Feature
by Jerry Spolter
Viewed as a landlord, San Francisco’s Rent Control Ordinance is a complex law with tentacles you must understand and heed “to the letter” if you want to avoid financially devastating consequences.
Dispute Evolution
Could you imagine that economic damages for violation of
the San Francisco Rent Ordinance are subject to a mandatory trebling
(unlike damages awarded in virtually every other type of lawsuit)?
For example, an award of $120,000 rent control differential damages
becomes $360,000 (See Kelly v. Yee [1998] 213 Cal.App.3d 336).
Would you believe that after entering into a written agreement with a tenant for monetary consideration for a move-out (including relocation expenses), this same tenant could sue you during the following three years for violation of the Rent Ordinance even though the tenant had advice of counsel throughout the negotiations leading up to your agreement?
Are you aware of “damages exposure” in the Rent Ordinance if the Building Department requires you to make major renovations to an apartment building to bring it up to code and thereby displacing tenants during the renovation?
Horror stories abound. Landlords need only peruse this publication for tales of landlords learning the hard way about the intricacies of the Rent Ordinance. These stories reveal that it is more likely a matter of time, rather than a matter of chance, before others experience similar scenarios of hardship.
As a long-term commercial tenant and residential landlord, as well as an attorney for 26 years and a mediator for 16 years, I caution you to heed wisely the Rent Ordinance. Regardless of your personal philosophical bent regarding the merits of rent control, you should tuck these away in the political recess of your brain. Then take out the Rent Ordinance, spread it across your desk, study it carefully and become familiar with its myriad nuances, many of which are counter-intuitive.
What should you do when you receive that dreaded letter from your
tenant’s attorney, or worse, when the process server knocks
at your door with a “Summons and Complaint” in hand?
First, be sure you have acquired a Commercial General Liability
(CGL) policy covering claims arising from your rental property business.
This coverage is an absolute necessity for all landlords. Even if
you never are sued, this type of coverage is definitely worth the
premium.
Second, before responding to any communication, contact your insurance agent or carrier and await the assignment of counsel to assist you through these murky and shark-infested waters.
Traditional Litigation
Keep in mind that as of 1990, San Francisco County was comprised
of nearly 60% renters. While every dispute is eventually resolved,
some resolutions come more painfully than others. Trial by jury
should be the last resort for the risk and uncertainty of a verdict
of your “peers” can be downright frightening.
Litigation requires a major investment of time, money and negative energy. If the jury determines that the tenant suffered emotional distress and finds that the conduct of the landlord was “willful,” then those damages might treble, not to mention further landlord exposure for punitive damages. The landlord’s final hurdle on the steeplechase of litigation takes place when the landlord is ensnared at any level of deception either orally, in writing, or in deposition. Jurors, deciding on the case, are often downright righteous and reflect their displeasure in the final verdict. There also are attorneys’ fees that, when recoverable by the rental contract or by statute, often exceed the amount of compensatory and/or other damages.
The purpose of this article, however, is to offer a more effective approach for disposing of a claim or lawsuit once it rears its ugly head.
Dispute Resolution
Mediation has achieved astounding acceptance by both landlords and
tenants as a method of successful, efficient and cost-effective
dispute resolution in contrast to the familiar trial-by-jury, judge-only
trial and arbitration.
To dispel any mystery concerning the process, mediation involves the use of a mutually agreed-upon neutral mediator who facilitates discussions and negotiations between the disputants. The goal is to achieve a mutually acceptable resolution. Mediation is voluntary, confidential, informal and efficient. It combines joint sessions (both parties and lawyers air their opposing views of the facts and the law) and private caucuses (each side meets privately with the mediator under a cloak of strict confidentiality). Through this process, both parties move beyond posturing to deal with their true interests, i.e., the needs that must be met in order to put the dispute to rest. In contrast to an arbitrator, the mediator has no authority to render a decision and, in fact, simply serves as a “friend” of both parties to facilitate an agreement of the parties’ making.
There is also an exceptional range of creative solutions available in mediation, while juries, judges and arbitrators generally fashion only monetary awards. At the end of the mediation process, each party typically has given some ground in an effort to forge an agreement that is workable for both sides. In mediation parlance, this is considered a win-win solution. Mediation’s phenomenal success rate of 75% to 90% of all cases settled is a clear indicator that this approach is the preferred option in settling disputes.
It’s In the Fizz
What are the ingredients that make the mediation process so successful?
Rather than answering this question, I urge you to contact a landlord,
tenant, lawyer, realtor, or broker who has participated in mediation
and ask them to explain the process. Mediation is to litigation
what aspirin is to headaches. Few of us can explain precisely how
it works; we just know that it does. Pause and visualize the certain
pain of prospective litigation in a dreary courtroom over a two
to three week period. Assess the case, and that of the adversary,
and weigh the costs and risks of litigation. Overcome the Gypsy
Curse (i.e., “may you have a lawsuit in which you know you
are right”), and acknowledge that perhaps not all of the truth
and all of the law necessarily rests with either side of the case.
The cost of mediation is modest when contrasted with the cost of litigation. Think of your investment in mediation as comparable to the cost of an attorney preparing for and taking one person’s deposition and paying the court reporter for a transcript (about $1,500 to $2,000, if it is a short deposition). At the end of the mediation, you might end up paying money to a tenant but it may be worth it to recover your rental premises and be free of the threat of future claims.
Don’t Become Another Horror Story
The law is the law. If you do not like it, work to change it. Until
you change it, understand and comply with it. If you find yourself
in a dispute over the law, mediation is a proven, effective way
to resolve it.
Jerry Spolter is a litigation attorney with Spolter, McDonald & Mannion in San Francisco. His trial experience is recognized both by the National Board of Trial Advocates and The American Board of Trial Advocates. He has mediated more than 1,000 cases through The American Arbitration Association. © Copyright 2001.