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A Guiding Light
by David Wasserman
The 2009 SFAA Residential Tenancy Agreement is now available for SFAA members. Unlike its predecessors, this version contains substantial modifications courtesy of SFAA attorneys Curtis Dowling, Saul Ferster and Clifford Fried. As reiterated each year, this is the only residential lease you should use for your new tenancies, even for properties outside of San Francisco. This lease is specially crafted not only to encompass rights pursuant to local rent laws, but also to optimize landlord protections under the ever-increasing state legislation and requirements. Therefore, owners are always encouraged to use this lease for residential tenancies, whether in rent controlled apartments, single-family homes and condominiums, or units in California that have no local restrictions.
Why is the lease 16 pages long? Rest assured that the authors made every effort to shorten the document, and, at the end of the process, we deleted all non-essential words, sentences and paragraphs. What remains reflects responses to real-life horror stories, together with what the state and local legislations require to be represented in residential leases. Indeed, most of you could never imagine the day when a residential rental agreement, which was traditionally one or two pages in length, would blossom into a 16-page single-spaced colloquium. However, there is not one paragraph or sentence that can safely be omitted, as collective experiences have provided the backdrop for each line of text. Yes, we wish the lease could be shorter and more simplistic, but the unfortunate reality of our present-day environment requires that this document adequately protect owners from the many pitfalls of landlord-tenant life.
The instructors of SFAA’s “Landlord 101” classes preach that the most important aspect of creating a good tenancy is the contents of the lease. An incomplete or nondescript lease provides fertilizer to grow future problems. To this end, while the 2009 agreement contains the right boilerplate language, the lessor must still insert correct terms and check the appropriate boxes in order to create an almost perfect document.
Tricks of the Trade
Always list co-tenants on the first page of the lease. If they are moving in at
the beginning of the tenancy, they are co-tenants to be jointly charged with
upholding every lease covenant. You cannot treat someone who moves in at the inception of the tenancy as a subtenant, or subsequent occupant, simply by not naming them on the lease, so it makes no sense to omit an original occupier as a co-tenant. (Conversely, anyone who moves in after the tenancy has begun should almost never be added to the lease.)
Make sure that the rent and rent due date is clearly stated in lease paragraph 4. When renting in rent controlled jurisdictions, the initial rent is binding on the landlord and successor owners, and can only be minimally increased in accordance with strict regulations. Using leasing incentives and gimmicks to obfuscate the correct rental amount will only cause you pain in the future when the tenant prevails on a rent increase petition.
The security deposit may not exceed two times the initial monthly rent for unfurnished units (and three times for furnished units). It does not matter how you classify the collected moneys: pet, cleaning, garage, key, and last month’s rental deposits are all security deposits and must be added to the total security deposit account.
Late payment and returned check fees must reflect the actual damages you will sustain as the result of the late or dishonored payment. Formerly, owners would fix these penalty costs based upon a percentage of the rent (such as 10%). With average rents now in the thousands of dollars, such penalty amounts are considered by the courts to be unlawful. A $25 to $50 penalty is more reflective of what the landlord suffers as a result of late or NSF rent payments.
The assignment and subletting provisions are very important in rent controlled jurisdictions, where a landlord’s acquiescence to a new tenant may confer ongoing rent control rights that survive the departure of the last original occupant. The SFAA recently created a subtenancy form that replaces the outdated 6.14 notice, and the 2009 lease incorporates reference to this new procedure to disapprove subsequent occupants.
The lease must list the utilities that are paid for by the landlord. Remember, these obligations cannot easily be changed once the tenancy begins, so make sure you specify who pays for what in the utilities paragraph.
Make sure that any addendums, which may be necessary as a result of unique characteristics of the building, are specifically referenced in the lease. Special rules and regulations not incorporated into the agreement usually cannot be enforced. Per our instructions to owners, the lease is the absolute guiding light for the governance of the tenancy, and in places like San Francisco your tenant may be with you for a very long time, so make every effort to clearly spell out the rules before the tenant moves in.
Latest Updates
There are four big changes to the 2009 lease. The first is the addition of the
storage addendum. When the San Francisco rent law was amended several years ago to prevent severance of any storage privilege for an existing tenancy, we reacted by deleting the former storage paragraph for fear that it would be broadly construed to allow tenants storage rights that the owner never intended to confer. We encouraged members to draft their own storage addendums if storage space, outside the unit, was being rented.
Naturally, many members complained that this task was burdensome and confusing. In response, the new lease contains a storage paragraph, which allows the landlord to specify whether or not storage is being rented as part of the leasehold. (If no such reference is specified, it is presumed that no storage space outside the unit is leased.)
The actual storage addendum contains comprehensive regulations to hopefully ensure that the tenants do not abuse, or expand upon, this privilege. For example, the tenant agrees to use the storage space for storage only and not for living. The storage area cannot be altered or enlarged. The tenant bears full responsibility for any loss or destruction to personal items. In addition, the landlord can reassign a tenant to another like-kind space in the property, which consequently allows owners to remodel or reconfigure common areas. The set of 11 rules listed in the addendum will hopefully alleviate problems that occur surrounding the use of storage areas, and perhaps will encourage letting of storage in order to make your apartment units more marketable in this competitive environment.
The second change is the addition of the parking addendum. For the same reasons discussed above with regard to storage, the parking provision was deleted from the lease when parking became a nonseverable service under a recent amendment to the rent law. Now, members have a choice as to whether or not they want to include parking as a service. If they elect to do so, the parking addendum provides the same protections as the storage agreement. For instance, the addendum states that the parking space is to be used for parking an operating vehicle only, and that no storage of any kind is allowed in the parking area. The tenant bears the risk of loss or damage to the automobile, and the tenant may not assign or sublet the parking space.
For both the parking and storage addendums, there is no separate rental amount that is stated for the value of these privileges. As referenced above, owners can no longer sever use of parking and storage unless there is just cause to terminate the tenancy, and rent for parking, storage, or any other tenancy right is part of, and incorporated into, the underlying base rent.
The third major change involves attorneys’ fees. Traditionally, the lease did not allow owners or tenants to recover attorneys’ fees in the event of legal action, such as an eviction, as owners who prevailed probably could never collect from the evicted tenant, and tenants who prevailed would stand to always collect from the more affluent landlord. These fee provisions, granting the prevailing party the right to receive fees from the loser, often incentivized tenant attorneys to take on an eviction defense with the hope of either prevailing against owners in a pro-tenant town or coercing a favorable settlement by raising the stakes of the game. The non-fee provision effectively dissuaded the tenant bar from involvement in legal actions where the tenant was clearly guilty of a breach.
Then came along Proposition M, which was passed by the voters in November 2008 and became law in December 2008. Prop. M, known as the tenant harassment measure, mostly contains prohibitions against landlord conduct deemed to constitute harassment. SFAA has mounted a legal challenge against Prop. M, and currently the industry is optimistic that most of the harassment prohibitions will be stricken as an unconstitutional infringement on the freedom of speech. However, buried in the text of Prop. M is a provision that allows tenants to recover attorney fees if they prevail in an eviction action, or if the action is dismissed by the owner. This one-sided fee recovery was enacted to encourage tenant attorneys to litigate unlawful detainers.
In response, the 2009 lease gives members the ability to recover fees, should they be deemed the prevailing party. It also caps fees at $25,000, which may seem like a substantial sum but, in most contested evictions, is actually a very fair and tame amount. While we hope that all of Prop. M is stricken as a result of the SFAA litigation, the fee paragraph was added to serve as an interim remedy while the legal battle ensues.
Finally, the new lease states that there shall be “no relief from forfeiture” unless certain conditions are satisfied. This language probably has no meaning to most of you, but its inclusion in the lease carries immense significance. Under longstanding California law, a tenant who loses an eviction action after a trial may ask the court to give him or her a second chance to come into compliance, notwithstanding the finding of fault by a judge or jury. If the court deems that an eviction would be too harsh for the breach, the judge may restore the lease by simply making the tenant pay the back rent or to cease from further breaches of the lease covenant that instigated the eviction.
Thus, an owner who just spent thousands of dollars and endured the stress of a trial and who has “won” the trial may wake up the next day to find that the tenant remains in possession. This remedy is becoming more commonplace in San Francisco as the economic recession deepens.
The new lease clause states that if the court grants this second chance, the tenant, in order to stay, must pay all back rent, owner’s attorney’s fees and costs, and any other damages sustained by the owner. SFAA’s attorneys believe that this clause is enforceable, and it will have the practical effect of preventing tenants from receiving relief from forfeiture due to the sums that must be repaid to the landlord. In essence, tenants will no longer escape the consequences of their actions, or inactions, by appealing to pro-tenant courts.
The 2009 version also states that tenants who fail to move out after receiving notice that the owner is suspending the tenancy to perform capital improvement work face a permanent eviction; likewise, tenants must also timely vacate if they receive a notice withdrawing their unit from residential use under the Ellis Act or be in breach of the lease. These provisions were added to dissuade tenants from opposing legitimate efforts to recover possession of the apartment.
Moreover, the new lease requires tenants to replenish their security deposits if deductions are made during the tenancy. Failure to do so after receiving a 30-day notice constitutes a breach of lease, which allows the owner to terminate the tenancy.
The 2009 lease offers substantial improvements over its predecessors. All members are encouraged to offer feedback and comments during the year. The attorneys consider all suggestions and proposed improvements, as evidenced by this year’s version. Note that the 2010 revisions will begin in October, so please use and enjoy the lease and take the time to use it with the utmost care and consideration.
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. David Wasserman is the president of SFAA. He can be contacted at Wasserman-Stern Law Offices, 415-567-9600. Copyright © 2009 by Black Point Press. All rights reserved.