SF Apartment : April 2018

LEGAL Q&A

Discussing Disclosures

by Various Authors

Q.  I’m planning on putting my 12-unit building on the market. Do I have to inform my tenants?

A. If your building is not covered by the San Francisco Rent Ordinance, you are not legally required to inform your tenants that you are putting the building on the market. However, it is a good idea to do so anyway because your tenants will likely be more receptive to open houses and potential buyer walkthroughs if they are kept informed of your plans.

They cannot legally refuse to permit entry during normal business hours after proper notice, but some tenants, erroneously fearing they could be evicted due to the sale, might make an effort to diminish the attractiveness of their units. Note that “normal business hours” referred to in Civil Code Section 1954 (governing notices to enter rental units) has been interpreted by one California Court of Appeals to include weekends in the context of showing properties for sale, but in that case the owners gave the tenants notice 10 days before the proposed showing and the chance to offer alternative dates.

If your building is covered by the rent ordinance, you are required to inform your tenants of their rights before you can sell your building. The rent ordinance specifies six statements that an owner must make in writing to tenants before selling their property.

These include: a statement in bold type of at least 12 points that tenants cannot be evicted or asked to move solely because a property is being sold or solely because a new owner has purchased that property; a statement in bold type of at least 12 points that tenants cannot have their rent increased above that permitted by Chapter 37 solely because a property is being sold or solely because a new owner has purchased that property; a statement in bold type of at least 12 points that the rental agreements of tenants cannot be materially changed solely because a property is being sold or solely because a new owner has purchased that property; a statement that the owner’s right to show units to prospective buyers is governed by California Civil Code section 1954, including a statement that tenants must receive notice as provided by Section 1954, and a statement that a showing must be conducted during normal business hours unless the tenant consents to an entry at another time; a statement that tenants are not required to complete or sign any estoppel certificates or estoppel agreements, except as required by law or by that tenant’s rental agreement.

The statement shall further inform tenants that tenant rights may be affected by an estoppel certificate or agreement and that the tenants should seek legal advice before completing or signing an estoppel certificate or agreement. Finally, the owner must also write a statement that information on these and other tenants’ rights are available at the San Francisco Rent Board, 25 Van Ness Ave., San Francisco, California, and at the counseling telephone number of the rent board at its web site.

The rent ordinance also requires purchasers to make similar statements within 30 days of acquiring title.

—David Semel

Q.  I remodeled the kitchen and bathroom in a unit where a tenant has been living for six years. Can I increase the security deposit?

A. The short answer is, yes. However, the extent to which you can increase the deposit and your ability to enforce that increase is governed by state and local law.

State law places a stern limitation on the amount to which one can increase a deposit. California Civil Code Section 1950.5 permits a landlord to collect a security for the repair of damages to the premises, among other things. This is subject to the limitation that a landlord cannot demand a security in excess of an amount equal to two months’ rent on an unfurnished rental unit, or three months’ rent on a furnished rental unit.

Depending on the amount you invested in refinishing the hardwood flooring and remodeling the kitchen and bathroom, your ability to be reimbursed by an increase in the security will be capped at two or three months’ rent, respectively.

The second and more complex issue is how to increase the security deposit and what means, if any, the law provides to enforce that increase. California Civil Code Section 827 governs the process by which a landlord can serve a Notice of Change to Terms of the Tenancy. In essence, this written notice operates to establish lease terms, rents and other conditions specified in the notice. This notice is the vehicle by which a landlord can increase the security.

Enforcing the Notice of Change to Terms of the Tenancy will be the landlord’s greatest hurdle in San Francisco. Under the San Francisco Rent Ordinance, a landlord cannot evict a tenant because of the tenant’s breach of a lease where the lease term at issue “materially” differs from the original lease and is independently imposed by the landlord without agreement by the tenant.

Here, a landlord may not evict a tenant due to the tenant’s breach of a lease term to pay an increase in the security deposit in a Notice of Change to Terms of the Tenancy. The San Francisco Rent Ordinance requires an agreement between the landlord and tenant before such an increase is enforceable by law. As such, a landlord in San Francisco should strongly consider the following before increasing the security deposit: the amount invested in making repairs or improvements, and the likelihood that the tenant will agree to an increase in the security.

—Jonathan Madison

Q.  A family is subletting from my master tenant. While I have never collected rent directly from the subtenants, I have been in email and phone contact with them. The subtenant has taken care of a few maintenance issues in the apartment. Is this enough to establish a tenancy?

A. Though the question lacks sufficient information to provide a more definitive answer, for the sake of providing a response, I will assume the master-tenant no longer resides within the premises with the subtenants and that the tenancy is month-to-month. The distinguishing characteristic of a leasehold estate is that the lease gives the lessee the exclusive possession of the premises against all the world, including the owner. A sublease conveys an interest less than the leasehold with a reversion to the sublessor.

However, a landlord that assumes a direct relationship with the subtenant risks creating a direct landlord-tenant relationship. Shy of accepting rent directly from the sublessee, there is no clear defining test for when a landlord has crossed the line. Factors the court or rent board would consider are the frequency and nature of direct contacts between landlord and sublessee. If the landlord engaged in frequent email and phone contacts with the sublessee, the landlord runs a greater risk of having created a direct landlord-tenant relationship. Further, if those contacts were related to roles traditionally reserved between a landlord and tenant (such as receiving a request for and giving permission to “take care of maintenance issues in the apartment”) then the landlord has increased the risk of having created a direct landlord-tenant relationship with the subtenant. Depending on the forum, this direct landlord-tenant relationship may be created despite the landlord not having collected rent directly from the sublessees.

Additionally, any requests for, or permission to, make alterations/repairs to the premises should be treated in the same fashion. A landlord faced with this situation should remind the subtenants that the master tenant is their landlord and issues related to their occupancy are properly directed to their landlord, the master tenant. Of course, in no event should the landlord accept rent directly from a subtenant.

—Kevin Greenquist

The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. David Semel and Jonathan Madison are with Fried & Williams, LLP and can be reached at 415-421-0100. Kevin Greenquist is of council to Zanghi Torres Arshawsky LLP and can be reached at 415-977-0444.