SF Apartment : November 2016


A Pretty Penny

by Clifford Fried

1991 Inv. Co. LLC v. City of W. Hollywood
June 17, 2016
Court of Appeal of California, Second Appellate District, Division Seven

We’ve all heard of frivolous lawsuits, but can you imagine suing over $5? A tenant initiated this lawsuit over a small overcharge and things evolved into a $9,932.82 judgment against the landlord for failure to comply with a rent-control ordinance. Landlords in Los Angeles are required to re-register a unit whenever there is a vacancy followed by a new tenancy. Failure to do so can result in a landlord’s worst nightmare.

Cities such as San Francisco, Berkeley, and Los Angeles have adopted rent-stabilization ordinances that regulate rents in residential areas by providing for a maximum allowable rent for each rental unit and allowing an annual general adjustment for an increase in rent.

These ordinances in Los Angeles provide that a landlord has a duty to register each unit, and if a unit becomes vacant and the landlord rents the unit to another tenant, the landlord must re-register the unit within 30 days. If the landlord does not re-register the unit as required, the landlord may not impose the annual general rent adjustment. If the landlord collects rent more than the maximum allowable rent as a result of imposing the annual general adjustment to which the landlord was not entitled to, the excess is an illegal rent overcharge.

Many judges have been unsympathetic toward landlords who claim to have been in substantial compliance with the city ordinance. And there’s a hefty price to pay for failing to re-register a unit.

In this specific case, the landlord owned a 41-unit apartment building in the City of West Hollywood. The tenant had been renting the same unit in the building since June 1997. The tenant’s initial monthly rent was $950. The landlord purchased the building in 2002 and raised the tenant’s rent periodically.

On August 6, 2013, the tenant sent a letter to the landlord stating that the rent increase notices the landlord had served in 2012 and 2013 were invalid. The tenant further claimed that because his landlord had never registered the tenancy with the city, all prior rent increases were illegal. On September 12, 2013, the tenant applied for a rent decrease with the city’s rent stabilization office claiming the 2012 rent increase was unlawful and requested a determination of the correct rent amount and an investigation of the rent overcharge. On December 17, 2013, the hearing examiner issued a decision, finding all previous rent increases after the initial rent of $950 were illegal because there was no re-registration of the unit after he became a tenant. The landlord was required to pay the illegal rent overcharges of $9,932.87!

On appeal, the Rent Board Commission affirmed the decision. The Commission concluded that a landlord must reregister a unit whenever there is a vacancy followed by a new tenant, even if there is no increase in rent. The court of appeals affirmed the decision, holding that the landlord was not entitled to correct the registration because the award was restitution to return money obtained through an improper means.

While the current owner may have a legal claim against the prior owner for not disclosing the failure to register, the landlord is still liable for all damages while being in violation of the ordinance. It’s therefore in a landlord’s best interest, upon the purchase of a building, to (1) do his or her due diligence and examine the rental history of the units in the building and (2) ensure the city has notice of any change in tenancy among tenants as required by the city’s rent stabilization ordinance and reregister if required by law.

Morlin Asset Management LP v. Murachanian 
August 8, 2016
Court of Appeal of California, Second Appellate District, Division Eight

What could go wrong when carrying buckets full of soapy water up some stairs? This lawsuit arose out of an accident caused by a third-party vendor who, upon spilling soapy water, slipped and fell face-first down some stairs. The vendor hit his face and jaw, causing severe injuries. The vendor worked for a carpet cleaning company hired by the tenant to clean the carpets in his dental practice. Following the accident, the vendor sued the owner and the management company of the building (the “Landlords”) on the grounds of negligence and premises liability. The vendor claims the stairs were maintained in a dangerous condition that allegedly violated the law or industry standards. After that, the landlords filed cross complaints against the tenant for indemnity, apportionment of fault, and express indemnity under the terms of the lease.

In Morlin Asset Management LP v. Murachanian, the main thrust of the landlords’ lawsuit was a clause in the lease agreement that provided for the tenant to defend and indemnify the landlord from any lawsuits arising from the tenant’s dental practice. The tenant moved for summary judgment arguing the lease agreement only requires him to indemnify the landlord from damages stemming from the leased premises. However, the injuries occurred in the common area. The tenant, therefore, argued he should not be required to indemnify the landlord.

The lower court granted the motion for summary judgment, and the court of appeals upheld the lower court holding. Finding that common areas were not under the exclusive control of the tenant, the tenant was not required to indemnify the landlord. Landlords can avoid this problem by having a very broad lease provision that holds the tenant responsible for injuries or damages incurred by outside vendors hired by the tenant, even where injuries occur in common areas of the building.

Intelligent Investments Corp. v. Gonzales
June 14, 2016
Appellate Division, Superior Court of California, Los Angeles

Voluntarily dismissing a lawsuit can make the defendant the prevailing party and could make the plaintif eligible for the other side’s attorneys’ fees. The general rule in the United States is that each party pays for their own legal representation. However, there are a few exceptions. For example, courts can enforce contracts that award fees to the prevailing party in a lawsuit. Also, attorneys’ fees may be awarded if there is a statute requiring attorneys’ fees be paid by the losing party.

In Intelligent Investment Corp. v. Gonzalez, a landlord filed an unlawful detainer action against a tenant based on a failure to comply with a three-day notice to pay rent or quit. The tenant denied the allegations and claimed the landlord breached the warranty of habitability and violated the Los Angeles Rent Stabilization Ordinance. Two weeks after filing the lawsuit, the landlord voluntarily dismissed the action. The tenant then filed a motion for attorneys’ fees. The trial court refused to award fees to the tenant. An appeal arose from that decision.

The tenant argued he was entitled to attorneys’ fees because, under the Los Angeles Municipal Code, in unlawful detainer actions, tenants can recover attorneys’ fees if the tenant prevails. The landlord argued that under California Civil Code section 1717 there is no prevailing party if the lawsuit is voluntarily dismissed and, therefore, the tenant is not entitled to attorneys’ fees.

The court held this was not a contractual dispute; therefore, Civil Code section 1717 did not apply because Civil Code section 1717 only applies to attorneys’ fees agreed to in a contract. Here, the attorneys’ fees were considered “statutory.”

The test is to determine who the prevailing party is: “which party succeeded on a practical level in achieving its overall litigation objective.” In an unlawful detainer action, the prevailing party, according to the court, is the one who retains possession of the disputed property. Here, the defendant kept possession of the property because the plaintiff withdrew their suit. Consequently, the court held that the defendant was entitled to attorneys’ fees.

Landlords should be careful before filing an eviction lawsuit. If a landlord files a lawsuit and subsequently voluntarily dismisses the suit, he or she could be responsible for paying attorneys’ fees, which can add up quickly.

The information contained in this column is general in nature. Consult the advice of an attorney for any specific problem. Clifford Fried is with Fried & Williams, LLP and can be contacted at 415-421-0100. ©2016, Fried & Williams, LLP. All rights reserved.