Feature
by Andrew J. Wiegel & Clifford E. Fried
Under San Francisco’s rent control laws, the rental rate for a rent controlled unit can only be raised to market value upon vacancy. This leads to abuse by tenants perpetuating revolving multiple-occupant tenancies, denying owners the right to raise the rent to market.
In 1989, the San Francisco Rent Board promulgated Regulation 6.14. Rather than preventing new roommates from automatically acquiring the full rights of the original tenant, the measure provided only for very limited protection for the diligent property owner who was willing to jump through the procedural hoops to prepare and properly serve tenants with a technically exacting notice. If a property owner was not aware of Reg. 6.14, or did not comply with its special notice requirements, interlopers could easily acquire the windfall benefit of a controlled rent, established by a much earlier tenancy, even after the tenant for whom that base rent had been established had vacated the unit.
When the California Legislature passed the Costa-Hawkins Rental Housing Act in 1995, it confirmed certain rights to property owners as a matter of state law. One of these was the right to increase the rent to the remaining occupants when the last original occupant–who took possession of the dwelling pursuant to the rental agreement with the landlord–no longer permanently resides there, provided that none of those other occupants resided there as “lawful sublessees or assignees” prior to January 1, 1996.
Until 2000, the provisions of the Costa-Hawkins Act and the provisions of Reg. 6.14 seemed to operate somewhat independently. In some respects the provisions of Reg. 6.14 were in conflict with the landlord’s rights under Costa-Hawkins. Then, the Rent Board enacted a new version of Reg. 6.14, effective April 25, 2000, seeking to conform that regulation to the requirement of state law.
Provisions of New Regulation 6.14
In seeking to conform to state law while preserving maximum protection for occupants, the new regulation begins by defining three classes of occupant: the “Original Occupant,” the “Subsequent Occupant” and the “Co-Occupant.”
“Original Occupant” is defined in the manner one would expect, but includes anyone who took possession with the express consent of the landlord “at the time that the base rent for the unit was first established.” It would therefore include not only a named tenant who signed a rental agreement, but also anyone who was known to the landlord to be taking possession as a roommate or co-occupant, such as persons named as additional occupants on the rental agreement, or persons from whom applications were received along with the named tenant.
“Subsequent Occupant” includes anyone who later commenced occupancy with an Original Occupant. “Co-Occupant” is a special subgroup of Subsequent Occupants including only those Subsequent Occupants who have “a rental agreement directly with the owner.”
The regulation then sets forth the rights of the three different classes of occupant depending upon when their occupancy commenced with respect to the January 1, 1996, cut-off date established under the Costa-Hawkins Act.
The next subsection, Reg. 6.14(b), provides that Subsequent Occupants who commenced occupancy before January 1, 1996, and all Co-Occupants, regardless of when they commenced occupancy, are not subject to rent increase upon the vacating of the last Original Occupant unless they were served with the traditional Reg. 6.14 Notice, within a “reasonable time,” presumed to be within 60 days of commencing occupancy.
Subsection 6.14(c) provides that Subsequent Occupants without any direct agreement with the landlord, who commenced occupancy after January 1, 1996, are subject to rent increase when the last Original Occupant vacates after April 25, 2000, unless they can affirmatively prove that the landlord waived the right to that rent increase, by: affirmative representation, failure to act within 90 days or failure to reserve the right to increase the rent at a latter date after receiving written notice of the new roommate and thereafter accepting rent.
Subsection 6.14 (d) addresses the same situation as 6.14(c), except applied to a last Original Occupant vacating prior to April 25, 2000. Under those circumstances, the regulation only allows the landlord to raise the rent on Subsequent Occupants, who commenced occupancy after January 1, 1996, and who themselves have no direct rental agreement with the landlord, if the landlord gave a traditional Reg. 6.14 Notice, or if the landlord was otherwise “entitled to establish a new base rent under the Costa-Hawkins Act.”
In other words, for the situation where the last Original Occupant vacated prior to the effective date of this new regulation, the Rent Board has inserted a default provision recognizing that the Costa-Hawkins Act creates an independent and supervening right to raise the rent notwithstanding the existence of former Reg. 6.14 (or any other city regulation, including new Reg. 6.14).
There is a separate subsection, 6.14(e), which addresses a special circumstance for formerly exempt landlord-occupied 2-4-unit buildings, which came under rent control as a result of Proposition I. That section provides that service of a Reg. 6.14 Notice by August 15, 1995, would be effective as to occupants who took occupancy anytime prior to February 15, 1995, even though they would have received the notice more than 60 days after commencing occupancy. In the absence of that notice, pre-February 15, 1995, Subsequent Occupants could not be subjected to a rent raise. The rights of Subsequent Occupants commencing occupancy after February 15, 1995, are determined by the other subsections of Reg. 6.14.
Finally, in order to avoid the possibility of defects in the regulation, or conflicts with state law causing the regulation to be held void by the court, the Rent Board inserted a final subsection, providing that the section is intended to comply with the Costa-Hawkins Act and confirming that it does not diminish any right of a landlord under the act.
So, When Can I Raise the Rent?
How do you determine whether or not you can raise the rent when the last original tenant vacates? The answer depends upon several factors. First, when did the remaining occupants take occupancy? The rules are different for occupants who took occupancy after January 1, 1996, the effective date of the Costa Hawkins Act. Are there any occupants who were not properly served with a Reg. 6.14 Notice within a “reasonable time” after commencing occupancy? If there are, and they took occupancy before January 1996, you cannot raise the rent on them.
Second, has the landlord made any assurance of continuing controlled rent or entered into any direct “rental agreement” with the new occupant? Depending upon representations or the terms of any agreement, that occupant may be entitled to continue the benefit of the controlled rent even if they took occupancy after January 1, 1996. Any “rental agreement” with the landlord makes them a Co-Occupant, which the regulation appears to construe as automatically conferring the same benefits as an Original Occupant.
However, the rent could still be increased as long as they were also served with a Reg. 6.14 Notice or equivalent, or if their agreement with the landlord specifically states that it is not a “rental agreement,” but rather a confirmation of rights and obligations consistent with the Costa-Hawkins Act and Reg. 6.14, setting forth that they understand and agree that they are not an Original Occupant, and that their rent is subject to being increased upon the vacating of the Original Occupant. Our office prepares a custom document for our clients to use in confirming their relationship with new occupants to address this situation and protect their rights.
Third, did the landlord receive a written notification from the Original Occupant that a roommate or subtenant was taking occupancy, and thereafter accept rent without giving a Reg. 6.14 notice or other effective notice of the right to raise the rent when the last original tenant vacated? Under Costa-Hawkins, a waiver can only occur if the written notice comes from “the tenant that is a party to the agreement,” and the landlord thereafter accepts rent.
The regulation seeks to expand the basis for waiver to include a notice from any Original Occupant, which includes people who were not necessarily actually parties to the agreement. That expansion is probably void as it is contrary to state law, and waiver should only be found when the written notice comes from someone who is actually named in a rental agreement. If the landlord waived the right to increase the rent, the rent can’t be increased.
Finally, is it still within 90 days of written notice or actual knowledge of the Original Occupant vacating? Failure to act quickly, by at least giving a proper notice reserving the right to raise the rent or by raising the rent within 90 days, is stated in the regulation as a basis for a finding of waiver. We doubt that this provision, which does not appear in the Costa-Hawkins Act itself, is enforceable if no rent has been accepted during that period.
It may be that the best protection against the revolving door tenancy remains the service of written notice whenever a new occupant appears in a unit. A correct form of notice is required due to the changes in Reg. 6.14 that occured back in 2000.
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. The information within this article is general in nature. Consult an attorney for any specific problem. Andrew J. Wiegel and Clifford E. Fried are partners with Wiegel & Fried, LLP, 415-552-8230. Copyright © 2007, Wiegel & Fried, LLP. All rights reserved.