LEGAL Q & A
Repeal and Regret
written by VARIOUS AUTHORS
Still confused about Costa-Hawkins? Read on for the basics.
Q. What, exactly, does Costa-Hawkins do? What could happen in San Francisco if the effort to repeal it is successful?
A. The Costa-Hawkins Rental Housing Act (codified in California Civil Code Section 1954.50) was adopted in 1995 by the California State Legislature. CH creates exceptions to rent control. The Act has two main provisions: 1) prohibits cities to apply rent controls to condos, single-family homes, or anything built after February 1, 1995, and 2) allows landlords to charge “market” rent when a new tenancy begins.
The Act does not regulate evictions. Tenants still have eviction protections and landlords still need “just cause” to evict. Where the Act applies, landlords may raise the rents to whatever they want.
It isn’t exactly clear what effect repealing the Act will have on San Francisco landlords. Repealing the Act will give the city greater flexibility when setting rent control policies. However, SF legislators will need to decide whether they want to expand rent control regulations or leave the current rent control laws as is. As of now, SF’s Rent Ordinance is consistent with the Act. For the SF Rent Ordinance to change, the Board of Supervisors will still need to go through the process of passing new legislation.
Landlords opposed to repealing the Act argue that price-ceilings (price distortions) on rental units do not expand the housing stock and do not resolve thehousing crisis: the quantity and quality of housing is reduced.
Those wanting to repeal the Act argue the city leaders should decide what is best for their residents and repealing the Act will curtail evictions and make rents in SF more affordable.
If the Act is repealed, the city is likely to impose vacancy controls—place limits on rent increases regardless of whether rental units are vacant. Apartments, condominiums, single-family homes, and newly constructed buildings will be subject to rent controls. This rent regulation will create housing shortages and have detrimental unintended consequences. For example, without an exemption for newly constructed buildings, developers do not have an incentive to build more affordable housing. With costs for maintenance and repairs, legal representation and insurance, many mom-and-pop landlords will be forced out of the business.
—Angelica A. Sandoval
Q. I am an owner-occupier in a two-unit building and there is a long-term tenant in the other unit. Recently, I initiated a relative move-in eviction on the rental unit because I would like to move my parents in. Ever since I gave the tenant notice, he has been harassing me when we see each other and even putting signs up in his window about what a terrible person I am for evicting him. Is there anything I can do about this or should I just wait it out? I feel like he’s going to fight leaving so we may be living in close quarters for some time.
A. As you know, San Francisco only permits evictions for “just cause,” one of which is to move in a qualified relative (including “parents”). Serving an OMI/RMI (owner/relative move-in) notice has several specific requirements, mostly directed at providing the tenant with notice of their rights (including information about other property you own, who is moving in, what rights the tenant has following their displacement to come back, the right to relocation assistance, and even information about certain defenses to an eviction).
I mention this because of your repeated references to “I initiated,” “I gave the tenant notice,” etc. You’re asking an important legal question in a general purpose “legal Q&A.” If you did not have a lawyer prepare and serve the notice for you, I would recommend having one evaluate it immediately. In the last two years alone, the OMI/RMI ordinance was amended to prevent displacement of “educators.” That language was challenged and enjoined pending appeal. The Board of Supervisors added safeguards against “fraudulent OMIs.” Then the Court of Appeal reversed the SF Housing Court to allow the “educator defense.” Even experienced OMI/RMI attorneys have had to start the process over when they served an otherwise effective notice without up-to-date language. These changes are just as much about creating confusion as they are about protecting tenants. Evictions have become highly political during the recent housing boom, with tenants holding over after termination of their tenancies to fight evictions on principle. (Passed this June, Proposition F will now provide free, full-scope legal assistance to all tenants facing eviction. This will certainly make OMI/RMI evictions more difficult.) The city’s housing policy appears to be that the least expensive affordable housing unit is the one that already has a rent-controlled tenant in it.
The safest course of action for now is to play nice with your tenant. The city prohibits certain signs on the outside of property, but your tenant is allowed to post signs in their window. Make no mistake, these signs are trying to get your attention. They are trying to get you to react, potentially arming your tenant with a potent defense.
“Retaliation” is when a landlord serves a termination notice within a close proximity to the tenant’s lawful exercise of their rights, including complaining about habitability and even exercising free speech. While a “preexisting rational, uncontrived and substantial business motive” for terminating a tenancy will overcome a retaliation defense (and you could point to your motivation dating back to your initial notice even if you had to start over), it is becoming increasingly common for tenants to attempt to manufacture a retaliation defense (or something similar) after the landlord serves the notice—a “retaliatory retaliation defense,” if you will.
Your tenant is allowed to speak their mind (within the boundaries of nuisance and defamation law), and if you had to serve another termination notice to correct any deficiencies, a holdover tenant would try to complicate a straightforward eviction lawsuit with a murky “retaliatory eviction” defense, pointing to your conduct immediately preceding the current notice.
The best advice, in other words, is to “grin and bear it.” If your tenant crosses a line, you might have other forms of recourse, but if they’re just annoying you, let them, and look forward to ending the relationship and bringing your loved ones near.
Q. A tenant has complained repeatedly about low water pressure and is now demanding that the issue be resolved. Is low water pressure—especially given the unit is in an old Victorian—something I must address?
A. A reduction in services is sort of self-explanatory. As I see it, the issue presented is twofold: 1) Is the current water pressure lower now than when the tenant originally entered into occupancy?; and 2) Is the water pressure so low that it affects the “habitability” of the premises?
Addressing the first issue of a possible tenant petition that the water pressure is lower than it was at the beginning of their tenancy: the tenant will need to present evidence to support their claim.
While it is perhaps not the best sort of evidence, testimony by the tenant that the water pressure has decreased is still evidence. The hearing officer will weigh the evidence in light of the landlord’s representations that the water pressure has remained the same since the beginning of the tenancy. Indeed, it would be helpful to show that other tenants within the building have not complained about low water pressure. Better still, testimony from another tenant in the building stating the water pressure has always been low and has not changed.
With respect to the second issue of habitability, the water pressure must be sufficient to allow the tenant to cook, bathe, wash dishes and keep the premises clean. Regardless of whether the water pressure has remained the same, if the pressure is (and was) so low as to prevent basic use for cooking or maintaining sanitary standards, the landlord may lose a petition for decrease in services. A tenant cannot waive their right to minimum standards of habitability.
While I’m unaware of any building code stating a minimum water pressure or flow rate standard, there is a maximum limit for new construction or installing upgraded plumbing. The San Francisco Building Department requires landlords to replace all faucets and faucet aerators having a maximum flow rate exceeding 2.2 gallons per minute as part of water conservation efforts.
As a practical matter, and as a steward of property in San Francisco, the landlord would be well advised to investigate the cause of the low water pressure. Low water pressure is often a sign of sediment blockage, undiscovered leaks or corroding pipes. Regardless of whether a tenant files a decrease in service petition, the owner should not wait for a pipe to break before finding out why the water pressure is low. Additionally, the landlord may petition to increase the rent to cover the expenses incurred improving the plumbing system and would likely have tenants grateful to pay the increase. Better building, happier tenants, and recompense for the improvement: what more could you want?
Q. I inherited a two-unit building and there are tenants with leases in both units. There’s also an unpermitted unit with another tenant, for whom there is no lease. What kind of liabilities are associated with having a tenant in an illegal unit if I didn’t know about it until recently? Also, is it possible to legalize this unit, and if so, should I?
A. There are numerous liabilities and issues that may arise from renting out an illegal unit—particularly a nonconforming in-law unit constructed without permits.
The California Court of Appeal has established that any agreement or arrangement to allow a tenant to reside in a nonconforming unit is void and unenforceable as a matter of law and there can be no rent obligation. See Gruzen v. Henry (1978) 84 Cal.App.3d 515, 519; North 7th Street Associates v. Constantante (2016) 7 Cal.App.5th Supp. 1, 5-6. Since the arrangement or lease agreement would be illegal, the rent obligation would be zero. This would be the case whether or not the illegal unit had ever been previously rented by a prior owner. Under state law, a landlord cannot enforce an agreement to collect rent from a tenant in an illegal unit regardless of whether a prior landlord commenced the rental agreement.
The next and more complex issue is whether a landlord who inherits or purchases an illegal rental unit should share liability for the predecessor landlord’s unpermitted use of the nonconforming unit. The California Court of Appeal has made it clear that a landlord can be held responsible for a predecessor landlord’s renting out an illegal unit, regardless of whether the landlord knew of the predecessor landlord’s use of the illegal unit. In Baychester Shopping Center, Inc. vs. Larry Fingerhut (2008) Cal.4th at 435, the Court determined that a new landlord was responsible for the predecessor landlord’s excessive rent increases on a tenant in an illegal unit. The Court determined that any rent increases on the nonconforming unit were void under the San Francisco Residential Rent Stabilization and Arbitration Ordinance.
To avoid the risky business of continuing to rent out an illegal unit from an agreement commenced by a prior landlord, landlords may seek to recover possession of the unit under the San Francisco Rent Ordinance. However, landlords should be aware of the risks involved. Section 37.9(a)(10) of the San Francisco Rent Ordinance provides that a landlord may seek to recover possession of a unit if (1) the landlord seeks to recover in good faith in order to permanently remove the rental unit from housing use or to demolish it, and (2) has obtained all necessary permits prior to the date upon which the notice to vacate is given.
Removing the unit pursuant to Section 37(a)(10) could expose the landlord to a potential claim of unfair business practices by the tenant. Note that restitution damages are recoverable on an unfair business practices claim. The landlord may be at risk of a wrongful eviction claim by the tenant if the unit is used for housing in any way after the tenant has vacated.
Any landlord renting out a nonconforming unit should obtain liability insurance that protects against the tenant’s potential claims. If they intend to remove the unit from the market, they should carefully consider the risks involved as well.
As an alternative, a landlord may apply for a permit to legalize the unit. The City of San Francisco is currently incentivizing landlords to bring their units up to code. As such, obtaining a permit to perform necessary construction on the unit to legalize it is likely the best option.
The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Angelica A. Sandoval and Jonathan Madison with Fried & Williams LLP and can be reached at 510-625-0100. Justin A. Goodman is with Zacks, Freedman & Patterson, P.C. and can be reached at 415-956-8100. Kevin Greenquist is of Council to Zanghi Torres Arshawsky LLP and can be reached at 415-977-0444.