SF Apartment : October 2016


The Great Rebate Debate

by Various Authors

Q. My longtime tenant recently discovered that a newly placed tenant across the hall is paying $200 less than him in monthly rent, so he asked for a rent reduction. May I agree to a temporary rent reduction? What about offering him a rebate instead?

A. Despite what may have been stated at a recent SFAA membership meeting, the law is very clear on this subject: A landlord who grants a rent reduction due to market conditions makes that reduction permanent. This means that future rent increases must be based off of the lowered amount, which becomes the new base rent. In addition, the landlord is precluded from withdrawing or canceling the reduction at a later time.

A rent reduction may only be rescinded or canceled if the following is legitimately true: The tenant requests a temporary reduction based upon an economic hardship that is specific to that tenant or the tenant’s household situation. For example, the tenant is laid off or is ill, or encounters unexpected expenses to care for a member of the tenant’s home. In those instances, the landlord and tenant should clearly document the hardship and should spell out, in a signed writing, the amount of the reduction, why the reduction is being granted, and the length of time for the reduction.

Rebates and incentives are also very dangerous. About 15 years ago, a large apartment operator in San Francisco offered incoming tenants “rent coupons” to use each month to lessen their rental obligations. For instance, Tenant A’s lease states that rent is $1,200 per month, although similar apartments were not renting for that high of a price. To induce Tenant A to sign the lease at this level, the landlord offered $1,200 worth of coupons for the first year of the tenancy, so in essence, Tenant A could submit a $100 coupon with each monthly rental payment, thereby only paying $1,100 out of pocket during year one. The landlord discontinued the coupon program when the rental market improved. Hundreds of affected tenants then pursued a class action case against the landlord. The Rent Board held that, using this example of Tenant A, initial base rent was legally $1,100 per month for every year of the tenancy because the coupon incentive was to be permanently built into the rental obligation and could not be legally withdrawn.

Other landlords have been held liable when they offer a free month of rent or engage in other gimmicks to effectively lower the tenant’s initial rent obligation, only to later take away the incentive once market conditions pick up. Indeed, if you offer a month’s free rent for a one-year term, the Rent Board could say that the value of that month is then amortized over the 12-month period of the initial term and lowers the base rent for all future months by that amount. As one judge put it, you cannot evade rent control by setting up a lease with a starting rent higher than what the current market would justify and then enticing tenants to sign the lease by using temporary gimmicks.

The Rent Board policy is therefore quite clear. Rent rebates or reductions may only be lawfully rescinded, canceled, or withdrawn if the rebate or reduction is given because of a tenant’s particular need or hardship. A soft rental market is never a justification for a temporary reduction in rent. So, if you do grant a reduction or offer an incentive in order to keep a tenant from moving due to a change in the marketplace, you make that reduction or the value of the incentive a permanent adjustment of the base rent.

—David Wasserman

Q. Our property manager is transitioning from paper checks to receiving rent payments via ACH and/or credit card. Should existing tenants sign a lease addendum?

A. First, let me try to throw a roadblock in front of your property manager’s plan. I discourage landlords from accepting credit card or electronic payments, preferring to rely on payment the old fashioned way—personal check. While electronic and credit card payment may be efficient, efficiency is not always the highest priority. Sure, in Walnut Creek or Sonoma it may make life easier, but in San Francisco everything must be viewed through the kaleidoscope of the Rent Ordinance. Paper checks show who is making the payment, allowing landlords to return a check from anyone other than the named tenant. Acceptance of rent is a significant act, and subtenants often attempt to acquire original tenant status, i.e. the right to inherit the master tenant’s controlled rent when the master tenant vacates, by sneaking a few rent payments in on the landlord. When money goes automatically into your account, you don’t know who paid it. But, you can examine a check, looking for names that don’t belong there, and return any payment you don’t wish to accept. You can also copy the check to later prove that no unauthorized person made the payment, or that you applied the payment to the correct outstanding month, where that may be an issue, such as with eviction for nonpayment of rent.

Likewise, sometimes a landlord wants to reject a payment from even a named tenant, as where the tenant is in breach of the lease. Acceptance of rent with knowledge of the breach may be held to be a waiver of the breach. Therefore, it may be necessary to reject the payment, returning the check and preserving your right to evict. If the deposit is made directly, the tenant will claim you have accepted the rent. You can send the tenant a refund check, but the tenant may send it back to you, or simply not cash it, and his money remains in your account. Of course, you have a good argument that you did not willingly accept payment, but the tenant will argue otherwise. Bottom line, even making winning arguments costs you legal fees, and it’s preferable not to have to deal with the issue. The latest version of the SFAA lease states explicitly that the landlord may refund a payment, and the tenant’s failure to cash the refund check will not defeat the owner’s rejection of the rent being refunded. But that’s the only lease I have seen that has such a clause. I’ll bet most of your leases don’t.

If you still want to accept ACH or credit card rent payments, you can ask existing tenants to sign a lease addendum permitting it, but you cannot compel them to. In addition, you could send them a 30-day Notice of Change of Terms of Tenancy requiring that form of deposit, but under Rent Board Rule 12.20, if they refuse to comply you cannot evict for breach, and there’s really no other effective enforcement mechanism.

—Saul M. Ferster

Q. We are doing retrofit work on our building. What is the procedure and cost for relocation? Can a tenant refuse or delay an order to vacate?

A. The procedure is to terminate the tenancy with a right to return after the work is finished. The cost for relocation is the no-fault relocation fee set by the Rent Board. If a tenant refuses, it will cause a delay while you file an Unlawful Detainer.

The current relocation fee is $5,890 per tenant with a maximum per unit of $17,670. Each tenant over 60 or with a disability, and each household with minor children, must be paid an additional $3,927. If the relocation is less than 20 days, the relocation fee is $320 per day plus moving expenses, with an option to provide a comparable unit instead of the relocation fee.

Rent Ordinance section 37.9(a)(11) and Rules & Regulations rules 12.15-12.16 govern recovering possession temporarily to perform work that would make the unit “hazardous, unhealthy, and/or uninhabitable.” Before serving the tenant with the required written notice, you must obtain all necessary permits. Copies of the permits must be given to the tenant along with a description of the work to be done and an approximate date when the tenant can reoccupy the unit before the date of service of a notice to vacate. You must also advise the tenant in writing that the retrofit plans are on file with the Central Permit Bureau of the Department of Building Inspection and that they can arrange to review the plans with the CPB.

The time permitted for the work is up to three months, unless the owner obtains an extension from the Rent Board. If you know (or “should know”) in advance that the work will take more than three months, you must petition the Rent Board for an extension before serving the notice to vacate.

The notice to vacate, which must be served in “good faith” and without “ulterior reasons and with honest intent,” must state the basis for the eviction and must include a form published by the Rent Board advising the tenant of their rights. The notice period is 30 days if the tenant has occupied the unit for less than 12 months, or 60 days if more than 12 months. A copy of the notice must be filed with the Rent Board within 10 days of service on the tenant.

If you are not performing seismic work required by the Building Code, and any ocupant of the unit is either a minor, anyone affiliated with the school, or has a custodial or family relationship with such a person, the vacate date cannot be during the school year. (Note that the San Francisco Housing Court judge recently ruled, in one case, that owners cannot be required to time the expiration of the notice with the summer vacation when teachers or other school-affiliated occupants are present.)

When the work is done, you must “immediately” advise the tenant and allow 
them to reoccupy the unit at the same rent rate, except for approved capital improvement passthroughs. The tenant has 30 days to notify you of acceptance and 45 days to reoccupy.

If you do not follow these procedures, you will almost certainly be sued for violation of the Rent Ordinance, so make sure you have the proper insurance far 
in advance.

—David Semel

Q. I have a bedbug infestation in my duplex. I have treated both units four times, but the bed bugs continue to return. The exterminator claims the bedbugs return because the tenant in the upper unit isn’t performing the follow-up cleaning necessary (washing bedding and linens) to get rid of the infestation permanently. Is there legal action I can take?

A. Every residential landlord in California must at all times provide the tenant with a habitable rental unit. This obligation requires the landlord to ensure that the rental unit is free from pests.

But the tenant has a legal obligation to keep the rental unit in a clean and sanitary condition at all times. If the tenant’s failure to comply with this obligation contributes substantially to the existence of a defective condition, such as a bedbug infestation, or interferes substantially with the landlord’s obligation to repair that condition, then the landlord would not be responsible for the cost to repair.

A written rental agreement may impose additional responsibilities on the tenant. For instance, the current SFAA rental agreement includes a Bedbug Addendum, which sets forth in detail the tenant’s specific responsibilities.

Notwithstanding the legal and contractual responsibilities, it can often be difficult to prove that the tenant’s housekeeping habits were the cause of a bedbug infestation. For this reason, it may be difficult to hold the tenant liable for the cost to eradicate the bedbugs.

Nevertheless, in a situation like this where there have been multiple attempts by the landlord to eradicate the bedbugs and where it is obvious that the tenant is frustrating these eradication efforts, then the landlord may have greater recourse against the tenant. The landlord should carefully review the written rental agreement to determine whether there are any provisions outlining the landlord’s and tenant’s responsibilities in this situation. If so, then the landlord should ensure that the tenant strictly complies with his or her obligations. Otherwise, the tenant may be in breach of the rental agreement and the landlord may not only hold the tenant responsible for the cost to eradicate the bedbugs, but the landlord may even have grounds for eviction based on substantially violating a lawful obligation of the tenancy.

If there is no specific language in the rental agreement, then the landlord may still be able to hold the tenant responsible for failing to comply with the legal obligation to keep the rental unit in a clean and sanitary condition and for preventing the landlord from effectively eradicating the bedbugs.

In any event, the landlord should make sure that he or she has taken all reasonable steps to eradicate the bedbugs. This may even include offering to clean the tenant’s linens and bedding.

—Steven Williams

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. Saul M. Ferster can be reached at 415-863-2678. Steven Williams and David Semel are with Fried & Williams, LLP and can be reached at 415-421-0100.