Out for the Count
The Rent Board regulates that tenants can name more than one property as their permanent residence.
Q. If a rent controlled unit is not the master tenant’s primary address, can the rent be raised to market rate?
A. Not necessarily. For the past 25 years we have written about the benefits of the Costa-Hawkins Rental Housing Act, a state law that permits an owner to impose an unrestricted rent increase when the last tenant on the rental agreement or otherwise having a direct owner-tenant relationship no longer permanently resides in the apartment and there remains in occupancy only subtenants or assignees. While this is the codified rule of law, about 15 or so years ago, our Rent Board adopted a policy that permits tenants to have more than one permanent place of residency. In other words, a maser tenant could claim to reside permanently both here and in Hawaii. The result is that many landlords lose the ability to decontrol rental units where the master tenant primarily lives elsewhere.
This Rent Board “rule” is neither contained within the ordinance itself nor in the Rent Board’s official rules and regulations. However, the policy is frequently invoked when a master tenant challenges a Costa-Hawkins rent adjustment through the Rent Board’s petition process, and the Administrative Law Judge determines that the San Francisco address is still legitimately a permanent place of residency. The Rent Board has stated that nothing contained within
the Costa-Hawkins law relegates a
tenant to one permanent place of residency as the basis for adopting this policy. At present, hearing decisions have permitted up to two homes, yet no intention has been announced to limited a tenant’s permanent abode to two places; as such, we could see the day when a tenant may have more than
two permanent residences.
This author believes that this policy is flatly wrong and should be withdrawn by the Rent Board. Yes, the state legislature did not specifically announce that a California tenant is confined to only one permanent place of residency, but common sense and logic dictate that the intent was clearly to limit rent control protection to tenants who have only one primary address: Their rent-controlled housing. Otherwise, as showcased in many Rent Board decisions, master tenants can buy out-of-area homes or begin renting in other rent controlled cities while continuing to reap the benefits of low rent in an SF apartment that they sublet, with subtenants paying possibly most or even all of the rent remitted to the property owner.
Moreover, this policy only benefits the tenant side. Owners seeking to perform an owner move-in are required to make the recovered rental unit a principal place of residence for at least three years, and the rent law states that an owner may only have one principal place of residency. This means that an owner who splits time between two geographical regions might very well be precluded from recovering possession of an apartment via the owner move-in processes, yet a tenant may freely enjoy two residences with full rent control protections.
Add to this mess the fact that our statewide industry is expending immense resources to protect Costa-Hawkins from being repealed. Last year, we had to raise over $70 million to defeat Proposition 10, and now a similar measure appears to be headed to the 2020 ballot. In this vein, it is important that we work to keep Costa-Hawkins in place while simultaneously urging our Rent Board to halt the policy of permitting tenants to have more than one permanent place of residency.
Q. A tenant is habitually late paying rent, but doesn’t pay the late fees or even acknowledge the late-fee notices. How can I hold him accountable?
A. Most lease agreements have “late fee” provisions, but the law governing them is complex, and the ability to hold tenants accountable is limited. The reason for these terms is obvious: Landlords have carrying costs for their property, they expect rent by a certain date, and when the rent doesn’t come timely, it affects the ordinary management of the property and increases costs.
“Late fees” aren’t inherent to tenancies, but come from the lease contract. The breach of most contracts will result in a right to collect “damages” (money approximating the harm to the non-breaching party), and when it comes time for enforcement, contracts generally need to be “reasonable enough” (or a non-breaching party may not actually get what they bargained for). Late fees in particular are analyzed within the concept of “liquidated damages”—a specific amount stated in the contract representing the parties’ agreement on the cost of nonperformance.
California statutes regulate liquidated damages in residential leases. These fees are actually presumed void (i.e., unenforceable). Landlords are entitled to amounts for interest and administrative costs reasonably related to accounting for late payments and collecting the rent. But the limited case law on this issue states that, to justify a claim for these fees, a landlord must plead and prove that the amount of the agreed upon “late fee” in the contract was impracticable or extremely difficult to fix.
Even if you picked a defensible dollar amount, enforcement is also tricky. The late fees are based on rent, and a lot of landlords demand the late rent and the late fee in a single “notice to pay rent or quit.” This is probably a mistake. Rent is the consideration for a specific period of possession. Late fees aren’t really “rent,” and rent demand notices are defective for demanding more than the rent actually owed.
You could (and should) immediately serve a three-day notice (for the rent only) on the second of every month, if you don’t receive the rent by the first. And you could accompany it with a notice to cure the “breach” of not paying the fees (if you can justify both the materiality of the late fee term and the validity of the liquidated damages amount). But even if your tenant manages to cure the notices every time, you build your case for use of a different tool: eviction for habitual late payment of rent. A well-established paper trail (and series of cured nonpayment notices) will strongly support your position. Ultimately, this is a drastic remedy. But if your tenant knows timely payment is essential, and they still refuse to honor your agreement, you have no choice.
Q. In my four-unit building, residents in one unit argue loudly and regularly. I just received a notice from a tenant in a neighboring unit who is moving out because of the noise and hostility. How can I protect myself from a constructive eviction lawsuit when I have had no opportunity to address or correct the problem?
A. Tenants are entitled to peaceful and quiet enjoyment of their residences. As a property owner, you have the obligation to promptly address complaints about noise received by your tenants if a tenant is disrupting other tenants in the rental property. When you receive a complaint about a noise disturbance, you should immediately contact the noise making tenant(s) and request that they stop being disruptive. If the noise persists, you should follow-up with a formal notice to cease. If the disturbance continues, you may want to move forward with an eviction.
For a tenant to have a valid claim for constructive eviction, the disturbance needs to be great enough to cause a tenant to vacate. The property owner needs to be made aware of the problem or should have known about the problem and failed to address it in a reasonable amount of time. Essentially, a constructive eviction happens when a tenant claims that the property owner has failed to live up to the responsibilities delineated by the lease or by law.
In your situation, your former tenant may not have given you a reasonable amount of time to address the problem. Simply stating you failed to act and moving out is not a strong constructive eviction lawsuit. The failure to act needs to be egregious. For example, if disruptive noise persisted over the course of months or days, every day and/or night, you failed to address the problem after being notified, and the tenant moved out. As a property owner, you are not responsible for the acts of third parties and your duty to act is limited to things within your control. Since the noise is coming from a neighboring unit, as a property owner you need to address the problem.
Since your tenant already moved out, you should allow your tenant to break the lease without any consequences and return the security deposit in accordance with the law. If your tenant is going to sue you, there isn’t much you can do at this point. You should still address the noise complaint, so you can limit any claims by other tenants. Additionally, you should make sure you have the adequate insurance policy to protect you against claims of wrongful or constructive eviction.
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 Law Offices and can be reached at 415-567-9600. Justin A. Goodman is with Zacks, Freedman & Patterson, P.C. and can be reached at 415-956-8100. Angelica Sandoval is with Fried & Williams LLP and can be reached at 510-625-0100.