court talk
Up to Date on Section 8
by Clifford E. Fried
In a recent “Court Talk” column, I wrote about how the interaction between the Section 8 program and local rent laws is interesting and that what we need now is an opinion from an appellate court as to whether or not the Section 8 Program is voluntary for landlords. We now have that decision in Sabi v. Sterling.
Tenant Sabi became eligible to receive Section 8 assistance payments but her landlord refused to participate in the Section 8 program and refused to accept rent subsidies from the local housing authority. Sabi was already a tenant residing in the landlord’s building when she became eligible for Section 8 assistance. The apartment occupied by Sabi is located in Santa Monica, which is rent controlled.
Tenant Sabi sued her landlord Donald Sterling (who happens to own the Los Angeles Clippers basketball team) for violating: California’s Fair Employment & Housing Act, by discriminating against Sabi for her disability; FEHA, by discriminating based upon source of income; and the Unruh Civil Rights Act, by discriminating on the basis of Sabi’s status as a Section 8 recipient. California law prohibits discrimination based on source of income. Under California law, source of income means verifiable income paid directly to a tenant or paid to a representative of a tenant. Section 8 payments are paid to the owner, not the tenant.
At trial, the landlord convinced the judge to rule that Section 8 assistance payments do not constitute a source of income under FEHA. The jury decided the only remaining issue by finding that the landlord didn’t discriminate against Sabi because of her disability.
The Court of Appeal held that Section 8 vouchers are an indication of eligibility under the Section 8 Program and not payments of money and therefore vouchers are not income under any definition of income. The court found also that there is nothing in California law that suggests that it was the purpose and intent of the Legislature to compel landlords to participate in the Section 8 program.
As to the Unruh Act claim, the court found that such claims must show
that the rules, policies, practices or services in question actually impinge on the tenant’s use and enjoyment of the premises. Since Sabi had full use and enjoyment of her apartment, she had no claim for a violation of the Unruh Act.
This case is of great importance to landlords in places where the local housing authority takes the position that the Section 8 program is not voluntary. For example, the San Francisco Housing Authority, which issues 15,200 Section 8 vouchers, has always taken the position that landlords must participate in the program and cannot refuse to accept vouchers. Based upon the Sabi decision, landlords in San Francisco and elsewhere can decline to take Section 8 vouchers.
But some issues still remain in eviction and rent-control cities. How much rent must a tenant pay if the landlord declines to accept a Section 8 voucher? The contract rent, or just the tenant’s portion of the contract rent? And once a landlord declines a voucher, can the tenant be evicted for not paying rent? The answers to these questions will come with cases decided after Sabi.
Kompany v. Israyelyan
This is a commercial eviction case that discusses the importance of perfect and legally correct eviction notices, damages for unlawful detainer and attorney’s fees. This case is a good summary of eviction law in California.
The tenant and landlord in this case signed a lease whereby rent was determined by the gross revenue of the tenant’s business. The landlord and tenant disputed the amount of percentage rent due under the lease. The landlord claimed the tenant was underreporting gross revenues and therefore underpaying their rent. An outside auditor concluded that the tenant was underreporting. The landlord served eviction notices on the tenant, claiming the tenant had breached, or was in default under, the lease. Over a period of seven months, the landlord served nine eviction notices. An unlawful detainer was filed based on these nine notices.
While the unlawful detainer was pending, the landlord discovered a rental application submitted by the tenant to the owner of another property. In the application, the tenant claimed revenue far in excess of what it reported the landlord.
At trial, the judge ruled that the tenant submitted false financial statements to the landlord, which underreported revenue by $3 million to $4 million. The court held that the tenant underpaid rent and ordered that the landlord was entitled to possession of the premises and back rent and damages of nearly $500,000. The court also awarded the landlord over $500,000 in fees.
The tenant must have been good for the money because it filed an appeal. Tenants without money rarely file an appeal because they are judgment proof, can’t afford an attorney or can’t find an attorney who will work for free.
On appeal, the court reviewed the basic law of evictions and pointed out that the unlawful detainer statutes must be strictly construed and followed. Thus, a defective notice cannot support an unlawful detainer action.
One by one, the court reviewed the eviction notices and pointed out how each and every one was insufficient to support an action for unlawful detainer. On some notices, the tenant had already cured. On other notices, the landlord didn’t give the tenant an opportunity to cure. And on one notice, the landlord demanded rent, in a 3-Day Notice to Pay Rent or Quit, that was more than 12 months overdue.
An eviction action will fail if a notice is insufficient. If a notice to cure or quit is served and the tenant has cured, there is no unlawful detainer. If the tenant is breaching a covenant of the lease, the notice must give the tenant an opportunity to cure before there can be an unlawful detainer. And the law is clear that a 3-Day Notice to Pay Rent or Quit may only demand rent that has accrued in the past 12 months.
One wonders if the landlord in this case hired an eviction attorney. Perhaps he just used his divorce lawyer who did a good job keeping his spousal support obligations to a minimum. This is a good example of why it’s a bad idea to hire a general practice lawyer to do an eviction. Evictions are highly technical and provide many traps for the inexperienced practitioner.
Many judges believe that evictions are one of the most complicated areas of law in which to practice. It is difficult for the landlord attorney who must draft a flawless eviction notice and serve it properly on a person who is probably avoiding service. Where the property is residential and located in an eviction control jurisdiction, the problems of the landlord attorney increase. Pages of eviction regulations, numerous novel defenses based upon the rent laws, and a tenant-friendly jury make successful evictions even more difficult.
This case is the perfect example of why landlords need to hire competent, experienced eviction attorneys to prepare and serve eviction notices. You may ask, “Isn’t that just self-serving advice designed to make the eviction attorneys more money?” The landlord in this case probably owes the tenant more than $500,000 in attorney’s fees. It’s your decision.
Leg Investments v. Boxler
Tenancies in common were all the rage in the last decade. It was an opportunity for first-time homebuyers to enter the wonderful world of property ownership. Now that the market has cooled a bit, you don’t hear a whole lot about TICs.
But lawyers do. When the market isn’t so hot, purchasers of real property look for people to blame for declining values. In this case, a dispute arose between the co-owners of property and one of the partners sought a partition by sale.
A partition action is a special lawsuit where a judge divides the ownership of real property, usually by ordering a sale of the property and a division of the sales proceeds according to the percentage of ownership interest. It is often said that the right to partition is absolute and that a partners in a dispute can always go to court to have the property sold.
The original purpose of partition was to permit co-tenants to avoid the inconvenience and contentious quarreling arising from the sharing of joint possession of land. An additional reason to favor partition is the policy of facilitating the sale of property, thereby avoiding unreasonable restraints on the use and enjoyment of property.
The trial judge ruled that the right of first refusal in the partners’ TIC agreement waived the right to partition. On appeal, the losing partner argued that the right to first refusal in the TIC agreement was not an absolute waiver of the right to partition, but only requires that the selling cotenant first comply with the right of first refusal by offering its interest to the other co-tenant before seeking partition.
The appellate court agreed and reversed.
A co-owner of property has an absolute right to partition unless barred by a valid waiver. The right to partition may be waived by contract, either express or implied. And, in fact, many TIC agreements contain a waiver or the right to partition for a period of time, such as three to five years.
In this case, the appellate court sought to determine whether the right of first refusal absolutely waives the right to partition for the term of the TIC or whether the right of first refusal merely modifies the right of partition to require the selling cotenant to first offer to sell to the nonselling cotenant on terms as favorable as those offered by a prospective buyer.
The Leg court ruled that the right of first refusal modified the statutory right of partition and required the selling co-tenant to first comply with the terms of the TIC agreement by seeking partition. Because the selling co-tenant extended the right of first refusal to his co-owner before filing a partition action, there was no implied waiver of the right to partition.
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. Clifford E. Fried is a partner at Fried & Williams LLP and can be contacted at 415-421-0100. Copyright © 2010 by Black Point Press. All rights reserved.