Feature
by Ted Kimball
This article is intended to inform rental property owners and managers of new legislation for 2003 that affect the way you operate your properties, as well as identify the top three litigation trends against property owners.
On August 28, 2002, Governor Davis signed landlord/tenant legislation into law, effective January 1, 2003. After that time, tenants of residential real property must be served with a 60-Day Notice of Termination instead of the normal 30-day notice if the tenant has been in possession of the property for one year or longer. This provision will expire automatically January 1, 2006 (in San Francisco, notices to terminate are rarely used due to rent control). The new law also requires that landlords give written notices to enter the premises in most cases and provides for an easier way for tenants to apply to the court for reinstatement of their lease during an unlawful detainer lawsuit.
Do residents have to serve 60-day notices as well? No, just landlords must serve the notices. Residential tenants are still required to serve 30-Day Notices of Termination, but the new law only applies when your tenant is on a month-to-month rental agreement otherwise known as a periodic tenancy. A 30-day notice may still be served if the following conditions are met: (a) the property has only one rental unit on its title; (b) the property is for sale and listed with a broker; (c) the purchaser of the property is a person who intends to live in the premises; (d) the notice is given at least 120 days after escrow was opened; and (e) there were no previous notices served to the tenant pursuant to this law.
Does this mean the tenant can lose the unlawful detainer and still remain in possession? Yes, although this has been the case with current law, it is now much easier for a tenant to apply for relief and be reinstated. Under the new law, the lease no longer has to be in writing, the tenant can apply for relief at any time, and the court can grant relief on its own motion. The old law required the lease to be in writing, a judgment for possession entered, and a petition for hardship served to the landlord who then appeared and contested the application for relief.
Also signed into law is AB 2330, which creates a pre-move out inspection right of residential tenants and other new procedural requirements for residential landlords regarding the disposition of the security deposit. It also takes away the ability of a landlord to charge a processing fee for new residents, recently permitted by the California Supreme Court.
The new law requires owners or managers to notify residents within a reasonable time before their lease is terminated that they have a right to an inspection of the unit within two weeks before they vacate to determine what items, if any, will be deducted from their security deposit. If the tenant requests the inspection, and both parties agree on a date and time, the owner or manager must still serve the tenant with at least a 48-hour notice of the time and date of the inspection. The parties can agree to waive a 48-hour notice by written waiver. If the tenant fails to request the inspection, no inspection before the move-out is required.
If the parties cannot agree on a date and time for the inspection, the owner or manager must serve the tenant with at least a 48-Hour Notice of the time and date of the inspection. If the tenant objects or withdraws the request for the inspection, the inspection will not take place and is not required until after the tenant has vacated.
At the time of the inspection, the owner or manager must leave the resident(s) with a written statement itemizing the deductions that will be made if not corrected by the time of the move-out. The resident is not required to be present at the date of the inspection, and in this event the statement must be left inside the premises. The statement must also contain specific statutory language reminding the tenant of their rights and obligations regarding the security deposit.
The new law also clarifies the following standard of cleanliness necessary in order for the tenant to avoid a cleaning charge: the premises must be left in the same level of cleanliness that existed at the time of the tenant’s initial occupancy. This is the same standard currently being used by the vast majority of California judges.
The new legislation also dramatically increased penalties to landlords for wrongful withholding of the security deposit. After January 1, 2003, the new penalty will allow judges to award up to twice the amount of the security deposit. The current penalty limit is $600. However, it is rare for a court to award a penalty, as the tenant must prove malice. Malice, in this context, is the ability but refusal to return the deposit without actual or perceived legal defenses and while acting in bad faith.
The owner or manager has the right to charge the tenant for any damage that occurred between the time of the inspection and the time of the move-out, and for any damage not visible due to the presence of the tenant’s personal property inside the unit.
Compliance with the new law is very important, especially because private law firms and government agencies have recently been filing class action lawsuits against residential landlords for alleged unfair and unlawful business practices. The most recent ones have focused on the disposition of security deposits.
Senate Bill 460 also became effective on January 1, 2003. Although it does not require property owners to inspect for or remove lead-based paint, it does provide that a lead-based paint hazard will render the property substandard and subject the tenant to the right to withhold rent or abandon the lease without further responsibility. The premises, however, must first be identified as containing a lead-based paint hazard by a local enforcement agency. No penalty will be assessed until the owner has had a reasonable opportunity to control the hazard.
Common Lawsuits
In 2003, many residential and commercial property owners and managers may face a wide variety of lawsuits against their properties or against the way they operate. Consider the following three most common types of lawsuits filed against California rental property owners and managers.
Fair Housing Violations
Fair housing law violations continue to be the number one threat against residential landlords. This is not surprising, for renters constitute over 50 percent of California’s population, and the majority constitutes members of one or more protected classes. Furthermore, there is no cost to plaintiffs for any out-of-pocket expenses to file fair housing complaints if they file through agencies such as Housing and Urban Development (HUD) or the California Department of Fair Housing and Employment. Prudent managers and owners will make sure that their 2003 management staff and on-site personnel are annually trained in fair housing laws.
Fair housing liability continued to broaden in 2002, illustrated by two recent examples. First, the United States Supreme Court agreed to accept a case to decide if real estate executives could be sued individually when their staff discriminates against customers. Second, in 2002, HUD for the first time brought charges on behalf of a tenant’s guest against a landlord for evicting a white tenant who entertained African-American guests. Race, national origin, disability and children/familial status (in this order) were the most common type of fair housing violations filed in 2002.
Toxic Mold
Claims for personal injury and property damage caused by mold growing inside apartments are rising dramatically. Although there is a bill in Congress to study the issue, there are currently no federal or state guidelines regarding toxic mold. Last year, the state of California passed legislation to study the issue, but fell short on funding during the budget crisis this year.
A claim of simple negligence on the landlord’s part is all that is currently needed to file a lawsuit. Toxic mold cases, following lead-based paint and asbestos, have become the next big tort wave to hit the rental housing industry. Less than one year ago, a Sacramento court awarded defendants over $2.7 million for toxic mold-based injuries and property damage. The significance of this case is not just the amount of the award, but for the first time in the nation a verdict was awarded for the plaintiff based on their alleged personal injury as a result of toxic mold. In 2002, a Los Angeles case settled for several million dollars involving eight families in federally subsidized housing. Some of the claimed injuries were respiratory problems, skin rashes, headaches, lung disease, cognitive memory loss and brain damage. Generally, insurance carriers argue that if the infestation of mold is due to the lack of routine maintenance, the owner is most likely not protected. Therefore, the most important issue is what caused the loss. Documentation of the cause for mold growth is, therefore, extremely important in these cases.
We also recommend that you address mold in your lease. Document and clearly outline what the residents’ responsibilities are regarding their maintenance of the premises so that the growth of mold is prevented. Also, the lease should lay out the residents’ responsibility for notification to the landlord and removal procedures.
Proposition 65 Lawsuits
Proposition 65 is a law requiring all businesses that employ more than 10 persons to warn individuals prior to exposure of even very small amounts of approximately 1,000 specific chemicals known to cause cancer and birth defects. This law is finding its way into the courts through private attorneys who are taking advantage of the bounty hunter provisions of its regulations. Their most recent target: commercial landlords. Attorneys’ fees and costs, as well as a bounty fee of 25 percent of any assessed penalties or fines, can be recovered if the suit prevails.
The act specifically prohibits any person, in the course of doing business, from knowingly and intentionally exposing any individual (without giving a specified warning) to a chemical known to the state of California that causes cancer or reproductive toxicity. Substances on the list that contain chemicals include lead-based paint, second-hand smoke, barbecue smoke and automobile exhaust fumes. The smart money spent on legal protection in 2003 will be for education, training and an audit of all documents, policies and procedures in order to ensure compliance with today’s laws and regulations.
The opinions expressed in this article are those of the author and do not necessarily reect the viewpoint of the SFAA or the SF Apartment Magazine.
Ted Kimball is the senior partner of Kimball, Tirey & St. John, a firm that specializes in landlord/tenant law and represents clients throughout California. he may be contacted at 800.338.6039 Copyright © 2003 San Francisco Apartment Magazine