Legal Corner Q & A
by Various Authors
Q. 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?
A. The San Francisco Rent Ordinance applies to all nontourist 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 (even if it was once used for commercial purposes, but is now rented as a residential dwelling). In general, this means that buildings built after this date 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 San Francisco Rent Board verifying a “sub rehab” are also exempt, although only about 30 buildings have received this type of classification.
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 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 was 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,” the amount comparable units are renting for in the same area. Tenants in noncontrolled units may still bring state and federal fair housing claims against landlords who use rent increases to force out tenants who 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, a new owner cannot terminate the lease or raise the rent during that period, assuming the tenant remains in good standing under the lease.
State law also requires landlords who impose rent increases greater than 10% of the previous rent to give the tenant 60 days’ advance notice, with 5 additional days if the notice of rent increase is served by mail. For increases of 10% or less, the required notice time is 30 days, with 5 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.
–David Wasserman
Q. I own a duplex in the Richmond that was built in 1980. Can I bypass the city’s condominium lottery and just convert them to condos?
A. The year the building was built (1980), although significant with regard to local eviction and rent control laws (as mentioned above), has no bearing on the lottery and conversion process. All San Francisco buildings must follow the established process to convert to condominiums, and all buildings with more than two units must go through the lottery process to convert.
Simply owning a duplex does not mean you bypass the lottery and “autoconvert.” Two-unit buildings in San Francisco only bypass the condo lottery process if both of the units have been owner occupied for at least one year and no eviction was done at the premises on an elderly or disabled tenant after November 16, 2004.
The owner-occupancy requirement requires that separate owners (who each owned at least 25% of the property during their occupancy) occupy each of the units for at least one year. This is ideal for tenancy-in-common owners, but can be an obstacle for single-family or investor owners. If your duplex has not been owner occupied for at least one year and you do not intend to have it owner occupied for a year, you must enter the lottery and hope that you are one of the lucky few to win. Only 200 buildings per year are allowed to convert, and your odds are worse the newer you are to the lottery.
If any eviction took place after November 2004, you should consult an attorney before assuming you can simply bypass the lottery. If a protected-tenant eviction has taken place since November 2004, you will not be permitted to bypass the lottery and will have to enter the “protected-eviction” lottery pool (with less than a 5% chance of winning).
Even after you have met the requirements to bypass the lottery or you have won the lottery, in order to “just convert to condos” as you put it, you must still (among other things) have the building inspected by the Department of Building Inspection, complete all work ordered by DBI and obtain a Certificate of Final Completion and Occupancy. The entire process, not including the lottery, can take up to two years to complete. If you are considering conversion, we advise that you contact an attorney who specializes in that area.
–Sally Morin & James M. Millar
Q. Can I buy out my tenant without having just cause to evict?
A. The answer is a qualified “yes.” Landlords must understand that most just cause for eviction ordinances contain prohibitions against endeavors to recover possession unless the landlord has just cause for eviction and the landlord either serves an eviction notice or, if the property is in San Francisco, at least notifies the tenant in writing of the grounds for eviction (the writing need not be an eviction notice in San Francisco).
If a tenant voluntarily approaches a landlord and expresses an interest in moving in exchange for money, has the landlord really “endeavored to recover possession” in violation of the just cause ordinance? There is no clear opinion from the courts on this question. Thus, any discussion with a tenant about moving, negotiating a buyout, or actually going through with a buyout puts a landlord at risk of being sued for a wrongful or an attempted wrongful eviction.
What the courts have said, in published decisions, is that landlords have free-speech rights when speaking with tenants regarding their occupancy of the premises (Baba v. San Francisco Board of Supervisors) and a litigation privilege when it comes to statements made to tenants in contemplation of an eviction (Baba v. San Francisco Board of Supervisors and Action Apartments v. Santa Monica Rent Board, the latter is to be reviewed by the California Supreme Court this year).
Based upon these court decisions, some landlord attorneys, but not all, hold the opinion that tenant buyouts in just cause cities are proper. Until a judge expressly rules so, I’m not prepared to hold such a strong opinion; there is still some risk of liability for violating a just cause ordinance.
Buyouts are quite common, but they may not be legal in the eyes of a judge if tenants were to ever challenge them. For example, a landlord might do a buyout only to have the tenant later have “buyout remorse” and attempt to set aside the deal. The tenant would then claim the deal was void because it is against public policy and violates the just cause ordinance. A tenant could also sue for an attempted buyout.
If you are contemplating a buyout, allow the tenant to initiate the discussion in writing. With this document in hand, you can show that there was no endeavor to recover possession; instead, the tenant asked for relocation assistance. And if there is just cause to evict, put the grounds for recovering possession in writing before negotiating an agreement to vacate. This could prove helpful should the tenant later sue based upon a wrongful endeavor to recover possession.
Once the landlord and tenant have struck a deal on relocation assistance, an attorney should prepare a formal, written agreement. This agreement would confirm that the move out is voluntary and that the tenants are vacating of their own free will and not because the landlord said or did anything to initiate the move. The agreement should contain a release of claims by the tenant.
–Clifford E. Fried
Q. In general, can a tenant break a lease after a major natural disaster or a terrorist strike, even if the building he resides in is not damaged?
A. No. California Civil Code Sections 1932 and 1933 control when a tenant may terminate a residential lease. Under both statutes, the residential unit must be completely destroyed or must be damaged to the point that the rental unit is no longer habitable. Whether the rental unit is destroyed or uninhabitable to a degree that triggers automatic termination of the lease is a factual question that depends on the amount of destruction to the rental unit. In a situation where the building is not damaged at all, the tenant should not be able to break the lease. A more difficult question would arise in a situation where there was no damage or destruction to the building, but the unit was uninhabitable because there were no utilities (gas, electricity, water) for an extended period of time. (Of course, a month-to-month tenant would only have to give 30 days’ notice.)
Landlords and tenants are free to contract in their leases for specific rights and obligations in the event of a natural disaster or terrorist strike. For example, the PPMA Residential Tenancy Agreement provides that “If the premises are damaged by fire, flood, earthquake, or from any other cause so as to render them uninhabitable and therefore destroyed, the tenancy is terminated.” That provision simply confirms the rights under the statutes. In the absence of a contractual provision allowing a tenant to break the remaining term of his lease in the event of a natural disaster or terrorist attack regardless of any damage to the building, the tenant will have to fulfill the remaining obligations under his lease.
But even if the tenant breached the lease by vacating before the end of the lease term, the landlord would have a duty to “mitigate” damages by attempting to rerent the unit, and would be able to recover from the tenant the reasonable costs of rerental. Of course, it might be difficult to rerent the unit, depending on the circumstances. Right after the Loma Prieta earthquake in 1989, for example, there was not much of a demand for rental units in the Marina.
–Jerod Hendrickson & Lawrence M. Scancarelli
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of 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. David Wasserman is with Wasserman & Stern, 415-567-8230. Sally Morin and James M. Millar can be reached at 415-981-8100. Clifford E. Fried is with Wiegel & Fried, LLP, 415-552-8230. Jerod Hendrickson and Lawrence M. Scancarelli can be reached at 415-398-1644. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.