given these findings, landlords may want to disclosure, in writing, the existence of tobacco toxins to prospective tenants so that future and current parents can appreciate the health risk of renting above the local saloon. Such forthrightness may keep the unit on the market longer but save the owner from an expensive lawsuit.

So, in conclusion, be aware of the dangers posed by secondhand smoke. Consider eliminating smoking in your building, and consult with a qualified attorney to determine how to quash this danger before a claim can be made against you.

DW


I have been renting an in-law unit to a cousin for a few years. She never signed a rental agreement and recently she has become rowdy and weeks late with her rent. I have tried to talk to her about these problems, but nothing seems to be getting through. Is it possible to evict her if she was never “technically” a tenant?

The first problem is that your cousin is “technically” a tenant. A tenant is any person entitled by written or oral agreement to occupy a residential unit to the exclusion of others. It makes no difference that this person is a relative, or that there is no signed written rental agreement. She is a tenant afforded all of the rights that any other non-relative tenant would have.

The second problem is that there is no written lease. There is an agreed upon monthly rent, but trying to prove when rent is due and late may be difficult under these circumstances. When there is no written rental agreement, the lease is oral, and this usually means that the owner is hard-pressed to enforce any specific lease covenant against the tenant.

If the tenant is rowdy, you may have grounds under the rent law to evict her. RoSpecifically, a tenancy may be terminated when the tenant is committing a nuisance. “Nuisance” is broadly defined, and includes conduct that creates a substantial interference with the comfort, safety or enjoyment of the landlord or tenants in the building. The general rule is that other tenants should document their complaints and be prepared to testify against the offending tenant. In addition, police reports are also good evidence of nuisance-like conduct. Occasional loud talking or music probably will not support a nuisance claim. However, if her behavior is disruptive, you should describe the offenses in writing and provide her with ample opportunity to cease and desist. If the warning letters are ignored, you may be able to end the tenancy with a three-day notice to quit.

In addition, if the unit is “unwarranted,” meaning it was constructed without permits and has no certificate of occupancy, you may be able to withdraw it from housing use and thereby terminate the tenancy. To do so, you need to obtain all plans and permits with the Planning Department and Department of Building Inspection. Your tenant is then entitled to a termination notice and relocation payments. The amount of relocation is based upon the newly passed Proposition H, meaning that each tenant receives $4,568.92 plus an additional $3,046.00 if they are elderly, disabled, or have at least one child under the age of 18 years. A thirty-day notice is required if the tenant has resided in the unit less than one year; otherwise, for occupancies one-year or longer, a sixty-day notice must be given. Once removed, the unit can no longer be rented as a separate dwelling, and you must perform the demolition work requested in your permit application.

You can also seek to terminate her tenancy for nonpayment of rent, but this route may be problematic for two reasons. First, there is no written lease, so determining when rent is due will depend on the owner’s self-serving testimony versus that of the tenant. Second, if the in-law is unwarranted, you may not be able to demand rent for it, and the fact that it is an illegal dwelling will certainly provide the tenant with a substantial defense to any action for nonpayment of rent.

In sum, treat this person as you would any other tenant. Your mistake was not having her sign a written lease.

DW


RENT BOARD PASSES NEW ROOMMATE REGS

In March of 2005, the Rent Board Commissioners passed Rules and Regulations Section 6.15D to compliment the Gonzalez Roommate Legislation that became law on January 2, 2005. The Gonzalez Roommate Legislation requires landlords to permit tenants to move in the following categories of relations: (1) the tenant’s spouse/domestic partner; (2) the children, parents, grandchildren, grandparents, and siblings of the tenants (“Relatives”); and (3) the spouse or domestic partner of the Relatives. Even if a lease prohibits subletting or assignment, or limits the number of occupants in a unit, a tenant may be allowed to move in persons who can be classified in one of these three categories (“Family Members”).

The Rent Board spent January through March drafting guidelines to implement this significant legislation. The result is Section 6.15D, which sets forth the following requisites for landlords and their tenants who seek to override the rental agreement by moving in Family Members.

First, an owner is deemed to waive any objection to the addition of a Family Member if the tenant makes an initial written request to the landlord for permission to add a Family Member and the landlord fails to respond in writing within fourteen days after receiving notice. To this end, a landlord who fails to timely object to written notification by the tenant, or who “unreasonably” withholds consent to the addition of a Family Member, cannot evict the tenant for violating a lease covenant prohibiting a sublet or assignment.

Section 6.15D then goes on to define unreasonable withholding of consent. At the onset, a landlord is precluded outright from denying a tenant permission to move in a minor child who is a Family Member. If the Family Member is not a minor, then the tenant is required to satisfy six criteria: (1) the tenant must make a written request to the landlord and describe the familial relationship of Family Member moving in; (2) the Family member must comply with the landlord’s request to complete the standard form application, or provide sufficient information to allow the landlord to conduct a typical background check; (3) the tenant must allow the landlord five business days to complete the background check; (4) the Family Member must then satisfy the reasonable application standards of the landlord (except that creditworthiness may not be a basis for refusal if the Family Member is not obligated to pay any portion of the rent); (5) the Family Member will agree, if requested by the landlord, to be bound by the terms of the rental agreement; and (6) total occupancy of the rental unit will not exceed the lesser of (a) two persons per studio, three per one-bedroom unit, four per two-bedroom unit, six per three- bedroom unit, or eight per four-bedroom unit, or (b) the number of occupants permitted by state or local law.

Second, this rule and regulation states that an unreasonable refusal to consent to the addition of a Family Member will permit a tenant to file a petition for decrease in services with the Rent Board. A successful petition equates to a lowering of the base rent until the decreased service is restored. Moreover, either a landlord or a tenant may file a petition with the Rent Board to determine the reasonableness of a tenant’s request to move in a Family Member, and such a petition will be expedited and heard quickly.

It is this author’s opinion that Section 6.15D represents a fair and reasonable effort by the Rent Board to define the parameters of the Gonzalez Roommate Legislation. Rather than ignore the substantial vagueness and ambiguity created by this law’s passage, the Rent Board has set forth clear and concise guidelines for both tenants and landlords to follow. Indeed, many landlords have expressed satisfaction with the fact that now a written standard governs how many people can live in a studio/one-bedroom, etc. In addition, a tenant cannot simply move in a Family Member without subjecting that person to an investigative process. And if a landlord believes that the Family Member is not in fact related to the tenant in the manner represented, the landlord can pursue affirmative relief by filing a petition with the Rent Board. While it remains to be seen if this law will even survive a judicial challenge, at least concise rules have now been laid down.

–David Wasserman


The Pitfalls of Rent Rebates

What do you do now that the rental market is slowly creeping back up and you have “reduced the rent” of some of your tenants who leased their units in ’99-’00 and then demanded a “rent reduction” in ’01 when the market crashed? If you are like many owners who suffered through the dot.com bust, you probably have a tenant or two that threatened to walk and leave you with another vacant unit unless you agreed to lower the rent.

Over the past four years, landlords around town have employed every possible mechanism to temporarily lower the rent without facing the possibility that the collection of the reduced amount would become the tenant’s new lawful base rent. Indeed, during the last recession of the early ‘90s, some landlords did lower the rent, only to find that when they sought to reinstate the “correct” base amount, their grateful tenants responded with a Rent Board petition for an unlawful rental increase. In some cases, the Rent Board held that the owner’s gratuity was permanent and could not be rescinded, thereby leaving the owner with a finding that the “lowered rent” was now the official lawful base rent.

In response, landlords during this last period of high vacancy and soft rents have resorted to new and improved ways to evade the wrath of the Rent Board. Such strategies have ranged from rebating tenants with cash payments every month to long-winded lease addendums wherein the tenants profess understanding that the reduction in rent is nothing more than an agreement to accept less rent for a certain period of time.

No matter the mechanism, everyone who convinced the higher-than-market payers to weather the storm now faces the prospect that the incentive was really a re-adjustment of what can be lawfully charged. Unfortunately for these San Francisco landlords, the local rent law does not address the issue of temporary rent reductions. Rather, owners are told that base rent is the rent charged upon the initial occupancy of the unit. The law then goes on to describe the only instances when rent can be increased. And as we all know, the Rent Board tells us by how much we can increase the rent on an annual basis.

Many owners have made the argument that, as long as the tenant is expressly informed of the initial base rent, nothing precludes the landlord from accepting less rent for a certain period of time. Thus, in theory, if the lease agreement states the base rent to be $1,000 per month, and all parties have agreed to this amount, the owner should be able to accept $750 per month and then re-instate the initial amount ($1,000) plus allowable increases. Incidentally, the law clearly allows owners to “bank” annual allowable rental increases, and there is no policy in effect at the present time that requires owners to impose all lawful increases or to lose their benefit. (Matt Gonzalez made such an attempt, but in the end we only received his roommate legislation.)

Yet the Rent Board has determined on at least several occasions that these rent reductions constitute a new agreement, tantamount to a new tenancy. Ironically, if the owner and tenant agreed to a new lease for a higher rent, such an agreement would be voided under the Rent Ordinance as an illegal contract. However, and not surprisingly, when an accommodation inures to the benefit of the tenant, it is subject to ratification by the Rent Board, even though the owner intended that the change be temporary and rescindable.

Because there is no bright line test by which one can determine whether or not the “favor” was really a new contract, each case will be decided, if challenged by the tenant, on a case-by-case basis. Some factors Administrative Law Judges have weighed in the past include the following:

(1) Was there a written addendum memorializing the terms of the agreement to temporarily accept less rent? The Rent Board may tend to rule in the landlord’s favor if the owner shows up to the hearing with a signed addendum expressly setting forth the terms and conditions of the temporary rent rebate. Some items the addendum should contain are the dates of the reduction period (for example, June 2001 through May 2003), the amount of the rebate, and a statement that the arrangement is being made in order to accommodate the tenant’s request and not because of some decrease in housing services. In one case, the tenants convinced the ALJ that the rebate was really given because of a change in the parking spaces; as such, the Rent Board concluded that the gift was permanent because it was given to compensate the tenants for a decrease in housing services.

(2) Are the same tenants who agreed to the rebate arrangement still the same tenants in occupancy? One serious problem for owners occurs when the deal was struck with a tenant who is no longer in occupancy. The new subtenants show up to the Rent Board and argue that their initial base rent was the lower amount and that they have no knowledge of any deal. If there is no written addendum memorializing the terms of the temporary decrease, the ALJ will weigh the owner’s word against the new tenants who may feign ignorance about the situation.

(3) Has the annual allowable increase(s) been imposed against the initial base rent or the lowered amount? Hopefully, the owner was sending rent increase notices using the lease’s initial base rent as the numerical reference. Conversely, if the rebated amount was used, there is argument that a new contract was established for the lower rent.

There are some Rent Board judges and tenant practitioners who argue, with a degree of credibility, that many of these temporary rent rebates should constitute a permanent re-establishment of base rent. From their ideological standpoint, because the rental market substantially fell over the past five years, a tenant’s agreement to remain in occupancy in exchange for the imposition of corrected fair market value rent inured to the benefit of the owner, who did not have to re-furbish a unit and then watch it sit empty for 6 months. Therefore, the tenant’s agreement to remain is sufficient consideration for a new contract; and simply because the market has improved should not allow the owner to raise that rent beyond the limits imposed under the law. Indeed, absent express legal justification, owners can never raise rent-controlled rent to market levels when the market takes off.

For the owners, there are a couple of suggestions that should be considered when entering into, and rescinding, these agreements to accept less rent.

First, as referenced above, make sure that there is some written lease addendum or contract that sets forth the parameters of the rebate. Some owners argue that it is better to have no such written evidence; however, the tenant will undoubtedly submit proof that you have been sending over a refund every month and/or accepting a lesser rent and it doesn’t take a genius to conclude that this exchange was made to adjust the monthly rental obligation. Instead, have an agreement that states for how long the rebate period will last, and that the tenant is receiving this consideration not because of a decrease in housing services but because the owner wishes to motivate the tenant to stay.

Second, always have a sunset clause. If the rebate lasts forever, it is arguably a housing service. Let the tenant know, up front, when he must start paying all of the rent again. You can always extend the period of accommodation. Incidentally, one popular rebate method is to give the tenant a free month of rent for every eleven months of occupancy, but once again, there must be a sunset clause for this arrangement or it will become a mandatory housing service and could be required every year.

Third, make certain that all subsequent occupants are aware of the rent rebate arrangement. At the time you serve them with 6.14 Notices, obtain their acknowledgment of the accommodation.

Fourth, all rental increases should use the correct base rent as the point of reference. Thus, when you raise the rent by .6% or 1.2%, ensure that the “normal” rent is used in the equation. It is not a bad idea to impose rent increases during the rebate period so as to re-affirm the fact that the lawful base rent has not changed.

Fifth, make sure that in all correspondences and addendums where the rebate is referenced, you refrain from using phrases like “rent reduction” and “new rent.” Rather, state that you are agreeing to accept less rent for a certain period, but that the base rental amount is what is set forth in the lease agreement.

Finally, try to provide advance notice (for example, 60 days) reminding the tenants that the period of accommodation is ending. To this end, prepare yourself for a possible Rent Board hearing when you begin demanding the full amount of the rent. Do not be surprised when the tenants refuse to pay and then file a petition for unlawful rent increase. Treat the hearing as you would any other Rent Board matter: Bring your attorney, court reporter, and evidence to present before the ALJ, and be ready to appeal an adverse determination to the Rent Board Commissioners or, if necessary, the superior court.


Mandatory Renters’ Insurance

Q.Should we make it a rule that all tenants must carry renters’ insurance?

A.No. Requiring this as a covenant of the lease would be practically impossible to enforce. I cannot imagine a successful eviction in San Francisco based on the fact that the tenant, who otherwise has always paid rent on time and obeyed the laws, failed to maintain renters’ insurance—a policy that would only serve to benefit the tenant in the event of a loss. Make sure your tenants are responsible for looking after themselves. What I recommend instead is the adoption of the same disclosure set forth in the 2002 PPMA Lease Agreement. According to Paragraph 30 regarding insurance, “Owner’s insurance does not provide for coverage of Tenant’s personal belongings or personal liability unless as a dire and proximate result of Owner’s negligence. Therefore, Owner strongly urges and recommends to each Tenant that Tenant secure sufficient insurance to protect against losses such as fire, flood, theft, vandalism, personal injury or other casualty.” Remember to make sure that your tenant(s) separately initials this paragraph. This disclosure puts the tenants on actual notice that any damage to the tenants’ possessions are not covered by the building’s policy unless directly caused by the landlord. The tenants are clearly advised to carry their own insurance. With this disclosure in place, a tenant is hard pressed to seek indemnity from the owner when the apartment’s contents are damaged or destroyed. In addition, the landlord does not have to constantly monitor insurance policies (and renewals), and further does not have to contend with difficult eviction issues when tenants refuse to procure coverage that will protect them from loss.

– David Wasserman


When does rent control apply?

I recently purchased a building that was supposedly built in 1979. The realtor said that the building was exempt from rent control and that I could raise the rents to whatever I deemed appropriate. Is that true?

The San Francisco rent ordinance applies to all non-tourist residential dwelling units in the City that are located in a structure for which a certificate of occupancy was first issued before June 13, 1979, the date rent control became law. In general, this means that buildings built after June of 1979 are exempt from rent control, and the landlord is not bound by the eviction control and rent increase limitations of the rent law. In addition, buildings that have undergone “substantial rehabilitation” after 1979 and received certification from the Rent Board verifying a “sub rehab” are also exempt, although only about thirty buildings have received this type of classification.

Yet any structure certified for occupancy before June 13, 1979 is probably controlled, even if it was once used for commercial purposes but is being rented as a residential dwelling. Under state law, condominiums and single family homes that are otherwise covered (built before 1979), but where the tenancy began after January 1, 1996, may be exempt from the rent control limitations (how much rent can be increased every year), but are still governed by eviction control, meaning the landlord must have a just cause reason to terminate the tenancy. Obviously, if the condo or home is built after 1979, neither eviction control nor rent limitation applies.

Even if a landlord is exempt from rent control, rent should not be raised beyond “fair market value,” or what comparable units are renting for in the same area. Tenants in non-controlled units may still bring state and federal fair housing claims against landlords who use rent increases to force out tenants that may be protected under other laws. Also, the lease contract may prohibit a rent increase for the duration of the lease term. Remember that a lease survives the sale of a home in most instances, binding the new owner to its terms and covenants. For example, if the tenant in a non-rent controlled unit has a lease for five years at $1,000 per month, you cannot terminate the lease or raise the rent during that period if the tenant remains in good standing under the lease.

State law also requires landlords who impose rent increases greater than ten percent of the previous rent to give the tenant sixty days’ advance notice, with five additional days if the notice of rent increase is served by mail. For increases ten percent or less, the required notice time is thirty days, with five additional days for mail service.

The question of whether rent control applies, and to what extent, is an extremely important determination that should be made with the assistance of competent legal counsel. There are many variations and exceptions regarding the rent law’s application not discussed in this article. Therefore, before you rely on the advice of a seller or real estate professional claiming that the building is exempt, please consult with a qualified attorney to ensure that the law does not favor another interpretation.

DW


Party Next Door

Tenants in the neighboring building are disturbing the quiet enjoyment of my tenants by being drunk and disorderly almost every night. The owner of the building keeps telling me that she will take care of it, but so far there have been no results. What should I do?

This is a common problem in high-density housing environments like San Francisco. Unlike a situation where one owner has control over both the offending and the adversely affected units, in this instance you must address complaints emanating from a source outside of your apartment building.

The law allows both the disturbed tenants and you, as the neighboring owner, to file a claim, called a nuisance lawsuit, against the landlord who will not control the drunk and disorderly tenants next door. The term “nuisance” is broadly defined to mean behavior or conduct that impedes another person’s “quiet use and enjoyment” of their property. Common nuisance claims include loud noises, strong odors, and/or dangerous activities coming from another property. In this scenario, the neighboring landlord is allowing the building dwellers to maintain an ongoing nuisance in so far as the drunk and disorderly conduct each night seriously disturbs the rest and relaxation of other surrounding occupants.

The first step is to ensure that you have at least two or three letters from you to the other owner demanding that the nuisance be abated, or stopped. Include correspondence directly from your tenants describing their ongoing angst. Like all legal actions, you want to show the court that every reasonable measure was utilized to resolve the dispute prior to litigation. While you should not give the neighbor legal advice, you could suggest that the offensive tenants might be restrained with the assistance of an attorney who can terminate the tenancy if the partying does not cease. Thus, even though you cannot evict these unruly persons yourself, inform the owner that immediate action is required or you will have no choice but to initiate your own legal proceedings.

If the noise continues, you must commence a case for nuisance. The filing and service of this action will likely extract a more meaningful response from the owner. If not, you and your tenants will present the situation to the court and may receive a monetary award and/or an order prohibiting this late-night calamity.

In sum, be proactive and do not ignore your tenants’ plea for help. While you personally may not be disturbed by the ongoing chaos in an adjacent property, good landlords are attentive to the right of their tenants to live peacefully, and a failure to make substantial efforts to quiet the storm could lead to your tenants moving out or, in the worse case scenario, bringing a claim against you for not providing livable housing.

DW


I recently heard that there is a new requirement that I change the locks on the apartment door every time a tenant moves out. Can I charge incoming tenants for this expense, or have them sign a waiver saying that they accept the unchanged locks in lieu of a fee?

In 2007, the San Francisco Board of Supervisors passed a law requiring landlords to change certain locks when a tenant vacates. You should not charge incoming tenants for this expense, and you also cannot present a waiver to them that excuses your obligations under this statute.

The San Francisco Administrative Code’s section on residential security deposits (Chapter 49) now states that when a unit is permanently vacated by all tenants, the owner must replace or re-key all door locks that are exclusive to that unit. If two or more locks on any one door are opened by different keys, the landlord is only obligated to re-key/replace one of the locks. The re-key requirement does not apply to any door locks that are provided for use to two or more units. In other words, if a lock is for access to a common area, like the building’s roof deck, garage port, or front lobby, it need not be re-keyed or replaced. Thus, this law only applies to the unit itself, or areas in the building under the exclusive control of a single unit such as one tenant’s storage locker or private garage.

Like most laws affecting residential rental housing, the landlord and tenant cannot enter into an agreement to waive the owner’s compliance. A waiver would undermine public policy, as this legislation was passed because of safety and security concerns. Specifically, the Board of Supervisors determined that re-keying or replacing entrance door locks on any vacated unit would help prevent crime. Even before passage of this ordinance, the SFAA and other industry leaders always advised changing the door locks when a new tenancy began. To this end, owners should always be taking measures to ensure that all residents in their buildings are safe from preventable dangers. As all of us know, keys oftentimes are lost, stolen, or given to someone and not returned, and burglars are well aware of the human tendency of forgetting to undertake appropriate safety precautions.

Re-keying is part of rehabilitating and upgrading a unit before you re-rent it. Since incoming tenants are not charged for the new carpet and the fresh paint, they should also not bear the costs of the lock change. As landlords in California are free to set rent at the inception of a tenancy, there is no reason to pass the lock cost along to the incoming occupant. Moreover, you cannot deduct this expense from the departing tenant’s security deposit. Rather, the legislation only mandates what good property owners and managers have been doing for years: A new tenancy means a new lock which in the end makes for a safer home.

DW


What is Proposition 65 and do I have to comply with it?

Proposition 65 is a state law passed by the voters in 1986 that requires business operators with 10 or more employees to issue warnings about potential exposure to chemicals known by the State of California to cause cancer, birth defects, or other reproductive harms. The list of harmful chemicals is numerous (about 750 chemicals) and includes (1) tobacco products, (2) furnishings, hardware, and electrical components contained within construction materials, (3) construction and maintenance materials, (4) cleaning products, (5) engine exhaust, (6) pool cleaners, and (7) pest control/landscaping products. Thus, virtually all apartments buildings either contain or release products on the Prop 65 list.

During the past 3 years, apartment owners and managers have been sued in increasing numbers for not adequately warning renters that they could be in danger from construction material, cleaning solutions, cigarette smoke and exhaust fumes that are present on their rental properties. The lawsuits charge that the offending owners/managers have not posted the Prop 65 warning signs in common areas and sufficiently warned renters about the exposure risks.

These lawsuits led to the California Apartment Association to seek, on behalf of its membership, a global settlement that would establish guidelines for property owners to implement. If they complied, then they should be spared the risk of being sued by the aggressive law firms acting as “private enforcers” of Prop 65.

Over the objection of the California Attorney General, the Orange County Superior Court recently approved the terms of the Proposition 65 Global Settlement. Under the settlement, different requirements apply depending on the size of your building. The “large” complexes include properties with five or more rental units. The “small” facilities are those buildings with four or less units.

The large complexes must, under the settlement, post the new Prop 65 warning signs outside each primary public entrance, including entrances to parking garages. Warning signs must also be posted in pathways or open areas that lead to individual apartments. Likewise, the warning signs must be posted in common areas like pools or other open spaces if these areas can be accessed from a point other than a main entrance. The new Prop 65 warning sign, which is sold by the SFAA, states as follows:

WARNING

This Area Contains

Chemicals Known To The

State of California To

Cause Cancer and Birth Defects

Or Other Reproductive Harm.

_______________________________

More Information On Specific

Exposures Has Been Provided

To Tenants And Is Available At

www.prop65apt.org

The sign must be 8.5 x 11 inches, and the word “WARNING” must be in all capital letters and underlined, with a 48 point Garamond type size. In addition, the prop 65 informational brochure, also available from the SFAA, must be distributed to all existing tenants and all new tenants when they sign the lease.

For the small facilities, no warning signs are required to be posted. Rather, the informational brochure must be distributed to all existing and new tenants. Moreover, by the end of each calendar year, management must mail the informational brochure to each unit, addressed as follows: “TO ALL OCCUPANTS/GUESTS.” This is an annual requirement for smaller facilities.

Many SFAA members may believe that they are exempt from Prop 65 because they employ one or two people. This is a dangerous position to take, as the Prop 65 private enforcers have argued that the small apartment operators lose their exemption when they utilize any service provider (or an aggregate of providers), like a pest control company or a janitorial agency, that employs 10 or more persons. Therefore, SFAA urges its membership to comply with the Global Settlement even if you believe that you are exempt. The plaintiffs lawyers are very clever, and it is not that onerous to post signs and mail brochures.

Finally, before you can get sued for failure to comply, the plaintiff must serve you with a 60-day notice. If you are served with this notice, you should consult with an attorney immediately. Insurance companies usually do not cover Prop 65 defenses, and the litigation costs can equal or exceed the expense of defending a wrongful eviction claim. So be careful, and buy your signs and brochures from the SFAA today.

Dave Wasserman


Are pet deposits counted as part of the maximum amount permitted under law for security deposits?

Yes. A security deposit is defined by law as any “payment, fee, deposit or charge… that is imposed at the beginning of the tenancy to be used to reimburse the landlord for costs associated with processing a new tenant or that is imposed as an advance payment of rent…” to be used for the following: (1) to compensate the owner for defaults in the payment of rent; (2) to repair damages to the premises, caused by the tenants or their guests, in excess of ordinary wear and tear; (3) to clean the premises at the end of the tenancy to the same level of cleanliness that existed at the inception of the tenancy; or (4) if the rental agreement so provides, to restore or replace the landlord’s furnishings exclusive of normal wear and tear.

A security deposit includes all prepayments of money, no matter how labeled. Thus, pet deposits, cleaning deposits, and last month’s rent are all considered security deposits and subject to the security deposit law. (The only exception is “first month’s rent,” which is applied to the rent due for first month of the tenancy.)

In addition to collecting first month’s rent, the owner may collect up to two months’ rent for unfurnished units, and three months’ rent for furnished units, as a security deposit. Tenants who have waterbeds may also be charged an additional one-half of one month’s rent. No other security may be charged.

Please note that disabled tenants who bring in a seeing-eye dog or a comfort animal cannot be charged an extra deposit. These animals are akin to a wheelchair or other accommodation alteration. By law, landlords must allow tenants, at the tenants’ expense, to make reasonable modifications to the rental units provided that the tenants agree to restore the premises to the original condition at the end of the tenancy. However, no additional security deposit can be charged for the alterations or the animal.

In San Francisco, all residential tenancies, including tenancies in non-rent controlled buildings, are subject to the “annual interest on security deposit” legislation. This law states that, for a tenancy exceeding 12 months and where a security deposit has been collected, the landlord must, on each anniversary date, pay simple interest on the entire deposit. The rate of interest was 5% per annum until 2002, when legislation was passed that made the yearly rate dependent on the Federal Reserve Rate. In 2005, the rate is 1.7%. For rent-controlled units, annual interest payments to tenants can be credited against the tenant’s share of the Rent Board’s Rental Unit-Fee (currently $11.00 per residential unit).

Therefore, when renting a unit to someone with pets, you may want to charge the maximum deposit allowed so as to ensure the availability of funds necessary to repair pet damage at the end of the tenancy. Finally, please remember that the law requires you to itemize all security deposit expenditures and to provide documentation to the tenant within 21 days after departure. When the combined repairs and cleaning charges exceed $125, the owner must also provide copies of receipts to the tenant. The tenant’s itemization and documentation, along with any refund, should be mailed to any forwarding address provided by the tenant. If none is provided, the mailing should be sent to the vacated unit (and the Post Office will forward the letter to the new address).


Supervisor Peskin recently passed two new changes to the San Francisco Rent Ordinance. What are these two changes?
The first change has to do with a tenant’s right to distribute letters and communications, or “leafleting.” Several years ago, a major apartment building owner brought a successful challenge to its tenant association’s activity of passing out literature in the building. The case was eventually decided by the California Supreme Court, which held that the Golden Gateway Center could limit and restrict the right of the building’s tenant association to distribute letters and information in the common areas of a building. The Court reasoned that free speech was not impeded simply by restricting leafleting in the hallways and lobby, as this space was private property not akin to a public forum. “Management’s decision to forbid leafleting was not a state action which impinged on the association’s free speech rights.”
As usual, San Francisco ignored a Supreme Court precedent by passing an ordinance allowing tenants to use common areas in order to “distribute literature to other building tenants, including literature distributed on behalf of a tenants’ association … where the literature relates to issues of common interest or concern to the building’s tenancies.” This legislation means that not only can internal tenant associations distribute newsletters, but arguably citywide organizations like the San Francisco Tenant’s Union will use the new law to leaflet your buildings. The ordinance allows owners to establish “reasonable requirements as to the time, place, manner and volume” of such distributions, but the practical enforcement of leafleting restrictions is questionable at best. Hopefully, a disgruntled owner will file legal action to prevent ongoing enforcement of this legislation.

The next law limits an owner’s ability to impose operating and maintenance
(O&M) rental increases. As many of you know, the Rent Ordinance allows an owner to increase rent when there is a substantial increase in a building’s operating and maintenance budget. For example, a new owner is oftentimes burdened with higher property taxes, insurance, debt service, etc. Existing owners may experience a hike in water/sewer charges, garbage removal, and janitorial servicing. The rent regulations (Section 6.10) set forth the various guideline used to justify these types of increases. Before this year, an owner could receive up to a 7% increase beyond the allowable annual increase for each O&M petition filed.
Now, for buildings with six or more units, petitions filed after October 28, 2003 will be subject to the following limitation: The same owner cannot impose more than a total seven percent base rent increase on any unit in any five year period due to an increase in operating and maintenance costs. This means that, even if O&M costs dramatically increase in years 2, 3, 4 and 5 after the O&M petition was granted in year 1, the owner is capped at a 7% total increase per unit and must absorb the subsequently incurred losses. For big building owners, this law could have a serious impact on the bottom line, especially if we enter into a high inflationary period and prices begin to escalate. Again, someone needs to present a legal challenge to this legislation.
Please remember to pay attention to the legislative updates and alerts. The SFAA will oftentimes send mailers to you asking for your help in opposing harmful legislation that is being considered. Even in this down rental market, the Board of Supervisors, as well as some lawmakers in Sacramento, will continue to assault our ever-diminishing rights as owners, so stay involved!
Dave Wasserman


RENTING PARKING SPACES TO NONTENANTS

I am considering renting a parking space to a nontenant. Do any eviction or rent control rules apply?

California has outlawed all forms of commercial rent and eviction control. Therefore, as renting a parking space to a nontenant, for parking use, is a commercial tenancy, there are no eviction or rent control regulations that apply. This means that the landlord can raise the rent or terminate the tenancy without restriction. Thus, the lease agreement, whether written or oral, dictates the terms of the landlord-tenant relationship. However, should the tenant breach the lease (for example, fail to pay rent), the landlord will still have to resort to legal processes in order to terminate the tenancy and to force removal of the vehicle.

Please note that renting garage spaces to nontenants requires the owner to obtain a business license from City Hall. In addition, the local Business and Tax Regulations Code imposes an annual licensing fee for operators of all “parking stations,” even if it consists of one garage space. While many residential landlords may choose to ignore this requirement, there are civil and even criminal penalties that can be imposed onto violators. Finally, your insurance company must be informed that you are leasing part of the property for commercial purposes, as this mixed commercial-residential use affects coverage.In addition, please be mindful of safety issues. Renting a parking space in a residential building to an outside tenant allows a non-resident access into your building. Oftentimes, a landlord is less likely to screen a commercial tenant in the same way a residential tenant is scrutinized. Landlords are usually held liable for harm and injuries that occur to the residents at the premises, so be mindful as to who is using the garage.

In addition, a parking tenant’s use of the garage should not be allowed to compromise the security of the building, so ensure that the car owner keeps access doors locked at all times.

Landlords are understandably drawn to the practice of renting garage spaces to nontenants. As parking privileges leased to residents are covered by both price and eviction control, a landlord has no ability to raise parking rent beyond the strict rent limitations; in addition, with recent changes to the rent law, parking usually cannot be severed from the tenancy even with a corresponding rent reduction. Not surprisingly, these factors have led many owners to lease their spaces to outside users. In sum, if you are inclined to pursue this practice, use a well written parking agreement such as the SFAA Parking Lease, screen your tenants, notify your insurance carrier, and comply with all local licensing and tax regulations.

DW


Owner Move-In Update

On November 5, 2003, the decision in Cwynar v. City and County of San Francisco (see attached decision) became final. This decision basically held that Proposition G of the owner move-in statute is unconstitutional. Specifically, the requirements that (1) only one owner move-in per building is allowed, (2) a relative move-in eviction can only occur if the owner lives in the building or is simultaneously seeking to move into the building, and, (3) elderly/disabled/catastrophically ill tenants are protected from owner move-in evictions, have been ruled as unconstitutional.
The problem is that this court decision only applies to the litigants in that case, meaning that there is no appellate decision binding on all courts. Technically, Prop G still applies and can be enforced. However, some practitioners have taken the position that a San Francisco court will notice and give deference to the Cwynar case. Therefore, some people are proceeding with owner move-in evictions without abiding by Prop G’s requirements.

We will give our clients a choice as to how they wish to proceed. Ignoring Prop G may require additional court hearings and battles, and the landlord could lose and be subject to wrongful eviction. However, there is merit to the position that Prop G has been held by a San Francisco court to be unconstitutional; thus, landlords who really need to do an owner move-in outside the restrictions of Prop G should consider this alternative.

We are happy to discuss both choices with you. Feel free to call the office with any questions or concerns.


Negotiating Leases in Other Languages

While negotiating a lease recently, I found it easier to speak Spanish to the prospective tenant. When we sat down to sign the lease, I used the PPMA Residential Tenancy Agreement sold by the SFAA. Is there anything wrong with this practice?

Yes. You have violated Civil Code section 1632. This law, which has been on the books since 1976, has recently been expanded to provide protection for Californians who speak, as a primary language, Spanish, Chinese, Tagalog, Vietnamese, and Korean. The legislation requires that any person engaged in a trade or business, such as a landlord, who negotiates the terms of a contract or agreement primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, must, before the contract is signed, deliver to the other party a full translation of the agreement, including a translation of every term and condition of that agreement.

A contract or agreement subject to this law is defined as any “lease, sublease, rental contract or agreement, or other term of tenancy contract or agreement, for a period of longer than one month,” for any residential rental unit. The translation requirement is waived if the tenant brings his or her own interpreter to the negotiations.

This law was enacted in response to perceived abuses by car dealers. Indeed, many Spanish-speaking customers were deceived when they went to purchase or lease a vehicle, and were sold on something much different than what was actually stated in the written contract that they signed.

Today, landlords have to be extremely careful about the ramifications of this law. A violation allows the tenant to rescind, or cancel, the lease. It may also cause complications during an eviction action. Ironically, landlords who negotiate in a foreign language typically do so in order to help the prospective tenant understand the terms of tenancy. Yet such a gesture could have adverse ramifications.

Thus, most practitioners advise that all leases be negotiated in English. Translating the PPMA lease would cost thousands of dollars. Moreover, given the many dialects of these five languages, an owner would be hard pressed to ensure that a proper translation for a particular tenant was even rendered. In addition, lease addendums or modifications, and possibly even eviction notices, would also have to be translated. (For example, a court recently ruled that an automobile loan negotiated in Spanish would require a deficiency and repossession notice to be translated as well.) Therefore, because of this law, do not try to accommodate your non-English speaking tenants by negotiating the lease in their language. Instead, negotiate in English, and put the burden on the tenants to have the terms translated.

DW


Ordinance that limits Condo Conversions gets an OK

On Tuesday, May 9, 2006, the Board of Supervisors approved legislation to reduce evictions by preventing condo conversions at apartment buildings that have been vacated of their tenants.

Prior to this vote, the ordinance had been amended to limit its reach in a compromise between Mayor Gavin Newsom’s administration, Supervisor Aaron Peskin, and advocates for tenants. The measure was called “a fair and equitable way to protect vulnerable tenants” according to Matthew Franklin, director of the mayor’s Office of Housing. The legislation, as amended, would prohibit condo conversion of buildings with two or more evictions after May 1, 2005, or a building where a senior, disabled, or catastrophically ill tenant had been displaced.

Owners of buildings where non-elderly and non-disabled tenants were evicted would be permitted to apply for condo conversion after a 10-year period—provided that the owners lived in the buildings during that time. Currently, the number of condo conversions is limited to 200 a year by city law, with those 200 chosen by an annual lottery.


Master Tenant Quagmire

Q: The master tenant in one of my units has decided to evict the subtenant. The subtenant has said she would prefer to stay. Should I get involved and is the subtenant protected by rent control laws?

If the building was built before June 13, 1979, the subtenant may be protected by the rent law. In 2001, the City’s rent law was changed to clarify when a master tenant could evict a subtenant without one of the fourteen “just cause” reasons. The regulation states that, for tenancies commencing on or after May 25, 1998, a master tenant who is not an owner of record of the property may only evict a subtenant without just cause if, prior to the commencement of the tenancy, the master tenant informed the subtenant in writing that the subtenant can be evicted without just cause. Absent this written disclosure, a master tenant cannot simply decide to terminate a subtenancy; rather, the master tenant is subject to the same stringent just cause rules that the owner must contend with in order to evict a tenant. This same law also requires the master tenant to disclose in writing to the subtenant the amount of rent the master tenant pays to the landlord, and further requires the master tenant to charge the subtenant no more rent than what is attributed to the subtenant’s proportional use of the rental unit. Thus, if the subtenant leases half of the apartment, the master tenant can only charge the subtenant fifty percent of the total rent that is paid to the owner.

Most master tenant and subtenants are unaware of this regulation. Consequently, it is commonplace to see situations where subtenants are being charged more than their proportional share of the rent and master tenants evicting their subtenants without just cause, even in instances where the required disclosures were not made. Owners should refrain from assisting a master tenant in this endeavor for several reasons. First, the eviction attempt could likely be illegal. As such, the owner would invite personal liability for wrongful eviction by assisting the master tenant in this instance. Second, owners should not involve themselves in any tenant versus tenant dispute. An owner who sides with one occupant against another is risking a lawsuit should the offended tenant contend, and perhaps prove, that the accusations used to justify the eviction were false. The one exception would be if any tenant, master or sub, was committing a verifiable “nuisance” by engaging in highly offensive conduct that caused serious annoyance or harm to the other residents of the building; however, if someone is causing a nuisance, the owner would seek to terminate the entire tenancy.

In sum, a master tenant who decides to terminate a subtenancy may not have grounds to do so unless the appropriate written disclosures were made at the inception of the tenancy. Even if this writing was provided, the landlord should not get involved. Instead, master tenants, who are legally considered landlords, may have to employ their own counsel to assist them with this effort.

Dave Wasserman


SFAA PRESIDENT’S REPORT — March 2007

Your SFAA Board of Directors attended the annual California Apartment Association Board of Directors’ & Committee meetings at the end of January in Costa Mesa. As many of you know, CAA consists of 19 local organizations (affiliates and chapters) representing distinct regions of apartment owners in our state. SFAA is unique in that, geographically, our district is the smallest in terms of square miles. Yet apparent from these meetings is the fact that our miniscule slice of the state creates the most intense and daunting political battles. Indeed, the Los Angeles CAA chapter hardly ever encounters the gross hostility that we contend with on a regular basis here at home.
In the midst of this reality comes a sobering and embarrassing fact discussed at length during this year’s CAA membership committee meeting: That SFAA represents less than ten percent of the market in San Francisco, meaning that ninety-plus percent of all apartment owners and operators in the City are not members. No wonder City Hall balks at our demands!
Many of the other apartment association heads bragged that their organizations command more than 60% market penetration. Ironically, such eager enrollment occurs in areas like Orange County, San Diego and Sacramento where rent control remains someone else’s nightmare. Here at ground zero, the troops seem content to relegate active participation to the few, and sadly the vast majority of us cannot even muster the will to pay modest membership fees so as to enable this organization to fight the war.
Why? Is it because most have given up? Or are we just content with the pervasive erosion of our rights as owners? Everyday, I hear someone tell me that you have to be crazy to own rental property in the City. Yet ask your local real estate salesperson about available inventory, and they will tell you that prices keep going up, and that supply cannot withstand ever increasing demand. Obviously, someone recognizes that housing is our scarcest and most valuable commodity.
This organization’s regular apartment owner membership stands at about 2,600. As discussed above, this number represents less than 10% of San Francisco’s landlord population. SFAA annually spends considerable time and funding on advertisement and new member outreach. Such exposure only goes so far, and perhaps cannot go any farther.
Therefore, what I need from each of you is a sincere commitment to recruit at least one new member this year. This is an easy task, and the results will more than double our membership. The increase in revenue will translate into better representation in state and local government, which in turn will improve our ability to stop the onslaught.
If you cannot make this promise, then please do not complain about the further horrors that will inevitably confront us this year. Do not express frustration at the membership meetings. Refrain from writing the Chronicle’s editorial department. In sum, be glad with what you have, and with what you will lose in years to come.
Obviously, no one in the ownership community is pleased with the status quo. The national consultant, hired by CAA to increase membership in all CAA affiliates and chapters, confirms what most of us already know to be true: That new recruits come quickest and easiest from referrals and word-of-mouth, not newspaper ads. So please, I urge each of you to take this pledge seriously.
At the CAA meeting, each affiliate and chapter promised to substantially increase its membership over the next year. In fact, our Board will be undergoing serious introspection as to how each Board member shall bear personal responsibility for this shortfall. As the leading representative body for apartment owners in the City, we cannot act effectively when the vast majority of the constituency sits on the sidelines. So let’s change this reality now, and begin recruitment by contacting an owner you know to have either relinquished membership or to never have joined our organization. I thank you for making this pledge.

DW


Mandating Renter’s Insurance

Question: I would like to mandate that all future tenants have renter’s insurance. Am I allowed to make that part of my rental agreement?

You may require in your rental agreement that all tenants carry renter’s insurance. However, as a practical matter, enforcing this lease covenant will be difficult if not impossible. In fact, many landlord attorneys will tell you that evicting a tenant for failing to renew a policy of renter’s insurance will not be easy. Most likely, the owner will probably fail in an attempt to terminate the tenancy when a tenant decides, after moving in, to cancel the policy.

The better approach is to state, in the text of the lease agreement, that tenants are advised to carry renter’s insurance, and that the landlord’s policy will not cover any loss to the tenant’s property. The 2007 SFAA Lease, which will be available in April, contains such language. Paragraph 33 of the new lease states as follows:

“33. INSURANCE: Owner’s insurance does not provide for coverage of Tenant’s personal belongings or personal liability unless as a direct and proximate result of Owner’s negligence. Therefore, Owner strongly urges and recommends to each Tenant that Tenant secure sufficient insurance to protect against losses such as fire, flood, theft, vandalism, personal injury or other casualty.”

Thus, a properly worded lease agreement will achieve the owner’s objective of properly advising the tenant to carry insurance and not to rely on the building’s coverage to pay for personal injury and property damage. The owner will also not be in the difficult position of annually checking for policy renewals and then be compelled to commence legal action, which could very likely yield a negative result for the landlord, if the policy has lapsed.

Owners should still understand that a tenant may seek indemnity from the building’s insurance when a loss occurs as a result of the landlord’s negligence. As stated in the 2007 SFAA Lease, coverage is excluded unless the loss occurs because the owner did some wrongful act or failed to take necessary precautions to prevent harm from occurring. For example, if you know that the roof leaks and you fail to fix it, the tenant can sue you for water damage, including harm caused by mold. A premises that is not properly lit is a magnet for injury claims. Likewise, if you do not maintain code compliant fire/smoke alarms/extinguishers in working order, your carrier, and perhaps you, will be paying for injuries and property damage should a fire occur. As a general rule, when damage happens because of your fault, your policy pays regardless of whether the tenant has renter’s insurance. Yet when the tenant’s bike is stolen out of the garage, or the entertainment system is destroyed during an earthquake, you can lessen the likelihood of the tenant receiving indemnity from you and your insurer when the rental agreement places the tenant on notice to procure adequate protection.

So, in conclusion, tell your tenant to carry renter’s insurance in the lease agreement, but you probably cannot enforce a rule requiring annual renewal of such a policy. More importantly, ensure that your building is well maintained so that the tenant can never make a claim against you or your policy.

DW


Q: A tenant claims that she had her purse stolen and asked me to replace the lock on the gate to her unit. This is the first request she has made for a lock change, and she has lived in the unit for more than two years. Do I have to replace the lock, and if so, can I pass on the cost to her?

A: You probably should replace the lock promptly. Landlords are responsible to ensure that their tenants are protected from foreseeable harms, and if the thief has the tenant’s identity and access to her unit, she is in danger of being burglarized or worse. To this end, the California courts have consistently held that residential tenants have the right to personal safety in and around their rental units. Owners must always take reasonable steps to make their buildings safe, such as providing adequate lighting, sufficient locking devices on unit doors, and appropriate safeguards for entryways and exit areas. This is good public policy, and owners who neglect their duty of care will be held responsible for a tenant’s injury or death caused by crime.

In this case, because the tenant lost her key when her purse was stolen, the landlord could pass the cost of replacing the lock onto her. This pass-through is akin to charging a tenant for the cost of a locksmith’s time when a tenant locks herself out of a unit. The owner should also ascertain whether the locks to the common areas also require changing. If the thief has the purse with the keys, he could gain access into the building and threaten the safety of other tenants. Thus, the common area locks may also need to be changed (with replacement keys passed out to all of the building’s residents), and this expense could also be submitted to the tenant whose key was stolen.

This author recently received a call from one of his tenants, a 92-year-old woman, who lost her key. He replaced the lock that night, and he paid for the cost of replacement but told his tenant that if another change was required she would have to pay. Regardless of how the cost is reimbursed, please change all of the affected locks immediately so as to maintain the safety of your building.

Finally, local law now requires landlords to replace the locks of all units when the tenancy is terminated. This law was passed last year because the Board of Supervisors found cause to require owners to have new locks for new tenants, as no landlord can know for certain if a departing tenant kept keys or distributed copies to other persons. Although modern locking devices and key systems are expensive, there can be no substitute to proper safety and well being.

DW


Megan’s Law Website

At the January 2005 California Apartment Association meeting, the hot topic for discussion was the recent flurry of inquiries from landlords and managers over the new website, www.meganslaw.ca.gov/, which now provides the identity, date of birth, criminal history related to sex offenses, photograph, physical description (including gender and race), ZIP code and community of residence of California’s registered sex offenders. In addition, the home addresses of the most serious offenders (for example, sexual predators) is also provided. This website is the product of new legislation signed by the Governor that expands Megan’s Law by requiring information about sex offenders to be available on the internet. Previously, sex offender information was most readily disclosed via telephone or by personally visiting local law enforcement offices, and rental agreements entered into after July 1, 1999 are required to inform a tenant that he or she can access sex offender information. Now, with the availability of this data over the internet, landlords and tenants can more freely find out where sex offenders are living. Not surprisingly, they are.

So what do you do if a sex offender is living in your building? And, how do you respond to the demands of other residents to rid the premises of the perceived danger? California landlord-tenant law is increasingly holding landlords liable for failing to protect tenants from known risks and dangers. Yet places like San Francisco severely limit an owner’s ability to terminate a tenancy. Moreover, Megan’s Law itself prohibits a landlord from using sex offender information as a basis for discrimination. (In fact, you cannot deny a rental application simply because the applicant is a registered sex offender; however, there is argument that an owner is not under a legal duty to rent to applicants whose tenancy may constitute a direct threat to the safety and well-being of others.) At this time, in rent controlled jurisdictions like San Francisco, an owner cannot evict merely because he discovers that one of the residents in the building is on the list. Unfortunately, the offender must actually inflict harm in order to trigger just cause for termination of the tenancy.

Yet does the owner turn a blind eye to such a revelation? No. When the owner has actual knowledge that a registered sex offender is living at the property, he is under a duty to take measures to protect the safety of the other tenants. First, the owner should advise the local police precinct that there are children or other persons at risk at the property, and request dissemination of information to residents at the property about the sex offender. Second, if no dissemination by the police is made, the owner should consider advising the other residents of the offender’s presence. However, some practitioners worry that this step may make the landlord liable to the sex offender tenant for harassment or wrongful eviction. Indeed, if the other residents commence a campaign of hostility against the sex offender, he could sue the landlord or seek a reduction in rent from the Rent Board. Ironically, the claim may also seek damages under Megan’s Law itself, which prohibits discrimination against known offenders.

So, unfortunately, California owners must now face two somewhat contradictory set of laws: On the one hand, they must protect their tenants from known dangers while, on the other hand, they cannot discriminate against sex offenders whose identities are available on-line. And to make matters worse, extremely pro-tenant jurisdictions like San Francisco will foster an environment where all tenancies are preserved, and tenants who feel harmed by sex offenders and sex offenders who feel harassed in their apartments will both be able to run to court and sue their landlords for big damages.

The California Apartment Association and other interest groups are working to clarify when an owner may deny the application of a sex offender, and/or when a sex offender’s tenancy may be terminated should the tenancy pose a risk to others in the building. Until and unless these efforts succeed, landlords must take very special caution to balance their obligations to protect their residents versus their obligations to ensure that all tenants, even sex offenders, maintain quiet enjoyment of apartment units. Therefore, you may want to contact your attorney if you discover a sex offender to be living at your property.


New Rule for Tenants Who Fail to Appear at Hearing

In one of our recent Section 1.21 cases before the Rent Board, the tenant chose not to attend the hearing, claiming that a “medical excuse” precluded her from traveling to San Francisco. Yet during the hearing, the landlord’s private investigator observed the tenant to be in the Rent Board’s restroom coaching her witnesses! In addition, prior to the hearing, a written discovery request was also served on the tenant, requesting certain documents and things to assist in determining where she principally resided. Her attorney refused to provide any of the requested items, and informed the Rent Board that his client was not required to participate in discovery.

This case eventually went before the Rent Board Commissioners. Although the Rent Board rules do not require a tenant to attend the hearing or to produce evidence, given the egregious facts of this case, the Commissioners adopted the following rule: “In determining what inferences to draw from the evidence or facts in a case against the party, the judge may consider the party’s failure to explain or deny any adverse evidence or facts in the case or any willful suppression by the party of evidence relating to them.” This rule mirrors a civil law jury instruction and should make it easier for landlords to prove their case when the tenant decides not to appear at the hearing and/or not to produce any evidence.


LAWS REGULATING CONDOMINIUMS (COMMON INTEREST DEVELOPMENTS)

I. The Davis-Stirling Common Interest Development Act.

The Davis-Stirling Common Interest Development Act (“Davis-Stirling “) contains the statutory provisions “respecting the creation and essential attributes of common interest developments “in California. Davis-Stirling, passed by the Legislature in 1985 and amended various times during the past decade, consolidated the legislative scheme regulating all common interest developments ( “CIDs “) into one area of the Civil Code.
A. Factors leading to the passage of the Davis-Stirling Act.

In 1984, an Assembly Select Committee identified several problems with the statutory law affecting common interest developments. While many specific problems were identified, the problems were grouped into a few key categories.

First, prior to passage of Davis-Stirling, the laws affecting CIDs were dispersed throughout various sections of different codes. This made location of the law difficult, and, in many instances, the placement of the statutes was “illogical.” For example, former Civil Code §783 provided the definition for a condominium, while the rest of the condominium law existed as the “Condominium Act ” in former Civil Code §§1350-1370. Also, while the law pertaining to condominiums existed solely in the Civil Code, planned developments, community apartment projects and stock cooperatives were governed by both the Civil Code and Business and Professions Code.

Also, the statutes treated the different types of CIDs differently. Under the pre-Davis-Stirling scheme, different legal rules applied to the various types of CIDs, creating statutory advantages for certain CIDs that were not available to the others. For instance, the covenants, conditions and restrictions ( “CC&Rs “) created by a condominium plan were enforceable by statute as equitable servitudes against all successive owners of condominium units. However, the CC&Rs for other forms of common interest developments were not automatically enforceable. Instead, those CC&Rs had to comply with the common law rules of covenants running with land to be enforceable. One common law rule, for example, requires a conveyance between the original parties to a covenant in order for it to be enforceable against future owners.

Further, there was a lack of express authority for existing practices of CID developers and homeowners’ associations. In order to facilitate CID development and operations, developers and homeowners’ associations ( “HOAs “) developed practices that, although not prohibited, were not expressly authorized by law. Examples include the designation of exclusive-use common areas (common areas available to more than one, but less than all, of the owners of the separate interests), the recordation of the CC&Rs, and the management of a CID by an association.

The CID Select Committee identified key problems relating to the management of CIDs by associations. The various rules that applied to CID governance were either confusing or they created barriers to effective management. Confusing aspects of the law related to the extent an association could impose penalties for delinquent assessments and the exact powers of the association itself. Additionally, the law allowed for “alternative management schemes,” i.e., not associational, for condominiums, which only provided confusion on the issue of CID management.
B. The Legislative Response: Davis-Stirling.

Davis-Stirling consolidated, clarified, and simplified many aspects of CID law. It reorganized CID law by consolidating much of the law governing the creation and management of CIDs to one are of the Civil Code. Those aspects of the Business and Professions Code respecting CIDs were repealed.

Moreover, to the extent possible, the legislature attempted to treat the various CID types similarly All CID CC&Rs must be recorded and are enforceable by statute as equitable servitudes. Section 1367 of the Davis-Stirling Act consolidates the legal rules pertaining to the levying and collection of assessments, whereas those rules were previously inconsistent in application to condominiums and planned developments. Prior to the enactment of §1367, the assessments on planned development units only became liens on the units when they became delinquent, while condominium assessments automatically became liens upon assessment.

Davis-Stirling addressed many of the operational and management problems by making express rules for governance and maintenance. Most importantly, the Act provides a uniform set of definitions for all CIDs. Pertinent examples include common definitions for “common area ” and “separate interest” for each CID type. Also, “exclusive use common areas” were created to allow owners to designate exclusive-use common areas that benefited certain separate ownership interests.

Davis-Stirling also simplified aspects of CID governance. Instead of alternative schemes of management, all common interest developments must now be governed by an association Also, associations are governed by the non-profit mutual benefit corporation law, even if they are not incorporated.

In addition to consolidation, simplification, and equal treatment, Davis-Stirling also made other substantive changes in 1985 (the year of passage of the initial act), and in succeeding years. Some of those changes included:

  • The definition of “common interest development” was simplified in 1989. A “common interest development” is now a community apartment project, a condominium project, a planned development or a stock cooperative;
  • In order for new developments to be governed by Davis-Stirling, a declaration must be recorded with the official recorder of the county in which the CID is located. The declaration must contain a legal description of the CID, identification of the type of CID, the name of the association, and the restrictions intended to be equitable servitudes;
  • With a few exceptions (e.g., emergencies), the association may not increase regular assessments more than 20% above those for the preceding fiscal year without consent of the majority of a quarum of owners;
  • The delinquency period for assessments was reduced from 30 days to 15 days.

These are just the basic changes of the CID law. Since the initial Act was passed in 1985, the law has been amended many times. With the number of common interest developments rising, there are sure to be many more amendments to the law.
II. Other Laws that Govern CIDs

Although the Davis-Stirling Act governs the creation and operation of common interest developments in general, several other laws govern certain aspects of CIDs as well.
A. Subdivision Map Act

The Subdivision Map Act requires and authorizes local planning regulation of all subdivisions, which includes CIDs, of five or more units. A subdivision is defined as “the division of any improved or unimproved land for the purpose of sale, leasing, or financing, immediate or future.” The essential requirement of the Map Act compels developers to file tentative and final maps with the local planning authority.34 These maps are reviewed by the local planning agency to assure compliance and consistency with the city’s general plan and any specific plan enacted to implement the general plan.
B. Subdivided Lands Act

CID subdivisions are also subject to the Subdivided Lands Act. This law applies in the pre-development stage to regulate the sale and offer of interest in subdivided projects. The primary requirement of the Act is the subdivision public report, which is intended to “assure adequacy and full disclosure” in connection with the offer and sale of subdivisions to protect purchasers from fraud and deceit.
C. State Local Planning Law

This law authorizes each local government to establish an agency to regulate local land use planning. It requires each city to develop a general land use plan and specific plans as necessary. The local planning law is relevant to CID development, because CIDs must be consistent with the general plan, relevant specific plans, and any zoning controls enacted thereunder.
D. The Nonprofit Mutual Benefit Corporations Law

Most CID associations that incorporate do so as nonprofit mutual benefit corporations. The Nonprofit Mutual Benefit Corporations Law40 and other sections of the Nonprofit Corporations Law govern aspects of association governance.41 As mentioned previously, Davis-Stirling provides that associations are governed by the law even if they choose not to incorporate.

This law provides the basic rules for homeowner association governance. It deals with the aspects of voting rights, manner and timing of notices to members, meetings, and director selection and removal. One very notable application of the Nonprofit Mutual Benefit Corporations Law is that “owners associations” are exempted from the general rule that bars members from holding more than one membership in a nonprofit mutual benefit corporation Thus, an owner of more than one separate interest may hold more than one membership in an association.
E. Other Laws

Other California statutes also apply in varying degrees to CID creation, management or operation, depending on the circumstances. They include: the California Environmental Quality Act (CEQA) (requiring review of environmental impact of any “project”); the California Coastal Act (requiring review by Coastal Commission whenever a development is within 1,000 yards of high tide land); the State Zoning Law (to ensure consistency with state and local zoning regulations); and Government Code §§65864 – 65869.5 (relating to a local entity’s authority to enter into development agreements with private parties to encourage private participation in long range land use planning).
III. Recent and Pending Legislation

During the 1990’s, the legislature debated various pieces of legislation affecting CIDs. Most of the legislation that was introduced related to CID management. While some of the legislation could only be considered legislative fine-tuning, other pieces significantly affected (or could, in the future, significantly affect) the right and duties of HOAs and their executive boards.

Some amendments to Davis-Stirling in recent years have expanded the rights of HOAs, or protected their interests in some manner. For example, in 1992 the Legislature added Civil Code section 1355.5 to Davis-Stirling, which allows HOAs to delete from its governing documents any provisions intended to promote the developer’s marketing or construction of the CID once the development was completed. Another notable example was the legislature’s restriction on the ability of managing agents to withdraw from HOA accounts, including reserve accounts.

However, other recently enacted amendments to Davis-Stirling have placed more burdens on HOA executive boards in relation to CID governance. The most notable amendment is the addition of Civil Code section 1363.05, which imposes more exacting requirements for open meetings of the HOA. Also, the HOA executive board must meet certain requirements before it withdraws from reserve accounts and it must provide reports to all homeowners on a periodic basis.

Other amendments prevent HOAs from placing certain types of restrictions on owners. For example, HOAs are expressly prohibited from restricting owners from placing certain types of television and video antenna, such as satellite dishes, on its separate interest property. The legislature has attempted to pass other prohibitions on HOA CC&Rs. For example, in the 1995 term the legislature passed AB 3056, which would have made void and unenforceable any restriction against the operation of motorcycles within a development. The bill was vetoed by the governor.

Some “builder-friendly” bills have also been enacted. These bills, which also place burdens on HOAs, have their most significant impact on construction defect litigation. For instance, an HOA must have an open meeting at least 30 days before bringing a civil action against a developer for any construction defect.53 More importantly, the Legislature recently added Civil Code §1375. That section places several requirements on an association before it brings an action against the builder for construction defect. They include: written notice (which must include a list of defects, a summary of testing on the defects, proposed methods of repair), a process to “meet and confer,” and the possibility of alternative dispute resolution.
CONCLUSION

Common interest developments in California are subject to several different statutes. The major statute governing the creation and major attributes of CIDs, however, is the Davis-Sterling Common Interest Development Act. That Act was designed to clarify and consolidate the various statutory provisions governing CIDs. Several other statutes, including the Subdivision Map Act and State Local Planning Law, impact aspects of CID development. Each year legislation is introduced, and sometimes enacted, to amend and fine-tune the Davis-Sterling Common Interest Development Act and other laws governing CIDs

– Daniel R. Stern


PRESIDENT’S REPORT
APRIL 2008

KEEP YOUR EYES ON THE PRIZE

All too often, we become mired in our legislative defeats and the multitude of laws that have eroded property rights over the years. Admittedly, the rental industry became much more combative, and difficult, in the late 1970s when city after city, including our own, passed rent control. The bad news intensified when the long-standing promise to exempt owner-occupied small buildings from rent control was broken in 1993 with the passage of Proposition I. In the late 1990s and into this decade, the City really ramped up its onslaught, making owner move-ins difficult (if not impossible), reducing capital pass-throughs, mandating roommate replacement, and not permitting severances of housing services. Most recently, the voters approved a measure making certain types of evictions prohibitively expensive by requiring massive pay-outs to tenants for “relocation expenses.” The end result of this calamity is over-regulation to the detriment of everyone, including tenants, who now suffer as a result of higher rents and understandably hostile landlords.

Yet one gift we sometimes fail to appreciate is that magnificent state law known as Costa-Hawkins. This statute, which became effective in 1995, marked a major turning point for the housing industry. In the late 1980s and early 1990s, terrified apartment owners watched at cities such as Berkeley, Cotati, East Palo Alto, and West Hollywood adopted what was known as “vacancy control.” Vacancy control means that even if a unit is vacated, the rent remains fixed at a governmentally mandated price. Thus, in cities with vacancy control, owners would have to register their units with the local rent boards, and the registered rent became the allowable amount that could be charged regardless of who lived in the unit. Hence, there was no such thing as fair market rent or potential “up side” for investors.

Not surprisingly, San Francisco’s government quickly became enamored with the notion of full rent regulation and began implementing vacancy control. However, this effort was halted when local and state industry leaders corroborated to draft and pass Costa-Hawkins. Indeed, former SFAA President Merrie Turner-Lightener was instrumental in drafting this legislation.

With Costa-Hawkins, owners can now set the rental rate of vacant apartments to whatever rent they want. Units are not registered with the Rent Board, and the government cannot tell an owner what to charge for a vacated unit. Some of our friends who own rent-controlled units in New York City are not so lucky, as this jurisdiction still suffers from vacancy control.

Costa-Hawkins is also crucial for several other very important reasons. First, it tells cities and counties with rent laws that buildings built after February 1, 1995 cannot be subject to residential rent control. This is important because it incentivizes builders to construct new apartment buildings. While the San Francisco law states that units constructed after June 13, 1979 are mostly exempt, we know, from widespread experience, that the Legislature changes the rent laws on an extraordinarily frequent basis. Now, thanks to Costa-Hawkins, City Hall cannot impart rent control onto projects built after 1995. At the present time, the California Apartment Association and other groups are taking a case before the California Supreme Court to fight the City of Santa Cruz’s attempt to impose rent controls on newly-constructed second units on an owner’s property; hopefully, the clear legislative intent and plain meaning of Costa-Hawkins will be upheld by our state’s highest court.

Second, Costa-Hawkins exempted from rent regulation single-family homes and condominiums where the tenancy began on or after January 1, 1996. This means that owners of condominiums and single-family homes in San Francisco that were built before June 13, 1979, and were formerly subject to rent regulation, may now ignore the annual allowable rental increase limitations provided that the tenancy began after December 31, 1995. However, these units are still subject to the local eviction controls, meaning that the tenancy cannot be terminated unless the landlord invokes one of the 15 allowable just cause reasons. In addition, condominiums that have not been sold to bona fide purchasers for value by the developer (the owner or owners who converted the building to a condominium project) generally do not receive this benefit.

Third, and most important, is the ability that Costa-Hawkins affords to apartment owners to set a new rent when the last original occupant no longer permanently resides in the unit, and the remaining subtenant(s) took occupancy after December 31, 1995. For example, if you rented a unit to Tenant A and Tenant B, and in 1998 Tenant C moved in, when Tenant A and Tenant B move out the rent can be raised to fair market value.

There is a substantial amount of confusion and interpretation surrounding this critical provision of Costa-Hawkins. Not surprisingly, tenant advocates have made every effort to limit its use by owners. For starters, the remaining subtenants usually argue that the original occupant still permanently resides in the unit. In other words, they assert that the term permanently resides, which is not defined in the law, has a broad meaning and essentially precludes a Costa-Hawkins rent increase if the original occupant has any connection whatsoever with the rental unit. Thus, if the original occupant still sends the rent check or has some furniture at the apartment, even though he moved to Amsterdam, they advocate that the original occupant has not permanently vacated. Many judges at the Rent Board accept this argument.

Tenants also commonly utilize the defense that the owner has waived any right to implement a Costa-Hawkins rent increase by recognizing the subtenant as an original occupant. In fact, the Rent Board has passed a series of regulations that attempt to define “waiver,” even though Costa-Hawkins is relatively silent on this issue. (Costa-Hawkins actually states that “acceptance of rent by the owner does not operate as a waiver… unless the owner has received written notice from [the departing original tenant] and thereafter accepted rent [from the subtenant].”) The Rent Board insists that a landlord must increase the rent, or reserve the right to increase the rent, within 90 days after the original tenant vacates. The Rent Board also implies waiver if the subtenant shows that the landlord “affirmatively represented” to the subtenants that they may remain in the unit at the rent-controlled rate. Obviously, these types of local rules invite and encourage tenants to attack Costa-Hawkins rent increases, and oftentimes we suffer defeat at the Rent Board when, in all likelihood, the Rent Board has exceeded its authority by misinterpreting and restricting application of a state law.

Related to Costa-Hawkins is a local Rent Board regulation that was passed about six years ago by the Rent Board Commissioners. Known as “Section 1.21,” this law allows landlords to raise the rent to whatever they want if they show that the tenant no longer “principally resides” in the rental unit. Enacted to de-control units being used as part-time second homes, Section 1.21 is effective when the tenant has not permanently vacated but continues to use the apartment infrequently and not as a main residence. For instance, a tenant who now lives in Portland, Oregon but keeps the place in the City for occasional Giant games and nights out on the town may now have to pay a fair market rent. Santa Monica also has a similar law, and the California Court of Appeal has recently affirmed the right of local rent boards to implement rules decontrolling units that are not used as a principal place of residence.

So, in the spirit of the presidential campaign season, this column is circulated to impart a sense of hope and accomplishment. Our industry, while suffering defeats on many issues, has successfully stayed off vacancy control, and the one-time practice of selling keys or passing down rental units to family and friends, a sight common in New York and some of the European cities that have embraced rent control, has been eradicated in our city and state. When the local campaign season kicks off into high gear shortly, and you are asked to contribute your time and money to support worthy candidates and causes, remember Costa-Hawkins and Section 1.21. Also remember that both laws could be repealed or scaled down, which would effectively diminish the “up side” of your investment. In sum, do not doubt the ability of our local organizations to make a real difference, and never concede that our efforts are hopeless. Finally, remember that apathy will ensure that laws we cherish will fall by the wayside, as there are many here and throughout the state that are striving, with good funding and organization, to re-establish vacancy control as a misguided means to guarantee affordable housing.

DW


Question: What kind of incentives, like rent rebates or temporary reductions in rent, can I offer to my tenants in order to entice them into renting or staying at my property?

Answer:

In the current marketplace, consumers are besieged on a daily basis by cable companies, airlines carriers, cell phone operators, and other service providers with offers of reduced rates, “buy one get one free,” and twelve months for the price of ten. These offers are designed by businesses as incentives or enticements to lure consumers to using their product or services over the services of competitors. These incentives are standard industry practice and are effective in capturing a larger market share than otherwise would be attained given the competitive nature of the market place and the ever growing number of service providers.

Incentives are also industry standard in the residential housing market place, particularly when the housing market is soft. Examples of such incentives include offering a free month of rent, allowing certain months at a reduced rental rate, or giving a tenant twelve months for the price of eleven. Such incentives are marketing tools which help landlords make their properties more attractive to renters and allow them to steer prospective tenants away from other properties. The use of such incentives, until recently, involved relatively little risk of liability if landlords and property managers were careful to fully disclose them and execute documents with prospective tenants that such incentives were not meant to constitute permanent rent reductions. However, the rules of the game regarding the use of incentives have drastically changed.

A recent ruling by the San Francisco Rent Board held that a rent reduction granted by a landlord to a tenant will be amortized over a twelve month period and will permanently reduce that tenant’s base rent. This case involved a large residential landlord who offered incentives to prospective tenants to enter into one year leases and to its existing tenants to renew their one year leases. The incentive offered came in the form of coupons which tenants could use to reduce their monthly rental obligations. The coupons could be submitted by tenants in any combination as long as the total value of the coupons used did not exceed the total monthly rent as stated on the lease agreement. The landlord took painstaking efforts to ensure that the use of these coupons by tenants would not be employed to permanently reduce the tenant’s base rent as stated on the written lease agreement. Tenants were required to and did sign several documents wherein they acknowledged that the incentives were temporary in nature, could be discontinued at any time, and did not affect the monthly rent as stated on the lease agreement. All annual rent increases were thereafter imposed by the landlord on the base monthly rent as stated in the lease agreement. When the rental market improved, the coupon program was discontinued, and tenants who previously received coupons then rushed to file Rent Board petitions alleging unlawful rent increases, asserting that the rent they paid in conjunction with the coupons was the true base rent, and that all annual increases imposed by the landlord should be imposed on that amount. The Rent Board agreed with the tenants.

The upshot of this ruling is that LANDLORDS CAN NO LONGER GIVE ANY TYPE OF RENT CONCESSION, FOR TO DO SO WILL HAVE THE EFFECT OF PERMENTLY REDUCING BASE RENT. ANY RENT INCREASE IMPOSED ON ANY AMOUNT OTHER THAN THE REDUCED BASE RENT— REDUCED BY THE AMORTIZATION OF THE INCENTIVE- WILL BE UNLAWFUL.

The Rent Board’s decision in this case has wider implications than just penalizing landlords who used these incentives by finding that such incentives will permanently reduce base rent. The decision will now seemingly penalize property owners who give temporary rent decreases to tenants who are experiencing financial hardship and cannot afford to pay all or a portion of their monthly rent. Such a temporary rent reduction may now permanently reduce the base rent. The message the Rent Board has sent to property owners is that landlords can no longer help tenants who are experiencing financial hardship, and rather than offering tenants in need a temporary rent reduction, the landlord must serve the tenants with a Three Day Notice to Pay Rent or Quit and commence eviction proceedings against them if they do not pay full rent.

While it is true that rent concessions benefit property owners in many ways, such concessions also benefit tenants by giving them financial rewards for executing long term leases, being tenants in good standing, and avoiding eviction for non payment of rent when they experience financial hardship. Although the Rent Board’s decision in the case referenced in this article is being appealed and the final disposition of the matter is yet unknown, until the decision is rendered in the appeal, landlords should not give prospective or current tenants any rent reductions, whether to reward them for being good tenants or to assist them during times of financial hardship. Such “temporary” rent concessions, regardless of the measures property owners take to ensure that these concessions are temporary, may be amortized over a twelve month period and may permanently reduce base rent, thereby subjecting owners to possible unlawful rent increase petitions should the annual allowable increases be imposed on the rent that does not take into account the offered incentive.

Daniel R. Stern
Wasserman-Stern


Legal Corner Q & A

Short Term Rentals and Temporary Relocations
by Various Authors

Q. Is there anything illegal about furnishing an empty unit and marketing it as a short-term rental?

A. No. In fact, there are many landlords in San Francisco and elsewhere who are doing just that. Known as corporate or short-term rentals, these tenancies are intended to cater to tenants who will occupy rental units for relatively short periods of time. Many times, the occupant is on a job assignment for only a few months and cannot be tied down to a year-long lease. There is no law that prohibits a short-term lease or the marketing of a short-term tenancy. If, however, an occupant decides to remain beyond the agreed-upon term, you might encounter difficulty in regaining possession of the unit. The act of asking a tenant to leave upon expiration of the term could be viewed as a wrongful endeavor to recover possession in violation of the Rent Ordinance. Most landlords who enter into short-term rentals are willing to take the risk of the tenant not vacating. The rent usually charged for a short-term rental is higher than usual, so extending the term is not a hardship. Furnishings provided by the landlord also warrant a higher rent than usual. Another incentive for short-term rentals is the knowledge that behind the short-term rental is a large company or university that is interested in maintaining a long-term relationship with the landlord. Many times the company is the entity signing the lease as the tenant. These large companies tend to be reliable, pay the rent on time and move their employees out in a timely fashion.
—Clifford E. Fried
Q. In order to ask a tenant to relocate for substantial renovation purposes, what threshold for construction, noise or interference must be reached?
A.Temporary evictions for capital improvement or rehabilitation work have become more and more common as owners seek to improve their properties in this red-hot real estate market. The local rent law allows an owner to temporarily evict a lenani in oruer 10 do substantial remodeling and improvement work but imposes some stringent requirements. For example: • The tenant must be invited back to the unit at the rent-controlled rent after completion of the work. • The tenant can only be displaced for the time required to complete the work, and this displacement period cannot exceed three months unless the owner receives an extension from the Rent Board. • The owner must pay each tenant up to $1,000 for moving and relocation expenses not less than 10 days before the tenant leaves. • All necessary plans and permits must be on file with the Department of Building Inspection before the eviction notice is given, and the tenant must be advised in writing that the permits/plans can be viewed at the Central Permit Bureau. (I also recommend that you attach the plans and permits to the temporary eviction notice.) The law states that a temporary eviction can only occur if the improvements make the unit hazardous, unhealthy and/or uninhabitable while work is in progress. I have encountered situations where the owner pulls work permits, only to have the tenant take the issue before the Board of Permit Appeals and request that the permits be reconditioned in order to allow the tenant to stay while the work is performed. Thus, you must be careful when deciding whether or not to serve a temporary eviction notice because many cosmetic improvements such as painting or carpeting do not warrant displacement. The initial question is always: Will the unit really be rendered unlivable? If you are tearing apart the kitchen, the answer may be yes. If, on the other hand, you are rehabilitating a bathroom in a two-bathroom unit, then the tenant could probably stay. (In one of my cases, the unit had one bathroom, but the tenant secured an agreement with the upstairs tenant to use his bathroom and, as a result, successfully challenged the temporary eviction.) The owner must also be aware of premise liability because a tenant who is injured at a construction site will most certainly pursue a claim for personal injury. Contractors and attorneys can help you make this analysis. In preparing the temporary eviction notice, I always recommend that the landlord state what work will be required and precisely why this work will make the unit unsafe. I also request that the tenant keep the owner informed of his or her forwarding address in order that the owner can contact the tenant once work is completed. Failure to immediately inform the tenants in writing that the unit is again ready for occupancy will provide valid grounds for both a wrongful eviction claim and a decrease-in-services petition. Temporary evictions are complicated by a balancing act that involves determining whether or not the unit will become unsafe for habitation during the work. Your temporary eviction notice and your plans/permits must be complete, accurate and able to withstand legal challenges. You must ensure that the displaced tenants are informed promptly when work is finished. Therefore, as in the case of any rent control eviction, I advise you to seek competent legal counsel before asking the tenant to vacate.
—David Wasserman
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Clifford E. Fried is with Wiegel & Fried, 552-8230. David Wasserman is with Wasserman & Taxman, 415-567-9600. Copyright © 2004.


I allowed tenants to put their grills on the roof deck. One of the charcoal grills was not well maintained and now hot ashes can drop on the roof. I am worried about it starting a fire. Under the new Mirkarimi ordinance, can I ask the tenant to remove the old grill without having to reduce his rent? I am still allowing gas grills on the roof.

Your question, although stated simply, actually raises a firestorm. It is not clear from the question of what material your roof deck is constructed. The California Fire Code contains very strict guidelines about roofs and grills. It is very likely that the presence of any grill (gas tank or charcoal) on your roof deck is in violation of the Fire Code, unless your roof deck construction meets the Fire Code requirements for non-combustible material. You should contact your local fire inspector for more information.

However, for purposes of this question about the Mirikarmi ordinance, we will assume that the grill’s presence on the roof deck is permissible per the Fire Code, and that you simply want the tenant to remove it because of the fire hazard.

The Mirikarimi ordinance provides that a landlord may not take away a tenant’s use of garage facilities, parking facilities, driveways, storage areas, laundry rooms, decks, patios or garden access without one of the 15 “just causes” under Rent Ordinance Section 37.9. Section 37.9 (a)(3), commonly known as the “nuisance ground,” states that a just cause arises if a tenant is creating a substantial interference with the comfort, safety, or enjoyment of the landlord or tenants in the building. Clearly, hot ashes on the roof are a safety issue.

A thirty day notice changing the terms of the tenancy requiring the removal of the grill could be served to the tenant pursuant to this provision. If the tenant is actively using the grill and the fire risk is high, you may want to concurrently serve a three day notice, requiring the immediate removal of the BBQ so as to protect the other tenants and the building without delay.

In your situation, you are not per se removing the tenant’s complete access to the roof deck, but rather simply asking that the grill be removed. Of course, the tenant will argue that his sole purpose in using the roof deck is to barbeque, and thus removal of the grill is tantamount to removing his access to the roof deck. (Some landlord attorneys have actually had tenants assert this position in court!) As such, there is the possibility that the tenant will seek a reduction in his rent if he is not allowed to replace his grill, so at the very least expect a Rent Board petition when the grill is gone.

– Marina Franco


New Rent Law Requires Just Cause to Remove Certain Tenant Services

Unfortunately, the Rent Board could not agree to pass these regulations. The tenant commissioners were supposedly unhappy with the latitude afforded to owners by the proposed regulations, and negotiations ended in March. At present, the Rent Board takes the position that the Superior Court must interpret the provisions of this new law. As a result, there is a high degree of uncertainty in both the landlord and tenant communities.

A Rent Board Memorandum from Senior Staff to the Commissioners, issued on August 31, 2006, summarized the current predicament. Senior Staff noted that some of the fourteen just cause grounds are not applicable to the removal of housing services. For example, condominium conversion, substantial rehabilitation of a unit, and the removal from rental use of all units pursuant to the Ellis Act could not be invoked to remove a housing service only. Other grounds, such as nonpayment of rent and nuisance, terminate the entire tenancy and thus were likewise inapplicable. This left owner/relative move-ins, temporary evictions for capital improvement work, demolition of units, and temporary relocation for lead abatement as possible candidates for consideration.

Yet even these just causes presented a problem. Staff highlighted the inherent illogic of the new law as applied to owner move-ins. “Does the landlord have to ‘reside’ in the parking or storage space or garden as their principal place of residence for 36 months…?” Indeed, does a landlord have to pay a tenant displaced from parking, but not the unit, the massive relocation payments now required under Proposition H? Staff also noted that substantial relocation payments would be due for temporary removing services under the lead remediation and capital improvement grounds. In essence, you could pay your tenants in excess of $15,000 to clear the garage for three months!

Staff observed that the law has no explanation on the type of eviction notice required, or if an unlawful detainer (court eviction action) would be the appropriate mechanism to enforce compliance. More disturbingly, the rent law’s amendment is silent as to what happens if a landlord allows a tenant to use a service, for no additional rent, after the tenancy commenced. Thus, an owner could grant garden access for a period of time, charging no additional compensation for its use, and then be precluded from taking back exclusive access.

Finally, Rent Board Staff correctly reported that the current law seems to conflict with a California Court of Appeal case from San Francisco, entitled Golden Gateway Center v. San Francisco Rent Board (1999) 73 Cal.App.4th 1204. In that case, the Rent Board wrongfully awarded tenants at the Golden Gateway apartment complex rent reductions for the temporary loss of their decks while the owner was repainting and repairing the exterior of the building. The Court of Appeal stated that reasonably necessary repair and maintenance work on the property, which has the effect of temporarily interfering with the tenant’s full use of a housing service but does not interfere with the right of occupancy, does not constitute a decrease in housing services warranting a rent reduction. This new law contains no exception to allow a decrease in services for necessary repair and maintenance work, and therefore creates a conflict with California case law.

Some practitioners argue that because the law states that the specified housing services cannot be “severed” without just cause, a reduction may be imposed provided that a rent reduction is allowed. Thus, an owner could reduce the amount of hours a tenant spends in the garden, or change the hours of the laundry room’s operation, but as long as there is no severance, arguably no unlawful interference with housing amenities has occurred. The Rent Board does not support this interpretation, and conceivably a landlord who imposes a significant reduction of access to a service may be subject to severe wrongful eviction penalties.

A real challenge relates to new owners who encounter tenants using services not designated as such by the lease agreement. In other words, many times tenants store items in places not designated as their storage, or they use a roof deck that is not specified on the lease as a housing service. In these situations, current or future ownerships may now be unable to correct the tenant’s conduct, as undoubtedly tenants will assert that they were given permission to use these services.

Most importantly, an owner who simply wants to re-configure the building by changing parking, take away a dangerous roof deck, or halt late-night garden parties may face the prospect of preclusion. Worse yet, a failed attempt to alter services could result in a wrongful eviction lawsuit.

The courts will undoubtedly interpret the new housing services law. Hopefully, judicial analysis will favor the housing industry, as the outright prohibition envisioned by the Supervisors makes good faith remodels and alterations of a building’s use impossible. Thus, while the Supervisors sought to curtail abuse by real estate speculators, the current result is that law-abiding landlords are subject to this punitive restriction. Unfortunately, the industry may have to fund an appropriate legal challenge to rectify this situation.

DW


Foreclosure and Rent Control

Question: I recently purchased a three-unit building through a foreclosure. Unfortunately, one of the units has a relative of the former owner and she is failing to pay rent. She claims she can live there, protected by the rent laws. Is that true?

Yes, it may be true, but there are several issues raised by this situation. In 1985, the California Court of Appeal ruled, in a case entitled Gross v. Superior Court (1985) 171 Cal. App. 3d 265, that a tenant could not be evicted from a building under rent control by an owner who purchased the building at a foreclosure sale when there was no separate “just cause” for eviction. In other words, the foreclosure was not a “just cause” for eviction, so unless the new owner had a lawful “just cause” like nonpayment of rent or owner move-in, the tenant could remain in possession. The Court noted that San Francisco’s rent law does not list as a ground for eviction a change of ownership pursuant to either a judicial foreclosure proceeding or a trustee’s sale. Twenty years later, the rent law still does not allow a new owner, who purchased a property through a foreclosure, to evict the tenant unless there is one or more of the fourteen “just cause” reasons for eviction.

So in this case, the new owner needs to consider the landlord-tenant relationship that existed between the tenant-relative and the prior owner. If there was a written or oral rental agreement that required this tenant to pay rent, then she may be in breach of the lease, thereby allowing an eviction action to be commenced for the just cause of nonpayment of rent. Likewise, if the new ownership satisfies all of the requirements to recover this unit for owner or relative occupancy, then those proceedings could also be initiated. And if the new landlord wants to remove this entire building from rental use, an Ellis Act could be used.

But what if there is no just cause for eviction and this tenant wants to stay, claiming that her relative allowed her to live in the unit for free (or for some ridiculously low rent)? The rent law has a remedy: The new landlord may file a “special circumstances” petition with the Rent Board. Under Rent Board Rules and Regulations Section 6.11, a one-time rent increase may be allowed if, because of a special relationship between the landlord and tenant, the initial rent on a unit was waived or set very low. At the Rent Board hearing, the new owner must present evidence of what comparable units rented for at the time the tenant moved in so as to guide the Administrative Law Judge in setting a fair rental amount.

Some have argued that if a person is living for free in a unit, presumably because of a special relationship with the prior or current owner, then there is no landlord-tenant relationship and the occupant is not subject to protection under the rent law. This author disagrees with that analysis. A “tenant” is broadly defined as “[a] person entitled by written or oral agreement, sub-tenancy approved by the landlord, or by sufferance, to occupy a residential dwelling to the exclusion of others.” There is no requirement that the person be obligated to pay rent. Therefore, when acquiring a building, either through foreclosure or a normal purchase, assume that the tenants in occupancy, even if friends or relatives of the prior owner, have full tenancy rights, and do not attempt to evict them or to raise their rents unless you do so in accordance with the rent laws.

DW


Is there a legal definition of habitual late payment of rent?

The answer, unfortunately, is no. Neither state nor local law tells owners what constitutes habitual late payment of rent. Nevertheless, the local rent ordinance allows an owner to terminate a tenancy if the tenant habitually pays the rent late. The problem is that there are no clear guidelines as to what constitutes habitual late payment of rent. As such, landlords must rely on common sense. “Habitual” in this context means repeated and consistent.

The current PPMA lease states as follows: “Owner and Tenant agree that Tenant paying rent five days after the Due Date on three separate occasions within any twelve month period shall constitute habitual late payment of rent and may be considered a just cause for eviction.” Therefore, if you use this lease, a tenant who pays rent late three times in a twelve month period may be eligible for eviction. Some other well-drafted leases contain similar provisions, but the vast majority of rental agreements in use do not define habitual late payment of rent.

Regardless of whether “habitual late payment” is defined by the written rental agreement, most practitioners will require the following before pursuing this type of eviction: First, the lease must specify when rent is due (e.g., the first of each month). Second, rent should be received late at least, and probably more than, three times during the preceding twelve-month period. Third, the owner must have documented each occurrence of late payment and have formally objected in writing on each occasion that rent was received late, either by way of letters and/or service of 3-day notices to pay rent or quit. Fourth, there should be one final “cease and desist” letter telling the tenant that if rent is received late one more time, the owner will seek to terminate the tenancy. Yet even if these criteria are met, owners who failed to object in past years, but then start demanding timely rent, will probably have waived their right to receive rent by the due date.

So in order to even contemplate an eviction for habitual late payment, the owner must be able to prove that the lease agreement clearly defines when rent is due and when it is late, and that this requirement was never “waived” by the landlord, meaning that neither the current landlord, previous owner, nor past or present property managers ever acquiesced to late payments or took any action or inaction inconsistent with the lease’s stated due date. While this may sound simple enough, a tenant who is paying low rent may be able to convince the court that management never objected to the late payments until the tenant’s rent fell below the current fair market value. The landlord could then lose the eviction.

Therefore, good landlords will object in writing to every late payment. The best form of property management is to issue a nonpayment of rent notice if rent is not received when due. Once the file reflects that the tenant has repeatedly and consistently paid the rent late, and the owner has emphatically warned the tenant that further late payments may forfeit the tenancy, an eviction may be warranted. Yet absent a clearly drafted lease and unwavering conduct by the owner, this is not a good way to terminate the landlord-tenant relationship.


WHAT WE TYPICALLY EVICT TENANTS FOR:

1. Nonpayment of Rent:

Perhaps the most common type of eviction, nonpayment of rent (NPR) actions arise when the tenant has not paid all or a portion of the rent due. NPR actions are commenced by service of a “Three Day Notice to Pay Rent or Quit.” The notice must state the exact amount of rent due (understatements valid, but overstatements of any amount void the notice). The notice must also give the tenant an opportunity to pay the rent within three days. Only if the tenant does not pay within three days, and fails to surrender possession of the rental unit, can the owner file an eviction action in the superior court. Common defenses to NPR actions are: (1) the rental unit has “habitability problems,” meaning the landlord has allowed conditions to deteriorate and has not kept up with maintenance and repairs; (2) the owner refused to accept a timely payment of rent; or (3) the notice overstates the amount of rent due.
2. Nuisance:

This type of eviction action may be brought when the tenant, or the tenant’s guests, has engaged in unlawful or disruptive behavior that has interfered with other tenants’ peaceful enjoyment of their homes. In some instances, the conduct may also have resulted in citations from law enforcement officials, such as the police department. Drug dealing is, by definition, a nuisance. Nuisance evictions are commenced by serving a “Three Day Notice to Quite.” Usually, the tenant is not permitted to “cure” the offensive conduct, and must vacate within three days. Owners should have their “proof of nuisance” well documented; for example, there should be witnesses, police reports, photographs, and other means to show a jury that the tenant is guilty of a nuisance.
3. Breach of Lease Covenant:

Sometimes, a tenant will breach a provision of the lease agreement, such as brining in a new roommate without the prior consent of the landlord, or parking in the wrong spot in the garage. An owner may serve a “Three Day Notice to Cure or Quit” based on a breach of lease covenant. The notice must specify what lease provision is being breached, and what the tenant must do within three days to cure the problem. Typically, the breach of covenant should involve a significant requirement of the lease; trivial breaches, on the other hand, will usually not support an eviction. It is also recommended that the owner write warning letters to the tenant requesting compliance before resorting to service of a formal eviction notice.
4. Habitual Late Payment of Rent:

When the tenant repeatedly pays rent late, or with rent checks that bounce, the owner may terminate the tenancy by serving a 60-day or 30-day notice to quit (30 days when the tenant has been in occupancy less than one year, and 60 days when the tenant has been in occupancy for more than one year). It is critical that the owner have warning letters advising the tenant to pay rent on time. In other words, the termination notice comes after the tenant has been warned, on more than one occasion, to stop paying rent late. Usually, absent a lease provision to the contrary, the eviction notice can be served if the tenant paid rent late more that 4 or 5 times in the preceding 12-month period of time.
5. Owner/Relative Move-In (“OMI”):

When an owner of record, or the owner’s qualified relative (parent, grandparent, children, grandchildren) desires to move into the rental unit, and is acting in “good faith, with honest intent, and without ulterior motive,” the tenancy can be terminated by either a 60 or 30 day notice (see above). In San Francisco, there are many requirements for OMI evictions, and the eviction notice must provide the tenant with substantial information and disclosures. The owner or relative must also live in the unit for 36 consecutive months after the tenant departs, and occupancy should usually begin 3 months after the evicted tenant departs.
6. Illegal Unit Removal:

When an owner wants to remove an illegal unit (a unit built without permits from the City), the tenant is given a 30 or 60 day notice of termination. Before this notice can even be served, the owner must have secured all of the required permits from the Department of Building Inspection. The removal is permanent, meaning the owner cannot decide later to re-rent the illegal unit. Also, the owner is required to demolish the illegal unit once the tenant vacates.
7. Rehabilitation Work:

The owner can make a tenant leave the unit for 2 or 3 months while the owner performs major rehabilitative work on the rental unit. These types of evictions are temporary, in that the tenant is allowed to move back in once the work in completed. The owner must have secured all of the required permits before serving the eviction notice, and the tenant must be given relocation assistance as compensation for moving expenses, storage, and increased rent while living elsewhere.

These seven types of eviction actions represent the most common categories that we do. There are other grounds for eviction in San Francisco. All evictions must be lawful and in accordance with the California Civil Code and Code of Civil Procedure. This means that, after the expiration of a notice, if the tenant has not moved, you must file a lawsuit in superior court. The tenant must be served with this lawsuit, often called an “unlawful detainer “ (“UD”). A tenant has five days to respond to a UD after being served. Tenants sometimes file delay motions, like “demurrers “ or “motions to strike.” These motions prolong the process. Once the tenant answers, the UD is “at-issue,” meaning the court will set it for trial (usually in about 20 days from the date the owner files the at-issue memorandum). Trial is usually by jury and can take up to two weeks in complex cases. Eviction actions therefore have the potential to be very costly.

In addition, if the tenant wins, the landlord may be liable to pay the tenant for his attorney fees and court costs if the lease so provides. More importantly, the San Francisco Rent Control Ordinance allows a tenant who wins a UD to sue the landlord for attempted wrongful eviction. These lawsuits allow the tenant to recover all damages (attorney fees, court costs, emotional distress, etc.), and to automatically have these damages trebled (for example, if the tenant can prove $10,000 in damages, the court must treble the amount to $30,000). Therefore, it is always a good idea to have insurance coverage to insure against these types of lawsuits. We can advise you about this additional coverage, as well as what you might expect from a UD action in terms of defenses and possible outcomes.

A tenant can only be forcibly evicted by the Sheriff. Thus, if the landlord wins the UD, the Sheriff is instructed by the superior court to evict the tenant. The tenant can usually get an extension of time to stay in the rental unit (one week is the most common extension). Sheriff evictions occur on Wednesday mornings in San Francisco. Only the Sheriff can perform this task, and only after the Sheriff has performed the eviction can you change the locks. Obviously, if the tenant voluntarily departs before then, the Sheriff’s eviction is unnecessary.
PLEASE DO NOT ATTEMPT AN EVICTION IN SAN FRANCISCO WITHOUT THE ASSISTANCE OF LEGAL COUNSEL. THE SAN FRANCISCO APARTMENT ASSOCIATION MAINTAINS A LIST OF QUALIFIED ATTORNEYS THAT CAN HELP YOU WITH THIS PROCESS.

WHAT TYPE OF LEGAL WORK WE DO:

1. Unlawful Detainers:

We represent landlords when they have problems with their tenants.
2. Civil Defense:

We represent clients who have been sued, either by previous/current tenants, or by other claimants. We have represented property management firms sued for fraud and breach of fiduciary duties. We have represented individuals sued for wrongful eviction. We have represented people sued by their neighbors over boundary disputes and easement issues. We have represented leasing companies sued for breach of contract. We have also represented real property owners at the San Francisco Rent Board, as well as doctors before the Medical Board, and real estate professionals before the Department of Real Estate.
3. Civil Prosecution:

We prosecute eviction actions. We also prosecute breach of contract and breach of lease actions. We have successfully brought to jury trial cases under the Fair Employment and Housing Act. We also represent people in personal injury cases. We currently represent large and small companies in pursuing claims against individuals and other businesses.
4. Criminal Defense:

We represent persons charged with misdemeanor and felony counts. Some of our cases have included defense of persons charged with rape, acts of terrorism, driving under the influence, and felony possession of narcotics.
5. Transactional:

We draft residential and commercial leases. We draft homeowner association documents. We have a small estate planning practice. We also draft a variety of real estate and business documents for individuals as well as property management companies.

Our rates are competitive. The senior attorneys bill at $250.00 per hour. The associate attorneys typically bill at $225.00 per hour. The legal assistant bills at $80.00 per hour. Our objective is to attain the client’s bottom line: a successful result at the lowest cost. To this end, we encourage clients to seek alternatives to litigation when possible. We are always cognizant of the fact that a victory is a defeat when the client spends large sums to achieve a result of little importance. We do not seek to bankrupt the client in order to achieve a profit; therefore, every strategic decision is considered against the benefit to the client versus the costs that will be incurred.


If the tenant does not remove her combustible items stored in the parking space within a reasonable period of time, what legal recourse does the landlord have?

The landlord’s recourse depends upon what the rental agreement states. A good residential lease, such as the 2004 PPMA rental agreement, specifically mandates that nothing may be stored in the parking areas other than the tenant’s car:

“Absolutely NO automotive cleaning, washing, maintenance or repair work of any kind and NO storage of any kind shall be permitted in or about the parking space(s).”

If your rental agreement is not clear about storage, you may change the terms of the tenancy by serving a thirty-day “Notice to Change the Terms of Tenancy” under the Civil Code. This legal notice should clearly inform the tenant in writing that, effective thirty days after it is served, the landlord-tenant relationship will be changed to prohibit storage of combustible materials in the parking space. If the objectionable items are not removed after the thirty-day period expires, then you may serve a “three-day notice to cure breach of lease covenant or quit,” which is an eviction notice that gives the tenant three days to remove the dangerous things or to surrender possession of the rental unit. If the tenant does neither, then an eviction action can be filed with the court. Note that a change in terms of tenancy oftentimes prompts the tenant to seek a rent reduction at the Rent Board; in this instance, however, the Rent Board may be hard pressed to order a rent reduction when the change being implemented is done for the health and safety of all tenants in the building.
If the storage of the combustible materials poses a fire risk, the landlord may also call the Fire Department and/or the Department of Building Inspection and have herself cited for an illegal use of the rental premises. The City will, if the use is in fact unlawful, issue an abatement order requiring the owner to remove the offending materials. At this juncture, the owner can immediately serve an “illegal use” notice on the tenant. This notice gives the tenant three days to remove the stored items or face eviction.
Owners must always ensure that the parking and storage areas are being used correctly. There should be proper ventilation and required fire, life and safety mechanisms in place at all times. Make sure that the lease agreement allows you the flexibility to enforce rules that are necessary to protect the safety of all residents in the building. Lastly, do not hesitate to contact an attorney if you believe that a tenant is using the unit or any part of the building in an improper or unsafe manner.
DW


Domestic Partner and Family Protection Amendment to the SF Rent Law

The “Domestic Partner and Family Protection Amendment” to the San Francisco Rent Control Ordinance was passed in December 2004 by the Board of Supervisors and will not be vetoed by the Mayor. This new legislation makes a substantial change to the rent law and the procedures by which rent controlled properties are managed. Specifically, evictions are no longer allowed for the breach of a lease agreement’s prohibition against subletting and assignment when a tenant moves in the tenant’s child/children, parent, grandchild, grandparent, brother or sister, or the spouse or domestic partner of such relatives, or if the tenant moves in his or her own spouse or domestic partner. In essence, even if the rental agreement prohibits additional occupants and subletting, the landlord cannot refuse a request to move in a family member, the family member’s spouse/domestic partner, or the spouse/domestic partner of the existing tenant.

The one silver lining of this onerous law is that the owner may limit total adult occupancy to two persons per studio, three per one-bedroom unit, four per two-bedroom unit, six per three-bedroom unit, or eight per four-bedroom unit. Moreover, the landlord can limit occupancy to the parameters permitted under state or local health and planning laws, although these codes tend to be very liberal in allowing large number of occupants to live under one roof.

The Domestic Partner and Family Protection Act comes after the 1998 clarification of Rent Board Rules and Regulations Section 6.13, which prohibits the imposition of more rent solely for an additional occupant to an existing tenancy (including a newborn child), even if the rental agreement allowed for a raise in the rent if another person moved in. Not surprisingly, a substantial amount of litigation has arisen since 1998 with regard to landlords seeking to enforce subletting clauses even when a tenant sought to move in a domestic partner/spouse or close family member. Such actions were challenged by tenants on the ground that a Board of Supervisor’s amendment to the City’s code allows members of a family to live together, and that this twenty-plus year old ordinance, coupled with state and federal fair housing legislation, overrode provisions in rental agreements to prohibit or restrict such cohabitation. At least one local case, however, held that a landlord could strictly enforce a subletting clause and thereby prevent an existing tenant from moving in a domestic partner.

So tenant interest groups persisted. In the late 1990s, then-Supervisor Mark Leno sponsored passage of the “Leno Amendment,” which allowed a tenant to petition the Rent Board for a decrease in services if the owner did not permit a one-for-one replacement of a departing roommate. This amendment was passed to prevent landlords from enforcing leasehold covenants restricting occupancy to the named original occupants only, which would oftentimes have the effect of ending a tenancy when one roommate moved out because the remaining tenant(s) would suddenly be forced to pay all of the formerly shared rental obligation without having the opportunity to bring in a replacement roommate.

In 2000, Supervisor Gonzalez was elected on a pro-tenant platform. In 2002, he began pushing for substantial amendments to the rent control laws. The Domestic Partner and Family Protection Act, which was co-sponsored by Supervisors Gonzalez, Daly, Peskin and Ammiano, is a watered-down version of Mr. Gonzalez’s originally proposed modifications to the rent laws, termed by the housing industry as the Gonzo Amendments.

Despite the tenant group’s recent victory, what the City may find in 2005 is a major legal challenge to this act. The California Constitution states that the government cannot pass a law impairing the obligations under a contract. Arguably, the Domestic Partner and Family Protection Act substantially modifies rental agreements by vitiating the subletting and occupancy limitation clauses. Indeed, the PPMA lease’s provision regarding subletting/assignment as well as the permitted occupancy clause are now seriously undermined. Tenant advocates will undoubtedly stress that the City may legally pass rent control measures that contravene rental agreements, as the Rent Ordinance itself has superseded rental contracts for the past 26 years. Yet until a challenge is successfully mounted and adjudicated, this new legislation will prevent many types of subletting evictions. Consequently, owners and managers should undertake heightened precautions before serving eviction notices when the tenant moves a new person (or persons) into the unit.


Educational Courses – Spring/Fall Classes

Wasserman-Stern attorney David P. Wasserman recently spoke at the Bar Association of San Francisco’s Real Property Section on new developments in local and state landlord-tenant law. He was joined by SFAA President Eric R. Andresen, S.F. Rent Board Senior Administrative Law Judge Tim Lee, and Tenderloin Housing Attorney Raquel Fox.

David P. Wasserman and landlord attorney Jeff Woo will teach quartely seminars on basic property management at Fort Mason, beginning April 20, 2004 at 6:00 P.M. The second part of this two-section class will be held on April 26th at 6:00 P.M. The course will then be repreated on a quartely basis. Please contact the San Francisco Apartment Association for more details. In September 2004, attorneys Jeff Woo, Scott Weaver, and Bill Weisberg will teach a full-day seminar for attorneys entitled “Advanced Issues in Landlord-Tenant Law.” This symposium will be offered by Lormain’s Educational Systems and will count toward attorney MCLE credit. Please contact Wasserman-Stern for more details about these and other courses in landlord-tenant law.


Just Cause for Eviction

The termination clause of the tenancy agreement states that after the expiration of the original term of the lease, the owner may terminate the tenancy in accordance with applicable law. What conditions have to exist in order to enforce this provision?

In San Francisco, this clause is not enforceable if the unit is rent controlled. Owners must understand that rent laws in San Francisco, Oakland, Berkeley, Santa Monica, and several other jurisdictions around the state consist of two very distinct yet interrelated components. The first prong is the rent increase limitation aspect, which governs the dollar amount that rent on existing tenancies may be increased every year. In San Francisco, rent can only be increased by the annual allowable limit, which is determined by the cost of living increase, or inflation index, for the region (this year allows for a 1.2% raise). Owners can also seek, by petitioning the Rent Board, additional amounts for capital improvement work, operating and maintenance increases, and utility bills with excess charges.

The second prong is known as eviction control. Eviction control limits the reasons for terminating a tenancy. Lease expiration is not one of the enumerated grounds. Rather, the rent law clearly defines the permissible reasons. The most common “just causes” are nonpayment of rent, breach of lease covenants, owner/relative move-in, and commission of nuisance activities. If an owner could terminate a tenancy once the lease expired, or when the building was sold, rent control would have no teeth, as all long-term tenants could be displaced very easily. Thus, there would be no need for the litigation and political activism that our industry vigorously pursues.

Owners often ask how the rent law can supersede a lease agreement, which is a private contract between two consenting parties. Indeed, people often wonder why a landlord and tenant cannot voluntarily and mutually agree on a termination date and thereby “contract around” the Rent Ordinance. The answer is that rent control does automatically vitiate any component of an agreement that circumvents the rent laws, and the courts have held that a local rent law is superior to what the parties contract to in the lease. The reason for these decisions is that rent control is akin to an unwaivable consumer rights law, and residential tenants are deemed to be in an inferior position to owners and therefore in need of the government’s protection. Our rent law even states that a tenant’s agreement to waive rights under the Ordinance is void for being against public policy. So please accept the notion that your lease agreements cannot contract around the rent limitation and eviction control provisions of the Rent Ordinance, and until there is a major change in state law, this will be the reality of residential landlord-tenant relationships for rent-controlled housing.

Dave Wasserman


When Access is Denied

A tenant is moving out and I want to arrange to let prospective tenants come by to see the apartment. I gave the tenant appropriate notice that I would be showing her unit, and she orally agreed. But once I arrived, she refused to let me or the prospective tenants into the unit. What should I do?

You should first make sure that you gave proper notice. A landlord may gain access to show the unit to prospective tenants. However, notice must be in writing, and must include the date, approximate time and purpose for the entry. In addition, unless the tenant otherwise consents, the entry should be during normal business hours. The notice should be personally delivered or left at the unit at least 24 hours in advance; if mailed, the mailing must occur at least six days prior to the entry.

If these requirements are satisfied, entry is lawful. However, if the tenant says no, do not force your way into the unit. Such “self-help” tactics will lead to criminal and civil sanctions against the owner. Thus, if a legitimate request for entry is refused, apprise the tenant in writing that she should cease and desist from this conduct or legal action may be pursued. You may want to inquire as to why entry was denied and if a more suitable time and date is desired. Many tenants dislike repeated entries during their private time, so perhaps an agreement to have one or two showings when the tenant is at work would invite a more positive response. Informally resolving the problem far outweighs resorting to legal remedies. After consulting with the tenant, promptly seek to properly re-notice another entry.

If the tenant still refuses, you may want to consider service of a termination notice for denial of access. The local rent law permits a landlord to terminate a tenancy if the tenant does not allow lawful entry. Even in this case, where the tenant has announced that she will be leaving, the landlord may still want to serve a thirty-day notice on this ground, as a tenant’s notice to vacate may be rescinded at any time and cannot be used as a basis for eviction. In addition, it may persuade the tenant to reconsider her position.

As an alternative, if you cannot convince the tenant to permit showings, consider waiting until the unit is vacant and fixed up before touring applicants. Most real estate professionals will tell you that empty, freshly painted and clean apartments rent quicker and for more dollars than occupied units with clutter and mess. Yet before taking any course of action, consult with a qualified attorney who can evaluate the situation and provide you with the best options.

DW


Withdrawing Tenant Services

I am a property manager in a large apartment building that is currently undergoing construction on a remodeled lobby and fitness room. A number of tenants have complained about the noises from the construction, while others are complaining that the work is taking too long to be completed. But the work is taking a long time precisely because we are trying not to affect the tenants when most of them are at home. Both sides are threatening to ask the Rent Board for a rent reduction. Do either or both of them have a case?

The answer is “yes” and “yes.” Under local law, a tenant may file a petition for a reduction of base rent where a landlord, without a corresponding reduction in rent, has substantially decreased housing services, or failed to provide housing services reasonably expected under the circumstances. These petitions often arise where the landlord has taken away parking privileges or storage spaces without reducing the rent.

Yet tenants regularly file these decrease in services petitions when the building is undergoing rehabilitation work. Some file for the annoyance created by the work, and others seek relief for the deprivation of services caused by the rehabilitation. Until recently, the Rent Board was at liberty to grant reductions even when the project was commenced to effectuate repairs and capital improvements. In 1999, the California Court of Appeal, in a case entitled Golden Gateway Center v. San Francisco Rent Board, held that a landlord who performs reasonably and necessary repair and maintenance work on rental property, which has the effect of temporarily interfering with or preventing the tenant’s full use of housing services, but does not substantially interfere with the right to occupy the unit, will not give rise to a rent decrease. In Golden Gateway, tenants were precluded from using their decks during an exterior deck painting and restoration project at the Golden Gateway Center apartment complex. The Court of Appeal rejected the Rent Board’s contention that a decrease in rent was warranted in this situation.

However, tenants will still receive a temporary rent decrease if they show that the work either substantially interferes with their use and enjoyment of the unit, and/or the work is not reasonable and necessary but rather cosmetic and elective. Tenants have also successfully received rent decreases when they have shown that the projects were overly lengthy or unjustifiably burdensome on the residents. To complicate matters further, there is legislation pending before the Board of Supervisors that will, if passed, seriously impede a landlord’s right to withdraw services, even for a temporary period of time, without the tenant’s consent.

To prevent a petition from being filed, keep your residents informed from the onset about the work you are doing. Give them disclosure and opportunity for comment before the hammering begins. Oftentimes, tenants file these petitions because they feel ignored and left out of the loop. Thus, a good public relations campaign can, in many instances, diffuse the possibility of litigating at the Rent Board.

David Wasserman


What happens when a tenant dies in my building?

In terms of an owner’s responsibility, what typically happens with a rental unit when the tenant dies?

Tenants dying in their units are more common than many of us want to believe. With an aging population, owners will increasingly have to deal with this issue. State law allows a month-to-month tenancy to terminate by notice of a tenant’s death. However, local regulations also require the unit to be sealed after death when the Office of the Chief Medical Examiner (Coroner) is called to complete any investigation into the cause of death or to allow the decedent’s family to inventory and distribute property. Do not disturb the unit until you have clearance from this office. According to the Office of the Chief Medical Examiner, the unit will be sealed for as long as it takes family members to inventory and pack items. For out-of-state or out-of-country survivors, this process could exceed one month; if family is local, the unit may only be sealed for several weeks. If death is not due to natural causes, the Police Department may conduct its own investigation, and clearance from this agency will also be required before the apartment can be disturbed.

Another problem may arise when the landlord finds that other people are living in the unit. Sometimes, a friend or relative of the deceased tenant will seize the opportunity to move into a rent-controlled unit. Do not accept rent from them! The owner may want to serve a thirty-day “Termination of Tenancy Notice” for an unlawful holdover if strangers are found to be in occupancy. Yet if original occupants remain, such as roommates of the deceased tenant, then the tenancy continues without interruption. If there are subsequent occupants who, prior to the tenant’s death, were either served with a 6.14 Notice or have moved into the unit after January 1, 1996, then the landlord should consider raising rent to fair market value under Costa-Hawkins.

Owners may also find that the departed tenant has no close family or friends to tend to the disposition of the body and estate property. Sometimes, the tenant did not leave a will or trust to direct administration of the estate. The landlord may then have to contact relatives or next of kin, and in some cases the landlord may have to store items for longer periods of time until the probate process is completed. In the worse case scenario, the tenant has no heirs, so the property would be transferred to the State of California. As such, it is never appropriate for the owner to take the tenant’s belongings unless the owner is named as an heir and the appropriate estate disposition proceeding has been completed. It is recommended that owners and managers have contact information for relatives and friends of tenants in the file, especially if the tenant is sick or elderly. Closely monitor the post-death activities to ensure that no one takes unlawful occupancy of the apartment, but do not be in a hurry to turn over the unit.

DW


Q: I have a long term tenant that is a company, not a person. The company houses a different employee in the unit every year. Can I raise the rent to market when they next bring in a new employee?

Yes. It is not uncommon for a landlord to enter into a lease agreement with a corporation who wishes to use the residential apartment to house corporate occupants. In such a situation, it is also not uncommon for the occupants of the corporate unit to change from year to year. Despite the fact that the unit remains subject to eviction control, the landlord may raise the rent when a new the prior occupant vacates the unit and a new occupant takes possession. The Costa-Hawkins Rental Housing Act (California Civil Code Section 1954.53(d)), and its local counterpart, San Francisco Rent Ordinance Section 37.3 (d), authorize an unlimited rent increase in some circumstances where the original occupant no longer permanently resides in the unit and the remaining subtenant(s) or assignee(s) did not reside in the unit prior to January 1, 1996. Specifically, pursuant to Section 6.14(c) of the San Francisco Rent Ordinance Rules and Regulations: “When all original occupant(s) no longer permanently reside in a rental unit, and the last of the original occupants vacated on or after April 25, 2000, the landlord may establish a new base rent of any subsequent occupant(s) who is not a co-occupant and who commenced occupancy of the unit on or after January 1, 1996 without regard to the limitations set forth in Section 37.3(a) of the Rent Ordinance unless the subsequent occupant proves that the landlord waived his or her right to increase the rent by: (1) Affirmatively representing to the subsequent occupant that he/she may remain in possession of the unit at the same rental rate charged to the original occupant(s); or (2) Failing, within 90 days of receipt of written notice that the last original occupant is going to vacate the rental unit or actual knowledge that the last original occupant no longer permanently resides at the unit, whichever is later, to serve written notice of a rent increase or a reservation of the right to increase the rent at a later date; or (3) Receiving written notice from an original occupant of the subsequent occupant’s occupancy and thereafter accepting rent unless, within 90 days of said acceptance of rent, the landlord reserved the right to increase the rent at a later date.” If the above requirements are present, a landlord may raise the rent of the corporate unit to fair market value. However, the landlord has two options as to how to go about raising the rent while ensuring it is not subject to an unlawful rent increase in the eyes of the Rent Board. One option is to petition the Rent Board for a determination that the landlord may raise the rent pursuant to the Costa-Hawkins Rental Housing Act. The first step in obtaining such a ruling from the Rent Board is to fill out a petition seeking such a determination and file it with the Rent Board. The petition seeking a determination under Section 37.3(d) is available online at the San Francisco Rent Board’s web site and must be accompanied by a written statement as to the basis of the petition and any evidence or documentation supporting the requested determination. Specifically, the landlord must answer: “Why the Landlord believes no original occupants permanently reside in the unit and that any remaining subtenant or assignee took possession on or after January 1, 1996.” Where the landlord seeks such a determination, the burden of proof is on the landlord. Such a burden is difficult to meet, and because the landlord is not required to file such a petition prior to imposing any rent increase under Section 37.3(d), it is not to the landlord’s advantage to do so. The second and preferable option is to unilaterally serve a notice of rent increase under the Costa —Hawkins Rental Housing Act, alleging the all original occupants have permanently vacated the unit and any remaining subtenants took possession after January 1, 1996. The landlord must serve a thirty day notice is it seeks to raise the rent in amount 10% or less from the current base rent and a sixty day notice where it seeks to raise the rent more than 10% over the current base rent. The effect of bypassing the Rent Board’s determination regarding the rent increase shifts the burden of proof onto the tenant to prove that he or she is not subject to the rent increase. There are, however, risks in unilaterally imposing a rent increase pursuant to Section 37.3(d). One such risk is that the tenant can refuse to pay the rent increase forcing the landlord to serve a Three Day Notice to Pay Rent or Quit and filing a costly and perhaps risky Unlawful Detainer Action should the tenant fail to pay the increased amount. A savvy tenant who may have some documentation/evidence to prove that such a rent increase cannot be imposed will use this documentation/evidence to successfully defendant the unlawful detainer action thus forming the basis for a possible wrongful eviction action against the landlord. One way to ensure that you avoid such a risk is to clearly specify on the lease agreement who will be occupying the rental unit. The PPMA Lease Agreement does a great job in giving the landlord the ability to specify the name or names of all persons who will be occupying the unit, thus avoiding any argument that a person not named on the lease agreement is an original occupant or that all original occupants have not vacated the unit. Despite the risk involved in unilaterally serving a rent increase notice under Costa-Hawkins/Section 37.3(d), a landlord who has solid documentation regarding the history of all original and subsequent occupants and who has been put on notice that the last original occupant has vacated can safely serve a rent increase notice even if the same corporate tenant remains. Under the proper circumstances, Costa-Hawkins/Section 37.39(d) are one of very few methods by which a landlord can decontrol a previously rent controlled unit, allowing a unit which may be substantially below market rent to be raised to market rent. In cases where the unit is rented to a corporation and the occupants change from year to year, the use of the Costa Hawkins rent increase can be particularly effective in ensuring the unit’s rent is always at market.

Daniel R. Stem, Esq.
Wasserman Stem Law Offices


3. The original tenant is moving out and the unapproved tenant — who was served with a 6.14 Notice — is staying and will likely be signing a new lease. How does one handle the return of the security deposit, the walk through inspection, and the collection of the new security deposit?

The first issue is whether or not the owner should be returning the old security deposit and signing a new lease. Better management would be to simply serve either a notice of rent increase raising the rent to fair market value, or serving a “reservation of right to increase rent” notice, which will preserve the owner’s right to increase the rent to fair market value at a later time. Moreover, in most cases, the security deposit is returned, and the pre-move out inspection occurs, only when the tenancy terminates and everyone moves out. In this instance, a significant remnant of the old tenancy stays behind, so really the tenancy has not terminated and the remaining occupant is entitled to a notice of rent increase before new rent is charged (60 days if the amount of increase is over 10% of the previous rent, 30 days if the increase is no more than 10%).

The only advantage in returning the security deposit to the departing tenant and signing a new lease with the 6.14 occupant would be if the old lease was the two-page dime store version, and the 6.14 occupant agreed to sign something akin to the 2004 PPMA agreement. In that case, the owner could justify performing a pre- move out inspection (if requested) with the departing tenant, and returning the old security deposit while simultaneously accepting a new one from the 6.14 occupant. However, the owner may be hard pressed to defend any deductions, as the unit will not be cleaned because someone is staying behind. Perhaps the only legitimate deduction, other than for unpaid rent owed by the departing tenant, would be damage beyond normal wear and tear that was identified during the pre- move out inspection and repaired by the owner after the original tenant left (with receipts provided if the work exceeded $125). In addition, some tenant attorneys take the compelling position that the occupancy by the 6.14 roommates continues the original tenancy, and therefore the submission of a new lease with different and additional terms is not lawful.

Thus, as a general rule, the tenancy ends, and the security deposit is returned, only when everyone vacates, including the 6.14 occupants. When the last original tenant leaves, and 6.14 subsequent occupants stay behind, the owner may (and should) either (1) raise the rent to fair market value or reserve the right to do so in writing, or (2) in some cases, terminate the tenancy and evict all remaining unapproved occupants. If people stay behind and you decide to keep them on as 6.14 occupants, raise the rent (or serve a reservation of right to raise rent) and keep the original security deposit in place until the unit is delivered back to you. The departing tenant can get security deposit reimbursement from his old roommates!

Finally, the State Legilsature may be amending the Costa-Hawkins Rental Housing Act this year to absolutely require owners in San Francisco to serve a 6.14 Notice on subsequent occupants if they want to raise rent to fair market value when the last original tenant leaves. At present, the prevailing view is that state law does not require 6.14 Notices to be served, but good management requires service of these notices because of political uncertainty. With this new amendment on the horizon, make sure you are paying close attention to who is in your rental unit and serving 6.14 Notices on both the original and subsequent occupants no later than 60 days after becoming aware of the new person’s occupancy.

DW


Ordinance that limits Condo Conversions gets an OK

On Tuesday, May 9, 2006, the Board of Supervisors approved legislation to reduce evictions by preventing condo conversions at apartment buildings that have been vacated of their tenants.

Prior to this vote, the ordinance had been amended to limit its reach in a compromise between Mayor Gavin Newsom’s administration, Supervisor Aaron Peskin, and advocates for tenants. The measure was called “a fair and equitable way to protect vulnerable tenants” according to Matthew Franklin, director of the mayor’s Office of Housing. The legislation, as amended, would prohibit condo conversion of buildings with two or more evictions after May 1, 2005, or a building where a senior, disabled, or catastrophically ill tenant had been displaced.

Owners of buildings where non-elderly and non-disabled tenants were evicted would be permitted to apply for condo conversion after a 10-year period—provided that the owners lived in the buildings during that time. Currently, the number of condo conversions is limited to 200 a year by city law, with those 200 chosen by an annual lottery.


6. My building has long maintained a policy forbidding pets. Recently, I saw a tenant bring a dog into his unit. When I asked him about the dog, he stated that he was dog-sitting for the day. However, a few days later, I saw him walking the dog again. Should I issue a “Three-Day Notice to Perform Covenant or Quit”?

First, you need to confirm that the written rental agreement with this tenant in fact prohibits pets. A “building policy” may not be sufficient, especially if there is no signed writing between the owner and tenant. In order to serve a 3-day notice for breach of a lease covenant, you must actually have a lease covenant to reference. The 2004 PPMA Residential Tenancy Agreement is clear:

“12. PETS: NO pets, dogs, cats, birds, fish or other animals are allowed in or about the Premises, even temporarily or with a visiting guest, without prior written consent of Owner…”

After ensuring that you have definitive lease language to substantiate your demand, review your file to ascertain whether you “waived” this prohibition in the past, meaning allowed this tenant or other co-tenants in that unit to have pets.

If in fact you have a clear lease clause and there are no waiver issues, serve a 3-day notice as soon as possible. An owner may be deemed to have waived a lease covenant if the offensive conduct is ignored even for a short amount of time. Acceptance of rent knowing that there is a lease violation can almost certainly cause you problems down the road.

I also recommend consulting with an attorney before serving the 3-day. These types of notices must be perfectly drafted and filed with the Rent Board. For instance, a tenant should be told what lease covenant has been breached, and what steps are necessary to cure the breach. In addition, I’d like to inform the offending tenants when, how, and where they can communicate to the owner that the breach has been cured. This will prevent the argument in court that the tenant in fact timely cured the breach, but the owner went ahead and filed the eviction paperwork anyway. Also, the notice should be drafted in a way that explicitly informs the tenant of what offensive conduct has occurred, what lease rule was consequently violated, and how to prevent termination of the tenancy within the three-day period. Remember, a jury may be looking at the notice, so you want to appear as reasonable as possible.

DW


New Rule for Tenants Who Fail to Appear at Hearing

In one of our recent Section 1.21 cases before the Rent Board, the tenant chose not to attend the hearing, claiming that a “medical excuse” precluded her from traveling to San Francisco. Yet during the hearing, the landlord’s private investigator observed the tenant to be in the Rent Board’s restroom coaching her witnesses! In addition, prior to the hearing, a written discovery request was also served on the tenant, requesting certain documents and things to assist in determining where she principally resided. Her attorney refused to provide any of the requested items, and informed the Rent Board that his client was not required to participate in discovery.

This case eventually went before the Rent Board Commissioners. Although the Rent Board rules do not require a tenant to attend the hearing or to produce evidence, given the egregious facts of this case, the Commissioners adopted the following rule: “In determining what inferences to draw from the evidence or facts in a case against the party, the judge may consider the party’s failure to explain or deny any adverse evidence or facts in the case or any willful suppression by the party of evidence relating to them.” This rule mirrors a civil law jury instruction and should make it easier for landlords to prove their case when the tenant decides not to appear at the hearing and/or not to produce any evidence.


Master Tenant Quagmire

Q: The master tenant in one of my units has decided to evict the subtenant. The subtenant has said she would prefer to stay. Should I get involved and is the subtenant protected by rent control laws?

If the building was built before June 13, 1979, the subtenant may be protected by the rent law. In 2001, the City’s rent law was changed to clarify when a master tenant could evict a subtenant without one of the fourteen “just cause” reasons. The regulation states that, for tenancies commencing on or after May 25, 1998, a master tenant who is not an owner of record of the property may only evict a subtenant without just cause if, prior to the commencement of the tenancy, the master tenant informed the subtenant in writing that the subtenant can be evicted without just cause. Absent this written disclosure, a master tenant cannot simply decide to terminate a subtenancy; rather, the master tenant is subject to the same stringent just cause rules that the owner must contend with in order to evict a tenant. This same law also requires the master tenant to disclose in writing to the subtenant the amount of rent the master tenant pays to the landlord, and further requires the master tenant to charge the subtenant no more rent than what is attributed to the subtenant’s proportional use of the rental unit. Thus, if the subtenant leases half of the apartment, the master tenant can only charge the subtenant fifty percent of the total rent that is paid to the owner.

Most master tenant and subtenants are unaware of this regulation. Consequently, it is commonplace to see situations where subtenants are being charged more than their proportional share of the rent and master tenants evicting their subtenants without just cause, even in instances where the required disclosures were not made. Owners should refrain from assisting a master tenant in this endeavor for several reasons. First, the eviction attempt could likely be illegal. As such, the owner would invite personal liability for wrongful eviction by assisting the master tenant in this instance. Second, owners should not involve themselves in any tenant versus tenant dispute. An owner who sides with one occupant against another is risking a lawsuit should the offended tenant contend, and perhaps prove, that the accusations used to justify the eviction were false. The one exception would be if any tenant, master or sub, was committing a verifiable “nuisance” by engaging in highly offensive conduct that caused serious annoyance or harm to the other residents of the building; however, if someone is causing a nuisance, the owner would seek to terminate the entire tenancy.

In sum, a master tenant who decides to terminate a subtenancy may not have grounds to do so unless the appropriate written disclosures were made at the inception of the tenancy. Even if this writing was provided, the landlord should not get involved. Instead, master tenants, who are legally considered landlords, may have to employ their own counsel to assist them with this effort.

Dave Wasserman


SFAA PRESIDENT’S REPORT — March 2007

Your SFAA Board of Directors attended the annual California Apartment Association Board of Directors’ & Committee meetings at the end of January in Costa Mesa. As many of you know, CAA consists of 19 local organizations (affiliates and chapters) representing distinct regions of apartment owners in our state. SFAA is unique in that, geographically, our district is the smallest in terms of square miles. Yet apparent from these meetings is the fact that our miniscule slice of the state creates the most intense and daunting political battles. Indeed, the Los Angeles CAA chapter hardly ever encounters the gross hostility that we contend with on a regular basis here at home.
In the midst of this reality comes a sobering and embarrassing fact discussed at length during this year’s CAA membership committee meeting: That SFAA represents less than ten percent of the market in San Francisco, meaning that ninety-plus percent of all apartment owners and operators in the City are not members. No wonder City Hall balks at our demands!
Many of the other apartment association heads bragged that their organizations command more than 60% market penetration. Ironically, such eager enrollment occurs in areas like Orange County, San Diego and Sacramento where rent control remains someone else’s nightmare. Here at ground zero, the troops seem content to relegate active participation to the few, and sadly the vast majority of us cannot even muster the will to pay modest membership fees so as to enable this organization to fight the war.
Why? Is it because most have given up? Or are we just content with the pervasive erosion of our rights as owners? Everyday, I hear someone tell me that you have to be crazy to own rental property in the City. Yet ask your local real estate salesperson about available inventory, and they will tell you that prices keep going up, and that supply cannot withstand ever increasing demand. Obviously, someone recognizes that housing is our scarcest and most valuable commodity.
This organization’s regular apartment owner membership stands at about 2,600. As discussed above, this number represents less than 10% of San Francisco’s landlord population. SFAA annually spends considerable time and funding on advertisement and new member outreach. Such exposure only goes so far, and perhaps cannot go any farther.
Therefore, what I need from each of you is a sincere commitment to recruit at least one new member this year. This is an easy task, and the results will more than double our membership. The increase in revenue will translate into better representation in state and local government, which in turn will improve our ability to stop the onslaught.
If you cannot make this promise, then please do not complain about the further horrors that will inevitably confront us this year. Do not express frustration at the membership meetings. Refrain from writing the Chronicle’s editorial department. In sum, be glad with what you have, and with what you will lose in years to come.
Obviously, no one in the ownership community is pleased with the status quo. The national consultant, hired by CAA to increase membership in all CAA affiliates and chapters, confirms what most of us already know to be true: That new recruits come quickest and easiest from referrals and word-of-mouth, not newspaper ads. So please, I urge each of you to take this pledge seriously.
At the CAA meeting, each affiliate and chapter promised to substantially increase its membership over the next year. In fact, our Board will be undergoing serious introspection as to how each Board member shall bear personal responsibility for this shortfall. As the leading representative body for apartment owners in the City, we cannot act effectively when the vast majority of the constituency sits on the sidelines. So let’s change this reality now, and begin recruitment by contacting an owner you know to have either relinquished membership or to never have joined our organization. I thank you for making this pledge.

DW


Mandating Renter’s Insurance

Question: I would like to mandate that all future tenants have renter’s insurance. Am I allowed to make that part of my rental agreement?

You may require in your rental agreement that all tenants carry renter’s insurance. However, as a practical matter, enforcing this lease covenant will be difficult if not impossible. In fact, many landlord attorneys will tell you that evicting a tenant for failing to renew a policy of renter’s insurance will not be easy. Most likely, the owner will probably fail in an attempt to terminate the tenancy when a tenant decides, after moving in, to cancel the policy.

The better approach is to state, in the text of the lease agreement, that tenants are advised to carry renter’s insurance, and that the landlord’s policy will not cover any loss to the tenant’s property. The 2007 SFAA Lease, which will be available in April, contains such language. Paragraph 33 of the new lease states as follows:

“33. INSURANCE: Owner’s insurance does not provide for coverage of Tenant’s personal belongings or personal liability unless as a direct and proximate result of Owner’s negligence. Therefore, Owner strongly urges and recommends to each Tenant that Tenant secure sufficient insurance to protect against losses such as fire, flood, theft, vandalism, personal injury or other casualty.”

Thus, a properly worded lease agreement will achieve the owner’s objective of properly advising the tenant to carry insurance and not to rely on the building’s coverage to pay for personal injury and property damage. The owner will also not be in the difficult position of annually checking for policy renewals and then be compelled to commence legal action, which could very likely yield a negative result for the landlord, if the policy has lapsed.

Owners should still understand that a tenant may seek indemnity from the building’s insurance when a loss occurs as a result of the landlord’s negligence. As stated in the 2007 SFAA Lease, coverage is excluded unless the loss occurs because the owner did some wrongful act or failed to take necessary precautions to prevent harm from occurring. For example, if you know that the roof leaks and you fail to fix it, the tenant can sue you for water damage, including harm caused by mold. A premises that is not properly lit is a magnet for injury claims. Likewise, if you do not maintain code compliant fire/smoke alarms/extinguishers in working order, your carrier, and perhaps you, will be paying for injuries and property damage should a fire occur. As a general rule, when damage happens because of your fault, your policy pays regardless of whether the tenant has renter’s insurance. Yet when the tenant’s bike is stolen out of the garage, or the entertainment system is destroyed during an earthquake, you can lessen the likelihood of the tenant receiving indemnity from you and your insurer when the rental agreement places the tenant on notice to procure adequate protection.

So, in conclusion, tell your tenant to carry renter’s insurance in the lease agreement, but you probably cannot enforce a rule requiring annual renewal of such a policy. More importantly, ensure that your building is well maintained so that the tenant can never make a claim against you or your policy.

DW


Q: A tenant claims that she had her purse stolen and asked me to replace the lock on the gate to her unit. This is the first request she has made for a lock change, and she has lived in the unit for more than two years. Do I have to replace the lock, and if so, can I pass on the cost to her?

A: You probably should replace the lock promptly. Landlords are responsible to ensure that their tenants are protected from foreseeable harms, and if the thief has the tenant’s identity and access to her unit, she is in danger of being burglarized or worse. To this end, the California courts have consistently held that residential tenants have the right to personal safety in and around their rental units. Owners must always take reasonable steps to make their buildings safe, such as providing adequate lighting, sufficient locking devices on unit doors, and appropriate safeguards for entryways and exit areas. This is good public policy, and owners who neglect their duty of care will be held responsible for a tenant’s injury or death caused by crime.

In this case, because the tenant lost her key when her purse was stolen, the landlord could pass the cost of replacing the lock onto her. This pass-through is akin to charging a tenant for the cost of a locksmith’s time when a tenant locks herself out of a unit. The owner should also ascertain whether the locks to the common areas also require changing. If the thief has the purse with the keys, he could gain access into the building and threaten the safety of other tenants. Thus, the common area locks may also need to be changed (with replacement keys passed out to all of the building’s residents), and this expense could also be submitted to the tenant whose key was stolen.

This author recently received a call from one of his tenants, a 92-year-old woman, who lost her key. He replaced the lock that night, and he paid for the cost of replacement but told his tenant that if another change was required she would have to pay. Regardless of how the cost is reimbursed, please change all of the affected locks immediately so as to maintain the safety of your building.

Finally, local law now requires landlords to replace the locks of all units when the tenancy is terminated. This law was passed last year because the Board of Supervisors found cause to require owners to have new locks for new tenants, as no landlord can know for certain if a departing tenant kept keys or distributed copies to other persons. Although modern locking devices and key systems are expensive, there can be no substitute to proper safety and well being.

DW


3. What are the differences in the time requirements when you “nail and mail” a legal rental notice versus “personal service”?
Personal service, which involves the act of handing the tenant a legal notice, should always be attempted first. Good practice dictates that you try to serve the tenant initially at the residence, and then at any work/employment address that is known to you. You may also serve a “person of suitable age and discretion at either place” and then mail a copy of the notice to the tenant at the residence if you cannot find the tenant at home or at work. This is called “substitute service” and is an equally acceptable means to serve a tenant as personal service. A “suitable person” usually means a competent adult and not children.
Only if the tenant’s place of residence and business cannot be ascertained, and substituted service has been attempted, can you resort to the “nail and mail” method. Nail and mail is only available if the tenant’s places of residence and business are un-locatable or a suitable person cannot be found at either location to accept substituted service. Nail and mail requires properly posting of the notice on the front door of the rental unit or other conspicuous place at the property AND delivering a copy of the notice to the tenant if the tenant can be found AND mailing the notice via first class mail to the residence. All three steps must be accomplished to effectuate proper nail and mail service.
The time period of a 3-day legal notice begins to run the day AFTER proper service is completed. For personal and substituted service, the three-day period begins the day after you hand the notice to the tenant (personal service) and the day after you served a suitable adult and mailed the notice (substituted service). Likewise, for nail and mail, start counting the three days after both the posting and mailing have been completed. In the past, the law was unsettled with regard to the post and mail timeline in that some courts held that the time period was extended by 5 days for mailing. Not anymore; rather, a 3-day notice served by nail and mail is effective on the date of posting and mailing, and there is no extension of time.
Remember that if the final day of the notice period falls on a holiday, Saturday or Sunday, the notice period expires at the end of the next day which is not a Saturday, Sunday, or holiday. Thus, if service is completed on Thursday, the tenant has until the end of the day on Monday (assuming Monday is not a holiday) to cure, and the eviction complaint cannot be filed until Tuesday. Finally, remember that tenants and subtenants must be separately served with the notice in order to have legal effect on all of the occupants; however, proper service on a cotenant equates to proper service on the other named cotenants in the rental agreement. In places like San Francisco, the distinction between cotenants and subtenants is blurred by the local rent laws; therefore, it is advisable to make sure that you have properly and separately served all known adult tenants so as to avoid problems with the subsequent legal action.
Finally, for 30/60 day legal notices, you may use any of the above-described methods for service. Alternatively, and only for 30/60 day notices, the law allows you to perform service via certified or registered mail. Although not expressly required, you should request return receipt in order to prove the tenant’s actual receipt. The timeline for this type of service begins 30 or 60 days after you deposit the notice into the mail. Unfortunately, the law is still unclear as to whether or not the tenant gets an additional 5-day period. Many professionals play it safe and allow an extra five-day extension before taking legal action premised on a 30/60 day notice that was served by certified or registered mail. As stated above, the best way to serve any notice is by personal service, and preferably by a court-registered process server who knows the procedures and can testify in court if required.

Dave Wasserman


Legal Corner Q & A

Short Term Rentals and Temporary Relocations
by Various Authors

Q. Is there anything illegal about furnishing an empty unit and marketing it as a short-term rental?

A. No. In fact, there are many landlords in San Francisco and elsewhere who are doing just that. Known as corporate or short-term rentals, these tenancies are intended to cater to tenants who will occupy rental units for relatively short periods of time. Many times, the occupant is on a job assignment for only a few months and cannot be tied down to a year-long lease. There is no law that prohibits a short-term lease or the marketing of a short-term tenancy. If, however, an occupant decides to remain beyond the agreed-upon term, you might encounter difficulty in regaining possession of the unit. The act of asking a tenant to leave upon expiration of the term could be viewed as a wrongful endeavor to recover possession in violation of the Rent Ordinance. Most landlords who enter into short-term rentals are willing to take the risk of the tenant not vacating. The rent usually charged for a short-term rental is higher than usual, so extending the term is not a hardship. Furnishings provided by the landlord also warrant a higher rent than usual. Another incentive for short-term rentals is the knowledge that behind the short-term rental is a large company or university that is interested in maintaining a long-term relationship with the landlord. Many times the company is the entity signing the lease as the tenant. These large companies tend to be reliable, pay the rent on time and move their employees out in a timely fashion.
—Clifford E. Fried
Q. In order to ask a tenant to relocate for substantial renovation purposes, what threshold for construction, noise or interference must be reached?
A.Temporary evictions for capital improvement or rehabilitation work have become more and more common as owners seek to improve their properties in this red-hot real estate market. The local rent law allows an owner to temporarily evict a lenani in oruer 10 do substantial remodeling and improvement work but imposes some stringent requirements. For example: • The tenant must be invited back to the unit at the rent-controlled rent after completion of the work. • The tenant can only be displaced for the time required to complete the work, and this displacement period cannot exceed three months unless the owner receives an extension from the Rent Board. • The owner must pay each tenant up to $1,000 for moving and relocation expenses not less than 10 days before the tenant leaves. • All necessary plans and permits must be on file with the Department of Building Inspection before the eviction notice is given, and the tenant must be advised in writing that the permits/plans can be viewed at the Central Permit Bureau. (I also recommend that you attach the plans and permits to the temporary eviction notice.) The law states that a temporary eviction can only occur if the improvements make the unit hazardous, unhealthy and/or uninhabitable while work is in progress. I have encountered situations where the owner pulls work permits, only to have the tenant take the issue before the Board of Permit Appeals and request that the permits be reconditioned in order to allow the tenant to stay while the work is performed. Thus, you must be careful when deciding whether or not to serve a temporary eviction notice because many cosmetic improvements such as painting or carpeting do not warrant displacement. The initial question is always: Will the unit really be rendered unlivable? If you are tearing apart the kitchen, the answer may be yes. If, on the other hand, you are rehabilitating a bathroom in a two-bathroom unit, then the tenant could probably stay. (In one of my cases, the unit had one bathroom, but the tenant secured an agreement with the upstairs tenant to use his bathroom and, as a result, successfully challenged the temporary eviction.) The owner must also be aware of premise liability because a tenant who is injured at a construction site will most certainly pursue a claim for personal injury. Contractors and attorneys can help you make this analysis. In preparing the temporary eviction notice, I always recommend that the landlord state what work will be required and precisely why this work will make the unit unsafe. I also request that the tenant keep the owner informed of his or her forwarding address in order that the owner can contact the tenant once work is completed. Failure to immediately inform the tenants in writing that the unit is again ready for occupancy will provide valid grounds for both a wrongful eviction claim and a decrease-in-services petition. Temporary evictions are complicated by a balancing act that involves determining whether or not the unit will become unsafe for habitation during the work. Your temporary eviction notice and your plans/permits must be complete, accurate and able to withstand legal challenges. You must ensure that the displaced tenants are informed promptly when work is finished. Therefore, as in the case of any rent control eviction, I advise you to seek competent legal counsel before asking the tenant to vacate.
—David Wasserman

The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Clifford E. Fried is with Wiegel & Fried, 552-8230. David Wasserman is with Wasserman & Taxman, 415-567-9600. Copyright © 2004.

Q: We have a 90-year-old tenant who has been in our one-bedroom unit for 65 years. Four months ago she went into an assisted living facility; her daughter continues to pay the rent but also says that her mother can no longer live alone and will not be moving back to the apartment. Under these circumstances, is there a way to reclaim the apartment without filing a formal eviction notice?

A: This factual scenario is becoming more and more common. Based upon figures produced by the United States Census Bureau, 14.8% of the San Francisco population was 65 years of age or older. Despite the fact that there are a growing number of elderly tenants who no longer reside in their rental units, failure to reside in the rent unit is not a basis for evicting a tenant or terminating a tenancy. However, the San Francisco Rent Ordinance does provide a mechanism for a Landlord to decontrol a unit where the original occupant no longer principally resides in that unit and there are no other tenants in occupancy.

In June 2001, the landlord Rent Board commissioners sponsored a regulation that would allow a Landlord to de-control a rental unit in situations when the tenant did not use apartment unit as their “principal places of residences.” This rule was prompted in an effort to dissuade people from holding onto valuable rent controlled units even though they lived elsewhere. This rule also found support among Tenant Rent Board Commissioner as it is consistent with the philosophy behind rent control which was enacted in order to increase the City’s already short supply of affordable housing. The rule, was codified in the San Francisco Rent Ordinance in Section 1.21 of the Rent Board Rules and Regulations. Section 1.21 requires that in order for the rent to remain at the rent controlled price, the premises “must be the tenant’s usual place of return.”. If it is not, the owner can, upon a favorable determination by the San Francisco Rent Board, raise the rent to fair market value. Where for example, in the question posed above, the tenants rent is based on 65 years in occupancy, raising the rent to market rate would more than likely prompt the tenant or the tenants daughter to surrender possession of the unit.

In order for a Landlord to increase the rent of the unit under Section 1.21, the Landlord is required to petition the Rent Board for a determination that a rent increase under Section 1.21 is warranted. The Landlord must file a petition with the rent board after which the Rent Board will hold a hearing on the issue of whether the tenant principally resides in the rental unit. In the question posed, such a hearing would no doubt be focused upon whether the tenant will return from the assisted living facility. Given the fact that the daughter has told the Landlord that the mother cannot live alone and would not be returning, it seems almost certain that the Rent Board would decide in favor of the Landlord on the 1.21 petition. A decision by the Rent Board in a 1.21 hearing can however take up to 90 days to be rendered. Since any rent increase over 10% must be imposed via the service of a Sixty Day Notice, I would recommend that the Landlord serve the rent increase notice immediately after the 1.21 hearing. The Landlord should include language in this Sixty Notice that the rent increase is based upon a determination in the Landlords favor, to be rendered by the Rent Board in the 1.21 hearing and will only be effective upon a determination in the Landlords’ favor. If a determination by the rent board is not in the Landlords’ favor, and the Landlord does impose the rent increase prior to the decision, the Landlord will be required to refund any increase paid by the tenant. However, by serving the Sixty Day Notice immediately after the conclusion of the hearing, a Landlord avoids having to wait to impose the rent increase for perhaps up to an additional 90 days, the time it takes the rent board to render the decision.

Although a tenants failure to reside in the rental unit does not allow a Landlord to terminate and recover possession of that rental unit, a rent increase to market rate permitted under Section 1.21 will surely force a tenant to decide whether it is worth it to them to keep the rent controlled unit, especially if they are not living there. In the present question posed, it seems unlikely that the daughter would seek to hold on to the unit when the differential between the current rent and market rent is no doubt extreme. Either the daughter will surrender possession or at the very lease the Landlord will be collecting market rent without having to go to the time and expense of rehabbing the unit. In either case, the Landlord is a winner.

Daniel R. Stern, Esq.

WASSERMAN STERN LAW OFFICES


1.21 Strategy Question: I have a long-term tenant who lives in one of my units who always pays rent on time, but seems to be using his unit for storage rather than as a residence. How can I prove that he is not really living in the unit?

As many San Francisco landlords know, the rent law was amended five years ago to allow owners to increase rent beyond the rent control limitations if a tenant is found not to be using the unit as a principal place of residence. This provision is known as “Section 1.21,” termed after its designation in the Rent Board Rules and Regulations. Owners suspecting that one of their tenants really lives elsewhere can file a 1.21 petition with the Rent Board. A hearing will be set, and if the judge finds in the landlord’s favor, a rent increase beyond what is normally allowed will be permitted. In other words, the rent can be re-set at fair market value.

Absent an admission from the tenant, proving that someone does not reside in their unit is difficult. Since the law allows temporary absences for reasons such as education, military service, or hospitalization, the owner must establish that the tenant permanently moved their principal residence to another location. Thus, hiring a competent private investigator, or PI, is the necessary first step.

At a minimum, the PI should be properly licensed. In addition, the PI is bound to abide by state and federal privacy laws. The Rent Board will not tolerate illegal snooping, so make sure that you retain someone who operates within the rules. Next, determine exactly how you will prove that the tenant is principally residing at another location. For starters, the PI should search property tax records to see if the tenant owns a home and takes a homeowner’s tax exemption for his residence. Most Rent Board judges lend great weight to a homeowner’s exemption, filed with the government, where the tenants swear under penalty of perjury that their primary residence is at the home they own. Besides, why would someone buy a house only to keep some apartment as the main abode?

The PI should also run a credit header. This data consists of the addresses reported by the tenants as their residence. In other words, the credit header shows all past and present mailing places used by the tenant in chronological order. Another helpful tool is the DMV data base. For example, the PI can sometimes ascertain what address the tenant lists on a driver’s license, or where the tenant has been cited with a traffic violation. In one recent case, the tenant had multiple DUIs in Riverside County, thereby casting doubt on his story that he resided full-time in San Francisco. Finally, the PI can also perform a “knock and talk.” This procedure involves the PI visiting the tenant at his address away from the unit. When the tenant answers the door, the PI poses as an investigator looking for a John Smith who worked at ABC Company and was recently involved in an accident. The tenant, also named John Smith, replies that he is not the John Smith who worked at ABC Company. The PI asks that the tenant confirm, in a declaration, that he lives at this address and is not the employee that is being sought; all too often, the unsuspecting tenant eagerly agrees to cooperate and signs the affidavit attesting to his true place of residence.

In sum, hire a good PI, and gather all of your evidence before you file the petition. Once you apply to the Rent Board for a 1.21 determination, the tenant will receive notification and may alter the evidence you need to prove your case. If you do win, you can turn the rent-controlled storage locker into a market rate rental.

DW


SFAA Legal Q&A

It’s that time of year again, when the Rent Board publishes next year’s annual allowable increase and security deposit interest rate. Pursuant to the rent law, the annual allowable increase is effective from March 1 through the following February 2z8th of each year. Yearly increases are calculated by taking 60% of the Consumer Price Index for all Urban Consumers in the Bay Area. This year, the posted increase was 1%, so landlords are allowed to increase rent by .6%.

The SFAA magazine publishes the past allowable increases in every issue, which began in April of 1982. For owners who do not impose an increase each year, the law allows “banked” increases, or a combination of all past increases, to be imposed at the owner’s election. As many of us know, incorrect increases can result in costly consequences (e.g., illegal rent petitions wherein the Rent Board orders a refund of excesses for the past three years), and an incorrect calculation one year poisons the chain of increases so that all subsequent rental amounts are incorrect. So let’s review a few basic rules.

First, rent increases can only be given every 12 months. Thus, if the tenancy began on June 1, 2003, no increase can be imposed until June 1, 2004. The Rent Board allows owners to change the “anniversary date,” but this will cause the owner to lose out on collection of increased rent for the months that are advanced. [For example, moving the anniversary date from April to July causes the owner to permanently lose collection of increased rent for May and June.] So, rule number one is only raise the rent once a year, and try to keep the same anniversary date.

Second, rent increases must be preceded by written notice. For total increases under 10% of the current base rent, a thirty-day notice is sufficient. But for increases in excess of 10% (for instance, where there are a lot of banked increases), a sixty-day notice is required. The notice should state what amount is banked and the dates upon which said banking is based, and what amount represents the current annual allowable increase.

Third, NEVER ROUND UP to the nearest dollar. The increase must be calculated precisely, or round down if you want to. Rounding up can result in the vitiation of the entire increase and all future increases.

Here is a sample of a rent increase notice imposing banked increases for a tenant who began occupancy on May 1, 1999:

“Dear Tenant: Effective May 1, 2004, which is more than thirty days after service of this notice is completed upon you, your current base rent of $100.00 shall be increased as follows:

Banked Increase for May 2000: 2.9%

Banked Increase for May 2001: 2.8%

Banked Increase for May 2002: 2.7%

Banked increase for May 2003: .8%

TOTAL BANKED INCREASES: 9.20%

Annual Allowable Increase for May 2004: .6%

TOTAL INCREASE: 9.80%
RENT INCREASE EFFECTIVE 5/1/04: 9.80% x $100 = $9.80
NEW BASE RENT EFFECTIVE 5/1/04: $109.80

Please note that you cannot compound the banked increases. You must total the entire amount of past increases before multiplying them against the previous base rent. This is perhaps another good reason to impose increases annually and not to bank them, as yearly imposition usually yields a higher rent over time than the compounded banked rate.

In summation, make sure that your calculations are always correct, do not round up, give proper notices of the increases, do not change the anniversary date, and try to impose the increases annually rather than bank them. Always look to the official rent increase chart either in the SFAA magazine or on the Rent Board’s website, and call a knowledgeable property manager or attorney if you have any questions.
Dave Wasserman


What new 2004 laws should I be concerned about?

Sadly, after we spend so much time and energy on the offensive at the local level, Sacramento has been busy passing a series of laws that, for the most part, adversely impact the rights of property owners. A lot of this legislative flury can be traced to the pre-recall desparation of ousted Governor Davis coupled with the aggression and power of Mr. Burton and other lawmakers seeking to please their liberal constituencies. On Thursday December 11, 2003 at 7:00 P.M., and again on January 15, 2004 at 7:00 P.M., landlord attorney Jeff Woo and I will be teaching the 2004 legislative update seminar at Fort Mason. For those who cannot attend, here is a brief synopsis of the new 2004 landlord-tenant laws.
The first law is actually good for the industry, as it allows owners to enter a unit without written notice to make repairs or other agreed-upon services if the tenant makes the request. Thus, owners no longer have to serve written notice 24 hours in advance when the tenant calls in a repair. You should still document the entry in writing for your records, and leave written notification inside the unit informing the tenant when you or your agent entered and what repairs were done.
There are two new laws that increase penalties for landlords who “defraud” a tenant or use force, threats or menacing conduct. In addition, a landlord who increases rent on a unit that has outstanding “Notices of Violation” from the Department of Building Inspection may be fined by the court up to $5,000. Undoubtedly, these laws will be used frequently in San Francisco.
Another new law authored by our own Mark Leno withdraws the right to use the Ellis Act for operators of residential hotels in San Francisco, Los Angeles, and San Diego. Formerly, any property owner could go out of business by withdrawing all of the units in a building from the rental market through invocation of the Ellis Act. This new law prohibits SRO and residential hotel operators in SF, LA and San Diego from using the Ellis Act if the Ellis Notice has not been served prior to January 1, 2004. (The law must be imposed locally by the Board of Supervisors, but I believe it is safe to say that our Board will implement this restriction immediately.)
The third series of laws have to do with security deposits. First, no move-out inspection will be required when the tenancy is being terminated by way of a three-day notice (e.g., three day to pay rent or three day to cure breach of lease covenant). In 2003, owners were justifiably confused when terminating a tenancy by way of a three-day notice, and then having to serve the “pre” move-out inspection form which allows a tenant to request a move-out inspection two weeks before leaving. The timeline did not make sense in the three-day eviction context, so this law really helps. The second security deposit law mandates that owners provide tenants with receipts, invoices or a vendor price list for any labor or materials that the owner purchases and then deducts from the tenant’s security deposit. Tenants may waive the right to receive these receipts via a written waiver, and total expenditures under $125 are exempt. SFAA President Eric Andresen wrote an extensive article on this law that appears in the January 2004 SFAA magazine.
Finally, there is new legislation that requires business owners who negotiate a transaction in Chinese, Tagalog, Vietnamese or Korean to provide copies of these contracts in those languages. This is compodium legilsation to another law that requires contracts or agreements negotiated primarily in Spanish to be translated into Spanish prior to the contract’s execution. Rules and regulations governing a tenancy and inventories of furnishings provided by the business are not included in the term “contract” or “agreement” and need not be provided in Spanish. However, SFAA is advising its membership not to negotiate lease agreements, or any other aspect of the tenancy, in a foreign language. Becuase of these laws and potential interpretations by the courts, members are advised to keep lease negotiations in English, as well as all lease addendums, common area signs, and “change in terms of tenancy” notices. This consistency, which comports with the English-language PPMA lease, will serve the landlord well.
Finally, the new PPMA 2004 lease is set for release in February or March. The new lease incorporates most of the recent legislative changes (both locally and statewide), and also includes many of the membership’s suggestions. Please make sure you are using the most current version when signing up a new tenant.
-Dave Wasserman


2007 State Laws

For property owners, the year 2006 was relatively quiet on the state legislative front. While certain pro-tenant lawmakers actively sought to enhance tenants’ rights, Governor Schwarzenegger vetoed many of these bills, and responsible legislatures voted against numerous others, thereby preserving the ability of California apartment owners to control their property. Thus, while on the local front landlords have been hit hard, not a lot came out of Sacramento this year.

Three pieces of legislation that did get signed into law will significantly impact our industry. The first piece of legislation is the 60-day eviction notice requirement for certain tenants. This law, known as Assembly Bill (“AB”) 1169, came from legislation first enacted in 2003 that expired on December 31, 2005 without being renewed. The law was initially implemented because several large apartment operators in the North Bay and the Sacramento areas generated a wave of negative publicity when they evicted large numbers of tenants. As a result, the State Legislature stepped in and passed a law requiring that tenants who have resided in their unit for more than one year be allowed sixty, as opposed to thirty, days to vacate their apartment when evicted through no fault of their own (a “no fault” eviction).

A “no fault” eviction means that the tenant’s lease is terminated not because the tenant breached the lease but rather because the lease term has expired and the landlord does not wish to renew it. In places without rent control, the landlord is free to terminate the tenancy upon lease expiration provided that the owner is not discriminating against the tenant for unlawful reasons such as the tenant’s race, religion, ethnicity, gender, sexual orientation, or national origin. However, in San Francisco, a no fault eviction must also be expressly permitted by the rent law; as such, no fault evictions are generally limited to owner/relative move-ins, removal of illegal units, substantial rehabilitations, sale of condominium units, and, for a temporary displacement of tenants with the right to return, lead abatement or capital improvement work to the unit.

“Fault” evictions are governed by a separate statute that requires the tenant to vacate after three days if the breach is not cured, or, in some instances, without any opportunity to cure. In California, fault evictions include nonpayment of rent, breach of a lease covenant, commission of waste and/or nuisance, or using the dwelling for an illegal purpose. San Francisco’s rent law imposes additional requirements on owners doing fault evictions, but passage of AB 1169 will have no impact in this area.

So effective January 1, 2007, landlords serving notice on tenants for no fault evictions must comply with AB 1169. Like its predecessor, this bill expires in three years unless renewed. It also does not apply to tenancies that have existed for less than one year when the eviction notice is served; in those instances, the traditional thirty day notice is still available.

However, AB 1169 goes further and states that the sixty-day requirement shall not apply if any tenant or resident has resided in the unit for less than one year. The legal staff at the California Apartment Association (“CAA”) interprets this clause to mean that the one-year “clock” re-starts if a new tenant/subtenant/roommate is added to the lease agreement. Such an interpretation may apply outside of the City, but given the local rent law’s liberal stance on what is permissible subletting regardless of additions to the rental agreement, San Francisco owners are advised to consider giving sixty days’ notice for tenancies longer than one year even if there have been subsequent occupancies that are less than twelve months in duration. The other exception contained in this bill is an exemption for single family homes or condominiums that are being sold to natural persons for owner-occupancy. If notice is given less than 120 days after escrow has been opened, the historic thirty-day notice is allowed. For structures in San Francisco that are governed by the rent law, this exemption has no application, as sellers cannot evict their tenants for the purpose of emptying the unit for sale. Indeed, AB 1169 ends with the following warning: “This section may not be construed to affect the authority of a public entity that otherwise exists to regulate or monitor the basis for eviction.”

CAA understandably opposed AR 1169 because it represents a further erosion of landlords’ property rights. Yet local practitioners generally found the additional notice period to be inconsequential or even helpful in San Francisco’s extremely restrictive rent and eviction control framework. For example, because the City’s rent laws impose major barriers on owners terminating tenancies for no fault, coupled with the fact that many of these no fault evictions are contested and eventually wind up before pro-tenant judges and juries, allowing tenants more time to vacate may be seen as a plus for owners who are otherwise vilified. Indeed, a jury may be more inclined to award the owner possession if the tenant was given sixty or more days to vacate rather than just one month’s notice. As the Governor stated when he signed this bill, “[b]eing asked to move involuntarily is never easy, and moving is especially difficult for the elderly and persons with disabilities.”

Finally, the City’s Rent Ordinance contains several hybrids of fault and no fault just cause provisions for eviction that may be impacted by AB 1169. For example, many practitioners believe that the just cause grounds for terminating a tenancy because the tenant denied lawful access into the unit, paid rent habitually late, paid rent with checks that frequently bounced, or refused to sign a renewal lease fall outside of the three-day notice statute even though these types of evictions are predicated on the tenant’s fault. As such, the hybrid just causes usually invoke the longer thirty-day notice period, which will be extended to sixty days in light of AB 1169 for tenancies longer than one year.

Two other pieces of noteworthy bills were also signed into law.

AB 2210 clarifies a landlord’s right to remove vehicles illegally parked on residential property. It allows an owner or another tenant to, in certain circumstances, have a vehicle towed that is parked in an unauthorized space, and further permits the towing company to redact the name of the party requesting the tow from the towing authorization form. This redaction may reduce retaliation against a resident or property manager who ordered the tow. AB 2210 also states that the persons authorizing the tow can do so without being present at the tow site as long as they are at the property; however, this requirement does not apply to buildings consisting of less than 16 residential units with no resident manager provided that written authorization has been given to the tow company (which can be faxed or e-mailed).

San Francisco landlords should be very careful about towing vehicles. If a tenant or the tenant’s guest is parked in an unauthorized space, the owner should serve proper notice under the rent law. The temptation to tow may result in an expensive lawsuit against the owner claiming that the tenant was wrongfully displaced from a parking privilege without the benefit of due process under the Rent Ordinance. Moreover, as the local law was recently amended to prohibit landlords from severing parking privileges without a permitted just cause, a tenant whose car is towed may have a substantial claim for wrongful eviction damages. Consequently, if the car belongs to a tenant or a tenant’s guest in the building, the owner should consider the more time consuming eviction process before calling the tow company.

Finally, AR 2865 requires owners and managers to notify tenants operating a day care facility that they are applying pesticides at the property. This legislation compliments existing law that requires owners who contract for pest control to provide a notice of the pest control company’s practices at the property to all new tenants. The new law represents good public policy and will only protect landlords from liability should someone claim injury from pesticides. It also serves as a reminder to landlords that they should be posting Proposition 65 warning signs in common areas and distributing Proposition 65 pamphlets with their new lease agreements.

Landlords should thank the Governor for bills that he vetoed, including one that would have allowed tenants to post political signs and banners in their rental units and another that would have eased restrictions on sex offenders to move into rental housing. Legislatures on both sides of the political aisle have also been receptive to the industry’s concerns, as voiced by CAA lobbyists working tirelessly at the Capitol. In 2006, CAA continued to fight ongoing assaults by pro-tenant elected officials to curb the use of the Ellis Act and to limit the application of Costa-Hawkins. To this end, it is imperative that members of the local chapters, such as SFAA, continue their financial support of CAA by making, at a minimum, the suggested contributions to CAA set forth on the annual membership dues statement. Absent this funding, neither the Governor nor the members of the Assembly and Senate who are respectful of the rights of property owners can be apprised of the adverse effects created by irresponsible legislation.

DW


SFAA President’s Report — January 2007

Welcome to 2007. I wish that last year’s election was more encouraging, but it wasn’t. I wish that our rights as owners were respected and safe, but they aren’t. I cannot, and will not, paint an optimistic picture about the state of affairs in politics and government, but I do begin my first year as your president with one very important and simple message: Get involved!

For most of us, the apartment buildings we own constitute our biggest investment. These assets represent our retirement accounts, pensions, and disability insurance combined. Many of us depend on the rent and, eventually, the appreciation to take us into a comfortable post-work life, and perhaps to benefit our children when we are gone. None of us views these acquisitions as anything but extraordinarily important in our overall portfolios of wealth.

Yet how much does each of us really work towards protecting these investments? Yes, we belong to an organization devoted entirely to advancing the interests of the housing industry, but ask yourself if your involvement is relegated to reading the monthly magazine and ordering forms when you have a vacancy. Do you regularly contribute to the legal fund? Do you attend the membership meetings? Do you recruit new members? Are you active participants or simply dues paying bodies? I suspect many of us fall into the latter category.

My goal is simple and straightforward. This organization, if it is to be effective, must become more active locally and statewide. This means increased membership and funding. Complaining about the state of affairs or an elected official does nothing to improve our lot in the world. Continual and unwavering support of legal challenges and campaigns will, on the other hand, yield a positive effect over time. Apathy and pessimism lead nowhere. Putting forth a sincere effort will ultimately take us to change.

I have listened to many of you complain about dues and fees. Yet anyone who owns an apartment building in San Francisco is, by national standards, wealthy. Why, then, is it difficult for us to raise money for campaigns and viable candidates? How many times will we let Prop Is, Prop Gs, and Prop Hs pass before we pour serious money into efforts to defeat these bills? You can’t just let the other members pay, because this attitude is proven to be contagious. American politics requires money and money is something we need to raise amongst our membership each and every time we are faced with more erosion of our rights. In San Francisco, such assaults are as regular as the fog rolling through the Golden Gate on an August afternoon.

And what about mounting an offense? For instance, this year we should put at least one measure on the ballot that would restore some of our rights. While undoubtedly you applaud such an idea, what is required for this Herculean effort is cash and volunteer time. Will you provide this?

Please remember that our organization is a non-profit institution. No one gets rich because more owners join. The contributions you make do not enhance someone’s lifestyle. Rather, the bulk of SFAA consists of volunteers and modestly paid employees working long hours, day after day, in an inhospitable political climate. Yet ironically, the gains we achieve increase your wealth by making your assets more profitable.

And consider the alternative to effective activism. Every time more bad legislation becomes law, the attractiveness of your property diminishes. The obvious example is the prohibitive restrictions on evictions. How can someone pay top dollar for housing when it will require an enormous amount of time, money, and even luck just to move in? Less apparent effects include the general degradation of the housing stock because owners either cannot afford or refuse to rehabilitate their buildings, as government has even restricted the ability to pass these costs onto rent controlled tenants. While you may be one of the fortunate few with good tenants and no problems, the laws that get passed and the candidates who get elected will determine the value of your building over time. In addition, don’t count on never having to evict someone or to seek reimbursement after making capital improvements. We all experience difficulties as owners at some time or another. The bottom line is that all of us are in the same boat, and we need to view our neighbor’s plight as our own.

Unquestionably, time is of the essence. I predict that in the next few years we must, as an industry, fight off continued assaults at City Hall as well as in Sacramento. We face an electorate who is either apathetic or hostile to our positions. Therefore, many of the battles will occur in the courtrooms. Our ability to win is entirely dependent on your contributions, both monetarily and by way of active participation.

I joined the SFAA because I had purchased a 5-unit building in the Mission District. I wanted to learn the ins and outs of being a landlord, both because of my investment and because I was beginning a law practice specializing in this area. While both of these needs were quickly met, I soon discovered that the tenant interest groups were relentless in their efforts to restrict my rights, and their success rate was impressive. As such, I could no longer sit by and reap the educational and business benefits of this organization without getting involved in making it stronger so that someone was effectively advocating for our position. I do not regret my decision, and I hope each of you will make this same commitment.

In sum, each of you needs to ask yourself what you can do to make this organization stronger. Please remember that your help is not limited to sending in a check once or twice a year; rather, I ask that you help us recruit more members, and that you attend our meetings and fundraising events. I will fail as your president if I cannot motivate you to comprehend the importance of this message. The SFAA leadership will fail if these goals are not achieved in this New Year. More importantly, the inability of our organization to succeed will exact significant financial detriment to you and everyone else who has invested their life’s earnings in rental housing. So let’s step up the level of participation and involvement now.

Happy New Year, and may we look back at 2007 at the year when the tide turned!

DW


Looking to 2008

Like last year, the legislative sessions in 2008, both in Sacramento and at City Hall, did not produce significant or numerous laws for property owners. Hopefully, this trend will repeat itself in 2008 and beyond.

One battle that will likely continue is the assault by some California state lawmakers to limit the use of the Ellis Act. The Ellis Act is a state law which allows a landlord to take all of the residential rental units in a building off of the market, provided that the “Ellised” property is subjected to various re-rental restrictions and, in San Francisco, tenants are paid relocation fees. Several years ago, Assemblyman Mark Leno sponsored legislation to prevent the use of the Ellis Act for single-room occupancy (SRO) properties in San Francisco, Los Angeles, and San Diego. Now, Senator Kuehl and other pro-tenant lawmakers want to limit the Ellis Act to landlords that have owned the property for a certain period of time. In 2007, a bill was defeated in the State Senate which would have required a five-year ownership of rental property before it could be withdrawn from housing. In a last-minute compromise, Ms. Kuehl amended the bill to require an ownership period of three years, but property rights groups succeeded in killing the measure. Most industry leaders expect this effort to be renewed in 2008.

The Ellis Act was also the subject of a Court of Appeal decision in Daro v. Superior Court (Foy). In that case, a group of tenants challenged the landlords’ use of the Ellis Act by arguing that the owners committed unfair business practices with their attempting to sell subdivided interests in the property (TIC units) without complying with the state’s Subdivided Lands Act. The trial court issued on order preventing the use of the Ellis Act in this situation and stopped the eviction. The Court of Appeal reversed this decision, stating that landlords have the absolute right to evict. The tenants may have a right to sue for unfair business practices, but they cannot use this ground as a basis to thwart the Ellis evictions.

In late summer of 2007, the California Supreme Court published its decision in the much anticipated Action Apartment Association v. City of Santa Monica case. This lawsuit addressed the issue of whether or not service of an eviction notice creates liability for landlords. Santa Monica had passed an amendment to its rent law that imposed liability on owners for serving an eviction notice if the notice was issued in “bad faith.” Such a measure conflicted with a longstanding cornerstone of American jurisprudence, which states that communications made in the course of litigation are protected speech. The Supreme Court noted that a “factual inquiry” is required to determine whether an eviction notice is protected speech. The test is whether the notice was served in a good faith contemplation of an eviction action under serious consideration. If so, then the eviction notice is protected speech. In San Francisco, tenants often, and sometimes automatically, sue their landlords just for serving a notice, regardless of whether or not the notice was issued as a precursor for a legitimate eviction action. Indeed, owners may find themselves as defendants even before an eviction notice expires. While it is too early to ascertain how Action Apartment will be interpreted by the trial courts, the industry remains optimistic that this practice of suing someone for serving an eviction notice will be curtailed in light of the recent Supreme Court holding. To this end, in September and October 2007, the Court of Appeal rendered several unpublished decisions indicating that service of a notice, as a prerequisite to an eviction, is activity done in furtherance of a property owner’s right to petition the courts and therefore protected speech.

Laws related to discrimination in housing were also modified. Civil Code section 782.5, which stated that rental agreements are “deemed revised” to omit any discriminatory restrictions, now specifically states that rental contracts cannot contain language to discriminate against persons because of race, color, religion, sex, sexual orientation, marital status, national origin, ancestry, familiar status, source of income or disability. In Angelucci v. Century Supper Club, the California Supreme Court ruled that to state a claim for damages under the Unruh Act, one of California’s anti-discrimination laws, a litigant need not demonstrate that he or she affirmatively requested nondiscriminatory treatment and was refused. Thus, a tenant or rental applicant does not need to show that a request was made on the landlord to provide discrimination-free housing services. Rather, a housing provider may be liable for unlawful discrimination even if the tenant or prospective renter failed to make a request or demand to be treated fairly.

Also long-awaited was the Supreme Court’s decision in Castaneda v. Olsher. This case asked the question as to when a landlord had a duty to evict suspected gang members. In Olsher, a tenant was shot when rival gangs engaged in a shooting incident. The plaintiff-tenant asserted that the landlord should have evicted the gang members based on past conduct, and claimed that the stray bullet was foreseeable. The Supreme Court disagreed, opining that the absence of brighter common area lighting was not a substantial factor in causing the incident. In addition, a landlord has no duty not to rent to known gang members as a class, and to hold otherwise could result in unlawful discrimination on the basis of race, ethnicity, and family composition. Furthermore, requiring landlords to obtain criminal records on tenant applicants suspected of gang membership would impose a “burdensome, dubiously effective and socially questionable obligation.” The big local news for 2007 was the imposition of Proposition H in December 2006 on no-fault evictions. Proposition H was passed by the San Francisco voters in November 2006 and is now codified in the rent law. Effective March 1, 2007 (and subject to further increase on March 1, 2008 and every March 1 thereafter), all occupants residing in a unit for more than a year, regardless of age, are entitled to $4,568 each, with a cap of $13,705 per unit, when the owner is terminating the tenancy pursuant to an owner/relative move-in, removal of unwarranted rental unit/demolition of rental unit, or substantial rehabilitation of the building. In addition, the temporary suspension of a tenancy for capital improvement work also requires this payment. The landlord must also pay an additional $3,046 for each elderly or disabled tenant, or to each household with at least one child under the age of 18 years. This relocation requirement substantially increased the costs of these types of evictions, and the prior exemption to pay owner/relative move-in relocation for single-family homes and condominiums was discontinued. For Ellis Act evictions, local law requires payment of $4,571.92 per adult with a cap of $13,715.75 per unit, with an additional $3,047.94 for elderly or disabled tenants. These rates will again increase in March 2008.

The Board of Supervisors also passed a re-key amendment to the San Francisco Administrative Code’s security deposit chapter. This amendment requires landlords to re-key or replace door locks when all tenants vacate a rental unit. A landlord must re-key or replace only one lock on each door exclusive to the unit. The “re-key of tenant’s door only” portion was inserted in large part because of the effective efforts of the SFAA and Coalition for Better Housing leadership, who convinced City Hall to change a prior draft of this bill which would have required the re-keying of all common areas when a tenant vacated. Obviously, such a provision would be economically disastrous for many operators in the City, and owners should be grateful for this compromise.

State courts have also expanded a prevailing party’s right to collect attorney fees where the lease or contract has a clause awarding fees to the winner. Many residential leases have such clauses, although the SFAA Residential Tenancy Agreement does not. In Loduca v. Polyzos, the Court of Appeal held that a non-signing party should be awarded attorney’s fees. Conceivably, this case could be used by subtenants and “6.14 subsequent occupants,” who never signed the lease, to recover their lawyer fees if they successfully defend an eviction action and if the rental agreement contains an attorney fee provision.

In sum, the Ellis Act has survived a major assault. The California Supreme Court affirmed that eviction notices, when served as a precursor to legitimate litigation, are protected speech. Landlords are not obligated to evict suspected gang members, but in San Francisco they have to re-key a tenant’s door at the conclusion of the tenancy. Relocation payments are up, and discrimination in renting remains off limits. If the rental agreement contains an attorney fee clause, non-signatory third party beneficiaries may make a successful claim for fees if they prevail in a legal action. Yet all in all, 2007 was a good year for property owners, but the threat of harmful legislation remains ever-present both at the State Capitol and at 100 Van Ness Avenue. Therefore, we need to remain actively involved in the process, both with our votes and pocketbooks. Happy New Year!

DW


What recourse does a landlord have when a tenant is using both the apartment and garage for a commercial enterprise?

The first line of inquiry is to determine what the lease agreement states with regard to commercial use. Is there an express prohibition against operating a business in the rental agreement for both the apartment and the garage? If the lease does not specify permissible uses or restricts conduct, the tenant may use the apartment for any lawful purpose that is not materially different from ordinary use or for that purpose for which the unit was constructed.

The most recent version of the PPMA lease contains language that defines permissive use. For the apartment, the lease states that use is limited to “living, sleeping, cooking and dining purposes, and for no other purpose….” For the garage, the tenant must agree that the parking space shall be used “exclusively for the parking of motor vehicles….Absolutely NO automotive cleaning, washing, maintenance or repair work of any kind and NO storage of any kind shall be permitted in or about the parking space(s).”

If your rental agreement contains these or similar prohibitions, then you must analyze whether or not you, or your manager, or even the prior owner allowed this tenant to use the apartment and garage for commercial purposes. If past permission was given, and/or management looked the other way, then the tenant’s conduct may be permitted even if the lease prohibits it. This is called “waiver” and “estoppel,” and tenants always employ these legal defenses as a basis to thwart a landlord’s eviction attempt.

If the lease prohibits commercial use and there is no waiver or estoppel, then the owner should immediately serve a “Three-Day Notice to Perform Covenant or Quit.” This notice demands that the tenant cease commercial operations within three days or surrender possession of the rental unit. Failure to do either will allow the owner to file an eviction action with the court. During this proceeding, the owner will have to prove that the tenant breached the lease provision(s) prohibiting commercial use, and further failed to correct the violation within the three-day period after receiving service of the eviction notice.

If the lease is not clear about commercial use, or management may have ignored past violations, the owner may consider whether or not the commercial activity in either or both the apartment and garage violates local health & safety or zoning laws. For example, a tenant who is running a retail establishment out of the garage may be breaching a planning code or a neighborhood restriction. If so, the owner may be able to serve a notice for illegal use that could also result in an eviction action. Indeed, some landlords have reported themselves to the City for their tenants’ unlawful conduct in order to receive a citation, which in turn gives rise to just cause for termination of the tenancy.

Finally, please note that home office use is usually considered reasonable and therefore permissible. Most practitioners advise landlords that prohibiting a home office would not be enforceable. However, when a tenant begins seeing clientele or members of the public, the enterprise may become commercial and subject to prohibition. In addition, residential tenants have the absolute right to operate a small daycare business (six or fewer children) despite a lease provision to the contrary.

In sum, the most important document is the lease, which should confine permissive use to residential purposes, thus ruling out the possibility that your tenant might assert a legal right to conduct business out of the unit. Act promptly when you discover a violation so as to avoid the waiver/estoppel defenses. Finally, as with any legal action, please consult with a qualified attorney before making a move.

DW


The Bedbug Problem

They’re the scourge of hobo encampments and hot-sheet motels. To impressionable children everywhere, they’re a snippet of nursery rhymes, an abstract foe lurking beneath the covers that emerges when mommy shuts the door at night. But bedbugs on Park Avenue? Ask the horrified matron who recently found her duplex teeming with the blood-sucking beasts. Or the tenants of a co-op on Riverside Drive who spent $200,000 earlier this month to purge their building of the pesky little thugs. The Helmsley Park Lane was sued two years ago by a welt-covered guest who blamed the hotel for harboring the critters. The suit was quietly settled last year.

Bed bugs were once a common public health pest worldwide, which declined in incidence through the mid-20th century. Recently, however, bed bugs have undergone a dramatic resurgence and worldwide there are reports of increasing numbers of infestations. Bed bugs are one of the great travelers of the world and are readily transported via luggage, clothing, bedding and furniture. As such, they have a worldwide distribution.

Here are some common facts about these beasts: Bed bugs are persistent. Getting rid of them requires persistence. Bed bugs can hide in extremely small cracks and crevices making it difficult to locate breeding sites. Bed bugs are rarely seen in daylight. They emerge from their hiding spots at night. Bed bugs can live a year or longer without food (e.g., human blood) and thus stay in their hiding places. Bed bugs can travel long distances and survive in suitcases, clothing, vehicles, aircraft, cruise ships and other modes of transportation. Bed bug females lay about 300 eggs. Baby bed bugs hatch from eggs in 10 days.

The stigma attached to these parasites is influencing some hotels and landlords to ignore infestations or treat them without professional help. Lack of professional treatment comes with great risks, notably the possibility of litigation.

California Civil Code § 1941 requires that a lessor of a building intended for the occupation of human beings must, in the absence of an agreement to the contrary, put it into a condition fit for such occupation, and repair all subsequent dilapidations thereof, which render it untenantable. A rental unit must be fit to live in; that is, it must be habitable. In legal terms, “habitable” means that the rental unit is fit for occupation by human beings and that it substantially complies with state and local building and health codes that materially affect tenants’ health and safety. Additionally, while the unit is being rented, the landlord must repair problems which make the rental unit unfit to live in, or uninhabitable. The landlord has this duty to repair under the California Supreme Court case, called Green v. Superior Court, which held that all residential leases and rental agreements contain an implied warranty of habitability. Under the “implied warranty of habitability,” the landlord is legally responsible for repairing conditions that seriously affect the rental unit’s habitability. That is, the landlord must repair substantial defects in the rental unit and substantial failures to comply with state and local building and health codes. Moreover, housing regulations adopted to preserve the health and safety of the community require the landlord to keep the premises free from vermin. While there are few published cases addressing the liability of landlords for bedbug infestation, in a recent New York case entitled Ludlow Properties, LLC. v Peter H. Young , a landlord commenced an eviction proceeding against a tenant seeking, in addition to eviction, unpaid rents for the rental unit. The tenant claimed a breach of warranty of habitability defense stemming largely from the presence of bedbugs in the premises. The trial was held on April 22, 2004 and the trial court found that the bed bugs did not constitute mere annoyance, but constituted an intolerable condition, notwithstanding the landlord’s efforts to exterminate them. The tenant was therefore entitled a rent reduction of 45 % for the period of time tenant had bedbugs until the time the bedbugs were eradicated. In another landmark case, a motel chain in the United States was successfully sued for $382,000 after guests were bitten by bedbugs [Matthias v. Accor, 2003].

As the previous cases illustrate, a landlord, despite his diligent efforts to eradicate bedbug infestations, may be subject to rent reductions, property damage claims, as well as claims for constructive eviction. For example, a tenant could file a Rent Board petition against a landlord alleging decrease services as a result of an alleged bedbug infestation. Such a claim may very well obtain redress from the Rent Board in the form of a rent reduction despite the landlord’s attempts to deal with and ultimately solve the problem. In addition, while to date no tenant has brought a case for constructive eviction to the California Court of Appeal because of bedbug infestation, we will no doubt see a wave of such cases, especially with the dramatic resurgence of bedbugs in recent times. Such a case, if successful, could subject a landlord to huge financial liability given the trebling of damages under the San Francisco Rent Ordinance.

Landlords who encounter claims of bedbug infestation should address those claims immediately by seeking professionals who can swiftly and effectively deal with the problem. The mere presence of bedbugs could at the very least subject a landlord to possible rent reduction and in the worst case scenario subject a landlord to lawsuits for constructive eviction. While there is a possibility that a landlord may successfully defend a such a lawsuit, the costs of doing so will be no doubt be much higher than paying professionals to deal with the bedbug infestation, an infestation which could, if left unfettered, effect not only one unit, but your whole building. Ignoring the alleged problem or attempting to deal with it your self will only increase your potential liability.

Good Night, Sleep Tight and Don’t’ Let the Bedbugs Bite!

Daniel R. Stern, Esq.
Wasserman-Stern Law Offices


PRESIDENT’S REPORT
APRIL 2008

KEEP YOUR EYES ON THE PRIZE

All too often, we become mired in our legislative defeats and the multitude of laws that have eroded property rights over the years. Admittedly, the rental industry became much more combative, and difficult, in the late 1970s when city after city, including our own, passed rent control. The bad news intensified when the long-standing promise to exempt owner-occupied small buildings from rent control was broken in 1993 with the passage of Proposition I. In the late 1990s and into this decade, the City really ramped up its onslaught, making owner move-ins difficult (if not impossible), reducing capital pass-throughs, mandating roommate replacement, and not permitting severances of housing services. Most recently, the voters approved a measure making certain types of evictions prohibitively expensive by requiring massive pay-outs to tenants for “relocation expenses.” The end result of this calamity is over-regulation to the detriment of everyone, including tenants, who now suffer as a result of higher rents and understandably hostile landlords.

Yet one gift we sometimes fail to appreciate is that magnificent state law known as Costa-Hawkins. This statute, which became effective in 1995, marked a major turning point for the housing industry. In the late 1980s and early 1990s, terrified apartment owners watched at cities such as Berkeley, Cotati, East Palo Alto, and West Hollywood adopted what was known as “vacancy control.” Vacancy control means that even if a unit is vacated, the rent remains fixed at a governmentally mandated price. Thus, in cities with vacancy control, owners would have to register their units with the local rent boards, and the registered rent became the allowable amount that could be charged regardless of who lived in the unit. Hence, there was no such thing as fair market rent or potential “up side” for investors.

Not surprisingly, San Francisco’s government quickly became enamored with the notion of full rent regulation and began implementing vacancy control. However, this effort was halted when local and state industry leaders corroborated to draft and pass Costa-Hawkins. Indeed, former SFAA President Merrie Turner-Lightener was instrumental in drafting this legislation.

With Costa-Hawkins, owners can now set the rental rate of vacant apartments to whatever rent they want. Units are not registered with the Rent Board, and the government cannot tell an owner what to charge for a vacated unit. Some of our friends who own rent-controlled units in New York City are not so lucky, as this jurisdiction still suffers from vacancy control.

Costa-Hawkins is also crucial for several other very important reasons. First, it tells cities and counties with rent laws that buildings built after February 1, 1995 cannot be subject to residential rent control. This is important because it incentivizes builders to construct new apartment buildings. While the San Francisco law states that units constructed after June 13, 1979 are mostly exempt, we know, from widespread experience, that the Legislature changes the rent laws on an extraordinarily frequent basis. Now, thanks to Costa-Hawkins, City Hall cannot impart rent control onto projects built after 1995. At the present time, the California Apartment Association and other groups are taking a case before the California Supreme Court to fight the City of Santa Cruz’s attempt to impose rent controls on newly-constructed second units on an owner’s property; hopefully, the clear legislative intent and plain meaning of Costa-Hawkins will be upheld by our state’s highest court.

Second, Costa-Hawkins exempted from rent regulation single-family homes and condominiums where the tenancy began on or after January 1, 1996. This means that owners of condominiums and single-family homes in San Francisco that were built before June 13, 1979, and were formerly subject to rent regulation, may now ignore the annual allowable rental increase limitations provided that the tenancy began after December 31, 1995. However, these units are still subject to the local eviction controls, meaning that the tenancy cannot be terminated unless the landlord invokes one of the 15 allowable just cause reasons. In addition, condominiums that have not been sold to bona fide purchasers for value by the developer (the owner or owners who converted the building to a condominium project) generally do not receive this benefit.

Third, and most important, is the ability that Costa-Hawkins affords to apartment owners to set a new rent when the last original occupant no longer permanently resides in the unit, and the remaining subtenant(s) took occupancy after December 31, 1995. For example, if you rented a unit to Tenant A and Tenant B, and in 1998 Tenant C moved in, when Tenant A and Tenant B move out the rent can be raised to fair market value.

There is a substantial amount of confusion and interpretation surrounding this critical provision of Costa-Hawkins. Not surprisingly, tenant advocates have made every effort to limit its use by owners. For starters, the remaining subtenants usually argue that the original occupant still permanently resides in the unit. In other words, they assert that the term permanently resides, which is not defined in the law, has a broad meaning and essentially precludes a Costa-Hawkins rent increase if the original occupant has any connection whatsoever with the rental unit. Thus, if the original occupant still sends the rent check or has some furniture at the apartment, even though he moved to Amsterdam, they advocate that the original occupant has not permanently vacated. Many judges at the Rent Board accept this argument.

Tenants also commonly utilize the defense that the owner has waived any right to implement a Costa-Hawkins rent increase by recognizing the subtenant as an original occupant. In fact, the Rent Board has passed a series of regulations that attempt to define “waiver,” even though Costa-Hawkins is relatively silent on this issue. (Costa-Hawkins actually states that “acceptance of rent by the owner does not operate as a waiver… unless the owner has received written notice from [the departing original tenant] and thereafter accepted rent [from the subtenant].”) The Rent Board insists that a landlord must increase the rent, or reserve the right to increase the rent, within 90 days after the original tenant vacates. The Rent Board also implies waiver if the subtenant shows that the landlord “affirmatively represented” to the subtenants that they may remain in the unit at the rent-controlled rate. Obviously, these types of local rules invite and encourage tenants to attack Costa-Hawkins rent increases, and oftentimes we suffer defeat at the Rent Board when, in all likelihood, the Rent Board has exceeded its authority by misinterpreting and restricting application of a state law.

Related to Costa-Hawkins is a local Rent Board regulation that was passed about six years ago by the Rent Board Commissioners. Known as “Section 1.21,” this law allows landlords to raise the rent to whatever they want if they show that the tenant no longer “principally resides” in the rental unit. Enacted to de-control units being used as part-time second homes, Section 1.21 is effective when the tenant has not permanently vacated but continues to use the apartment infrequently and not as a main residence. For instance, a tenant who now lives in Portland, Oregon but keeps the place in the City for occasional Giant games and nights out on the town may now have to pay a fair market rent. Santa Monica also has a similar law, and the California Court of Appeal has recently affirmed the right of local rent boards to implement rules decontrolling units that are not used as a principal place of residence.

So, in the spirit of the presidential campaign season, this column is circulated to impart a sense of hope and accomplishment. Our industry, while suffering defeats on many issues, has successfully stayed off vacancy control, and the one-time practice of selling keys or passing down rental units to family and friends, a sight common in New York and some of the European cities that have embraced rent control, has been eradicated in our city and state. When the local campaign season kicks off into high gear shortly, and you are asked to contribute your time and money to support worthy candidates and causes, remember Costa-Hawkins and Section 1.21. Also remember that both laws could be repealed or scaled down, which would effectively diminish the “up side” of your investment. In sum, do not doubt the ability of our local organizations to make a real difference, and never concede that our efforts are hopeless. Finally, remember that apathy will ensure that laws we cherish will fall by the wayside, as there are many here and throughout the state that are striving, with good funding and organization, to re-establish vacancy control as a misguided means to guarantee affordable housing.

DW

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