When noticing my tenants of a rent increase, should I include the names of unauthorized subtenants?
Absolutely not. In 2018, we, the multi-family housing industry in California, spent upwards of $70 million to defeat Proposition 10, a ballot initiative that would have repealed the Costa-Hawkins Rental Housing Act and further diminished the supply of new and affordable housing in our state. What also would have happened if Costa-Hawkins was repealed would be the continuation of locked-in rent controlled rental rates for subtenants who remained behind after the last original tenant no longer resided in the apartment. Now, thanks to our efforts, this vital law is preserved and owners may continue to impose a fair market rate increase when subtenants are left behind and the tenancy continues.
Under Costa-Hawkins, an owner may impose an unlimited rent increase upon subtenants once the last original lessee leaves unless the subtenants have, either by current or past ownership/management, been recognized and accepted as co-tenants. If such recognition and acceptance have occurred, the ability to adjust rent is likely forfeited. Ways to elevate subtenants into co-tenants include, but are not limited, to the following: (i) accepting rent or rent payments from the subtenant; (ii) entering into a lease, lease addendum, or subtenancy agreement with the subtenant; (iii) accepting and processing non-emergency repair requests from the subtenant; and (iv) relevant to this question, communicating with the subtenant, including identifying the subtenant in annual rent increase notices. If you, your predecessor, or your manager engage in any of the above-noted actions while the master tenant is living in the apartment, the critical right to impose a fair rent increase onto persons remaining behind once the last master tenant permanently departs is jeopardized if not entirely vitiated.
The Rent Board passed a regulation known as “6.14” some years ago to permit landlords to make subtenants into co-tenants without waiving the right to impose an unlimited rent increase when the master tenant leaves. This author believes that utilizing 6.14 is fraught with perils in that (i) you must ensure that a subtenant is served with a special notice within sixty days or so of the subtenant moving in, which is rarely known with certainty; (ii) 6.14 in the Rent Board’s eyes requires that a master tenant both physically and legally sever all ties to the rental unit before an unlimited rent increase can be imposed, which is a very difficult if not impossible dual standard to satisfy especially if the master tenant continues to pay rent for the apartment; and (iii) service of a 6.14 notices legally approves of the subtenancy, which may have adverse implications for certain eviction actions.
In sum, try to avoid communicating with subtenants. If they approach you, politely inform them that they are the tenants of the master tenant and, as such, communications, requests, and discussions concerning their housing should flow through that channel and not by way of you. As for rent increase notices, notices to enter, and other communications, the addressee should be relegated to the tenant on the lease agreement only. Yes, this makes management challenging and sometimes a bit uncomfortable, especially for buildings that are owner-occupied, but until our legislators come up with sensible rental housing policies we are forced into this state of awkwardness.