legal Q&A
A Flood of Blame
by Various Authors
Q. With the legal decision on Prop. M, what is the status of tenant buyouts?
A. Industry attorneys John Baba and Clifford Fried successfully sued the city over Proposition M, the tenant harassment law, after its passage by the voters in November 2008. The court’s decision, which may or may not be appealed, strikes the words “ulterior motive” and “without honest intent” from the statute’s preamble. Most importantly, they were able to invalidate the tenant-attorney-fee provision, which would have allowed tenants who successfully defended an eviction action from collecting their lawyer fees from the owner. This victory, while a pleasant surprise, did not eliminate the “anti-harassment” provisions.
Consequently, the rent law currently prohibits about 15 categories of activities that have been defined as unlawful harassment. Three of these grounds pertain to tenant buyouts. Specifically, a landlord (or the agent, contractor or subcontractor of the owner) may not: influence, or attempt to influence, a tenant to vacate through fraud, intimidation or coercion; attempt to coerce the tenant to vacate with offers of payments, which are accompanied with threats or intimidation; and continue to make buyout offers after the tenant has notified the landlord in writing that no further offers are desired.
Taken together, these restrictions seek to dissuade owners from pursuing buyouts by widening the scope of landlord liability should the buyout transaction fail to materialize. Traditionally, buyouts have been widely used by owners and willing tenants as a means for each side to gain a significant benefit. On the landlord’s end, a buyout means no eviction history against the building, no expensive litigation and a certain result. For tenants, ever increasing buyout payments paved the way to first-time home ownership.
However, politicians and interest groups who rely on the tenant vote see buyouts as a threat to their constituency. About six years ago, Supervisor Chris Daly attempted to restrict buyouts, but our industry obtained a court ruling that gutted this legislation. During the past several years, an unofficial understanding existed between our side and the tenant communities that, if “sufficient consideration changed hands,” meaning the tenant was paid just compensation to vacate, there was no violation of the law, notwithstanding a provision in the rent ordinance stating a tenant cannot waive rent control rights.
While not an exact science, factors that determine the sufficiency of consideration include the length of the tenancy (the longer one is in occupancy, the bigger the difference between market rent and what the tenant is paying), the age of the tenant, whether the tenant is disabled or vulnerable, and the benefit conferred upon the owner as a result of the buyout. For example, a buyout of a two-year tenancy in a 20-unit building may be valued less than the buyout of a 30-year tenancy involving an elderly tenant with profound disabilities in a two-unit building where two new owners wish to bypass the condominium conversion lottery.
With Prop. M on the books, buyouts are still actively pursued and consummated. The difference today is that owners must exercise greater caution. If the tenant approaches you, the door is open and you can pursue talks. If you approach the tenant, do so only once or twice. If the tenant says no or does not respond, you may want to end the endeavor. Likewise, you should never threaten the buyout candidate with imminent eviction should your final offer be rejected. Sometimes, if the tenant is represented by counsel, the attorneys can debate the tenability of eviction as a last resort; but owners should not utilize any means that could be interpreted as intimidation, coercion or fraud. Thus, telling a tenant that he must accept your offer or you will issue an eviction notice is a terrible tact. Making the tenant believe that she will ultimately be forced out through some other process is likewise unacceptable. In sum, buyouts are still attainable, but you must employ a strategy that is neither overly aggressive nor laden with ultimatums and animosity. So please, use common sense.
—David Wasserman
Q. I have a hoarding tenant who has been seeking counseling for his problem. It’s been six months and the unit is still a mess. The tenant is now requesting more time to clean up his mess. How long is a “reasonable accommodation” for him to get help with this problem?
A. Generally, a hoarding tenant is one who fails to dispose of a significant number of seemingly useless items and trash that causes clutter and impairment to basic living activities. Under state law and most rental agreements, a tenant is required to maintain the rental unit in a safe and good condition and not to allow it to fall into disrepair. Hoarding may violate these obligations.
Hoarding may be a disability that requires a reasonable accommodation by the landlord. Determining what is a reasonable accommodation is very subjective and should be evaluated on a case-by-case basis. Some hoarding cases may require more immediate action. For instance, the hoarding may result in serious fire and safety hazards, rodent and pest infestation, odor problems or other nuisances that affect not only the hoarding tenant, but other tenants as well.
Upon discovering a hoarding problem, the landlord should promptly notify the tenant in writing and set a date within which the tenant must bring the rental unit into compliance with the rental agreement and applicable laws. Where the hoarding is simply an issue of cleanliness, it may be reasonable to give more time to the tenant—perhaps two to four weeks or more. Where there are other health and safety issues involved, it may be reasonable to give much less time—perhaps one week or less. Certain extreme cases may even warrant a three-day notice to perform or quit.
As the deadline approaches, the landlord should check to see whether the tenant has made progress in removing the clutter. If progress has been made, then it may be reasonable to give the tenant additional time to finish.
The landlord should put all communications to the tenant in writing to demonstrate the landlord’s concern and reasonableness. Additionally, the landlord may consider sending a courtesy copy of these writings to the tenant’s counselor or social worker.
—Steve Williams
Q. A pipe burst in my six-unit building, and the three apartments on the first floor were flooded. Am I responsible for damage to the first-floor tenants’ personal property? What is an appropriate rent reduction while we get the mess cleaned up?
A. In California, there is a warranty of habitability implied in all residential rental agreements. Under the warranty of habitability, a dwelling unit is considered to be uninhabitable if it: substantially lacks any of the affirmative characteristics prescribed by California Civil Code § 1941.1; is a substandard unit as described in Health & Safety Code § 17920.3; or contains lead hazards as described in Health & Safety Code § 17920. The implied warranty of habitability imposes upon the landlord the obligation to maintain leased dwellings in a habitable condition throughout the term of the lease. The landlord also has a statutory obligation to repair any subsequent dilapidations on the premises that would make the property untenantable.
The pertinent regulation in this case is Health & Safety Code § 17920.3, which provides that a dwelling is deemed substandard whenever a proscribed condition exists to the extent that it endangers the life, limb, health, property, safety, or welfare of the occupants or the public. In this case, a system under the control of the landlord (a pipe carrying fluids) suffered a casualty, causing the three tenants’ units on the first floor to become flooded. The flood damaged the tenants’ personal property and may have endangered the tenant’s health and welfare. While the break in the pipe cannot be classified as an intentional act on the part of the landlord, the element of intent bears no relation to classification of the tenants’ units as degraded in terms of habitability. The landlord is therefore responsible for any damage done to the tenants’ personal property as a result of a casualty to a system solely under the landlord’s control.
Next, for the duration of the time that elapses while the units are restored to their pre-flood condition, the habitability of the units may be considered compromised below the units’ full-market rental value. As such, each tenant is entitled to a reduction in the rent for the duration of the time that elapses while the units are restored to their pre-flood condition. A simplified approach toward arriving at an appropriate rent reduction is to conceptualize the inconvenience to the tenant on a spectrum. For instance, one end of the spectrum is represented by the condition where damage done to the unit by the flood prevents the tenant from occupying the unit. At this point of the spectrum, the unit is 100% uninhabitable for some period of time. Accordingly, the appropriate rent reduction for the period of time that the tenant is unable to occupy the unit is 100% of the rent. In application, if the tenant was unable to occupy the unit for five days, then 100% of the rent should be deducted for the five-day period from the monthly rent.
At the other end of the spectrum sits the situation where the habitability of the tenant’s unit is minimally affected by the broken pipe. In this instance, the correlating rent reduction would reflect the minimal habitability degradation, somewhere in the range of 5%-10%. For example where there has been a 10% decrease in the habitability of the units for five days, then the accompanying reduction in rent is 10% for five days, which is subtracted from the monthly rent.
The circumstances and facts of each tenant’s situation must dictate the reasonable and appropriate percentage reduction in rent. The recommended course of action in this situation is to establish a dialogue with the tenants to ascertain to what extent habitability has been reduced. Then, the landlord should make an offer to the tenants to reduce the rent by a corresponding percentage for a fixed number of days that reflects a reasonable reduction based on the circumstances.
Once the tenants and landlord reach an agreement on a reasonable rent reduction, then the landlord should have the tenants sign a release that memorializes the circumstances and acknowledges the rent reduction as the amount jointly agreed to by the landlord and tenant as compensation for the reduction in the rental value based on the reduction in habitability. The release should make clear that the tenant waives his or her right to later bring a breach of the warranty of habitability claim alleging failure of the landlord to provide a reasonable rent reduction due to the degradation in the unit’s habitability.
—Ronnie Gipson
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, and can be contacted at 415-567-9600. Steve Williams is with Wiegel & Fried, LLP and can be contacted at 415-552-8230. Ronnie Gipson represents landlords in complex litigation matters and class actions against habitability claims, violations of the San Francisco Rent Control Ordinance and violations of applicable state law. He can be contacted at 510-444-6800. Copyright © 2009 by Black Point Press. All rights reserved.