legal corner q&a

by Various Authors

Q. I am considering offering a long-time tenant a buyout in order to get her to move out of a small one-bedroom in Russian Hill. What is the proper way to go about doing this so I don’t run afoul of any rent laws and what is a reasonable amount to offer for a buyout?

A. San Francisco Rent Ordinance Section 37.9(e) states: “It shall be unlawful for a landlord or any other person who willfully assists the landlord to endeavor to recover possession or to evict a tenant except as provided in Section 37.9(a) and (b). Any person endeavoring to recover possession of a rental unit from a tenant or evicting a tenant in a manner not provided for in Section 37.9(a) or (b) without having a substantial basis in fact for the eviction as provided for in Section 37.9(a) shall be guilty of a misdemeanor and shall be subject, upon conviction, to the fines and penalties set forth in Section 37.10A. Any waiver by a tenant of rights under this Chapter shall be void as contrary to public policy.”

Despite the language of the above-quoted section, it has become a common practice in the landlord-tenant community to engage in and consummate the buyout of a tenancy. Landlords have substantial monetary upside in successfully buying out a tenant and a tenant in turn reaps a large financial gain as a result. The buy-out negotiation process is not, however, without liability. But there are certain steps that can be taken in order to negotiate in a manner that helps to insulate against liability.

First of all, do not threaten or insinuate that you will evict a tenant if the tenant does not want to talk about or negotiate a buyout. Threatening evictions is illegal and may create the basis for a wrongful eviction lawsuit against a landlord. The tenant may also feel harassed by such conduct, which could also result in a lawsuit. If tenants indicate that they are not interested, do not proceed any further.

Second, avoid any written negotiation. This will help to reduce the possibility of creating a binding agreement where there was no intent to do so. It will also decrease the possibility of any written negotiations being used in any subsequent court proceedings as evidence.

Third, give tenants a very specific time frame in which they have to respond to any buyout offer. This will ensure that the process proceeds in a timely fashion and prevents delay.

Finally, once an agreement is reached, have an attorney with experience in drafting buy-out agreements reduce the terms of the buyout to writing that contains, among all the other terms, a full release of liability.

There is no rule or specific computation used to determine what is an appropriate amount for a buyout. I personally have done buyouts for as little as $5,000 and as much as $100,000. However, with the passage of Proposition H, the minimum starting point for most buyouts is approximately $4,700 per person, which is the amount a tenant would receive if he or she were evicted for a no-fault eviction (like an owner move-in or relative move-in). A landlord should undertake a cost-benefit analysis of the particular situation in order to determine what amount is financially feasible and beneficial to pay. As part of this analysis, a landlord should attempt to determine what type of financial gain he or she will make as a result of a successful buyout, and how long it will take to recoup any money paid for a buyout in the assessment of how much to pay the tenant. This process should be approached as a pure business decision, leaving emotion aside.

While buyouts are, as of this writing, negotiated and consummated on a regular basis with little liability to landlords, this situation may change come the November 2008 election. Supervisor Chris Daly has put forward legislation that seeks to amend the language of Section 37.2 of the San Francisco Rent Ordinance, which, if successfully approved by the voters, will effectively put an end, at least temporarily, to buyouts. The legislation seeks, among other things, to define harassment as, “Any act or omission by or on behalf of an owner that causes or is intended to cause any person lawfully entitled to occupancy of a dwelling unit to vacate such dwelling unit or to surrender or waive any rights in relation to such occupancy.” The legislation would further amend the rent ordinance to prohibit a landlord from, “influence(ing), attempt(ing) to influence a tenant to vacate a rental unit through fraud, intimidation or coercion, including attempts to coerce the tenant to vacate with offer(s) of payments to vacate which are accompanied by threats or intimidation which continue to be offered after the tenant(s) has told the landlord that such offers of payment are unwelcome.” This proposed legislation contemplates civil and criminal penalties, among other things, for its violation.

The San Francisco City Attorney has already expressed the opinion that such legislation would not be constitutional. But, if it passes in November, which all indicators suggest it will, the legislation will put an end to tenant buyouts, at least temporarily. The constitutionality of the legislation will be challenged and it will most likely be held unconstitutional. However, the court process to challenge the constitutionality of the legislation will take many months or even years, and unless, during that process, the courts enjoin the legislation, tenant buyouts will be unlawful until the court ultimately determines that the legislation is in fact unconstitutional. Therefore, landlords who are considering tenant buyouts should initiate the negotiation process sooner rather than later.

- Daniel R. Stern

Q. One of my tenants’ just gave me a check for the rent and it bounced. How should I respond? Can I refuse to accept personal checks from him from now on?

A. Where there is a history of frequently returned checks for nonsufficient funds, the Rent Ordinance allows an owner to evict a tenant. Your question does not indicate a history of bounced checks, however, so I will assume this is the first time. You should write the tenant informing him or her that the check has not been honored and requesting a replacement check immediately. When you get the replacement check, you should not simply call the bank to see if the funds are now in the account. Even if they are not, you should deposit the check, and let it bounce, providing you with evidence that the replacement check was as worthless as the original, because what you are told on the phone by bank personnel is inadmissible hearsay in court. The check returned from the bank stamped “NSF” will be your evidence. In addition, you should photocopy the replacement check (as you should photocopy every check) before depositing to give you a record.

If you don’t quickly receive the replacement check, or if it bounces again, you should serve a Three-Day Notice to Pay Rent or Quit. Be careful not to include a requirement that the tenant pay you in some form other than a personal check, such as cash or money order. Requiring payment in an alternate form constitutes a change in the terms of the tenancy, and such changes are not permissible without prior service of a 30-day written notice pursuant to Civil Code section 827.

Even then, you can’t evict a tenant for refusal to comply with a unilaterally imposed condition. If you are ultimately going to try to evict for nonpayment of rent, you don’t want an invalid payment condition standing in your way.
On the other hand, if you are using the SFAA or PPMA form of rental agreement, you will see a clause providing that in the event a tenant pays with a check returned for insufficient funds, the landlord may require payment by certified funds. In such a case, you may make that demand, because you are not changing the terms of tenancy.

Finally, even if you get your money in the three-day period, keep good records of the bounced checks or late payments, and write the tenant demanding future compliance with his or her rent obligations. After a few more such incidents, you will have the right to evict for just cause if the tenant fails to clean up his or her act.

- Saul M. Ferster

Q. I leased a furnished flat to four people for one year. Only three of the four want to return for another year. I would prefer not to renew this lease. Since my lease does not allow subletting, can I refuse to renew the lease?

A. You can refuse to renew the lease, but it may not be in your best interest to do so, because the tenants will not be compelled to vacate. If your flat is subject to the San Francisco Rent Ordinance, then you may not terminate the tenancy simply because the initial one-year lease term has expired. Even though, under general California law, the expiration of the term of a lease that has not been renewed is a lawful ground for eviction, it is not “just cause” for eviction under the eviction protections of the Rent Ordinance. Therefore, if you refuse to renew the lease, the tenants do not have to vacate, and the tenancy would continue month to month as the tenants continue to tender the rent. Of course, you are permitted to raise the rent on the lease anniversary date under the Rent Ordinance guidelines.

In addition to raising the rent, you may demand that the tenants renew the lease for an additional one-year term. If the tenants refuse your demand to renew the lease for another year, then you would have a lawful basis to terminate the tenancy under Rent Ordinance §37.9(a)(5), which provides that a landlord shall not endeavor to recover possession of a rental unit unless, “The tenant, who had an oral or written agreement with the landlord which has terminated, has refused after written request or demand by the landlord to execute a written extension or renewal thereof for a further term of like duration and under such terms which are materially the same as in the previous agreement; provided that such terms do
not conflict with any of the provisions of this chapter.”

You probably cannot refuse the tenants’ request to add a roommate to replace the departing roommate, and then attempt to evict the tenants because they breached your anti-subletting clause. A landlord’s ability to enforce anti-subletting clauses has been limited under Rent Ordinance §37.9(a)(2)(A): “Provided that notwithstanding any lease provision to the contrary, a landlord shall not endeavor to recover possession of a rental unit as a result of subletting of the rental unit by the tenant if the landlord has unreasonably withheld the right to sublet following a written request by the tenant, so long as the tenant continues to reside in the rental unit and the sublet constitutes a one-for-one replacement of the departing tenant(s). If the landlord fails to respond to the tenant in writing within fourteen (14) days of receipt of the tenant’s written request, the tenant’s request shall be deemed approved by the landlord.”

You can reasonably refuse to accept the tenants’ nominee for a new roommate if that person is not financially qualified, but only if that person will become obligated to pay the rent to you, as a new cotenant under the lease. If the person will be your tenants’ subtenant, which would be the preferable alternative for you, then his or her financial qualifications are irrelevant; the subtenant will be paying rent to your tenants, not to you. Thus, it is up to your tenants to decide whether the new roommate will be financially reliable. If you refuse to recognize the subtenant as a person in privity of contract with you, then you will preserve your right to raise rent to market value under the Costa-Hawkins Rental Housing Act, Civil Code section 1954.53(d), after the last original cotenant moves out.

- Michael C. Hall

 

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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. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Daniel R. Stern is with Wasserman-Stern and can be reached at 415-567-9600. Saul M. Ferster can be reached at 415-863-2678. Michael C. Hall can be reached at 415-512-9865. Copyright © 2008 by Black Point Press. All rights reserved.