SF Apartment : January 2018

LEGAL Q&A

Year In, Year Out

Q.  In 2015, we did an owner move-in eviction so our elderly mother could move into the unit. After one year, she passed away. I have since been living in the unit. When the OMI was completed, the laws were that we could re-rent the unit after three years. Are we bound by the new five-year law?

A. This is an excellent question about an amendment to the rent ordinance passed by the Board of Supervisors in July 2017, with some of the new law taking effect August 27, 2017, and the rest taking effect January 1, 2018. The short answer is that the three-year period governing to whom you can offer the unit to rent still applies, but the five-year period restricts the amount of rent you can charge.

There are two aspects to the five-year period after the notice to quit is served: first, to whom you can rent the unit and, second, the rent you can charge. Since your notice was served before January 2018, the law states that if you offer the unit within three years, you must first offer the unit to the displaced tenant. This part of the law has not changed. 

What has changed is that a section of the law now states the unit must be rented at the prior rate (plus any lawful increases) if offered for rent during the five-year period following service of the notice to quit. If your notice was served in January 2015, you must first offer the unit to the displaced tenant if you offer it for rent before February 2018 at the prior adjusted rate. If you offer it for rent after January 2018, you can offer it to anyone but are stuck with the prior adjusted rate until February 2020 (unless the law is changed again before then).

If a reader is contemplating serving an OMI termination notice in the next few months, it is important to note that the new law requires owners who serve notices on or after January 1, 2018, to first offer the unit for rent to the displaced tenant if offered for rent within five years.

There are many other changes to the OMI sections of the rent ordinance, so it is highly advisable that anyone considering such an eviction consult the San Francisco Apartment Association, the Rent Board, and your attorney before proceeding.

—David Semel

Q.  Our tenant is terminally ill and can no longer sign rent checks. Is it okay if her son signs and sends the rent checks, even though he is not on the lease and not a resident of the apartment?

A. Unless you are ready to assume her son as your tenant under his mother’s same tenancy terms, you should ask him to obtain, and provide you copy of, a “Power of Attorney” (POA) authorizing him to act on her behalf regarding her finances before you accept any rent checks from him. A POA is a legal document that provides someone (in this case, the son) with authority to act for another (here, the mother) in specified or all legal matters. The POA here should state that the son has authority to act on behalf of his mother’s financial affairs. You may want to show the POA to your attorney to ensure that it satisfies the legal requirements for California. For example, a POA typically must be signed by the person granting the powers to another (mom) and the signature should be notarized.

Remember that current state law allows you to re-set the rent for the apartment once all original tenants on the lease no longer permanently reside there. When the mother dies or moves out, you will be able to raise the rent under the Costa-Hawkins Rental Housing Act if anyone remains behind. However, you can waive that right by creating a tenancy directly with the son. No lease with the son is needed to establish a tenancy with him. By accepting rent payments from him without documentation of a POA, you effectively allow the son to someday argue that he inherited his mother’s rent-control status. Indeed, it is not uncommon for relatives to suddenly take occupancy when an original tenant is dying and rent happens to be especially low.

If you chose to accept rent in the son’s name without the POA, then the son can someday foreseeably argue that he became a tenant when you began accepting rent payments directly from him, thereby waiving your valuable right to adjust the rent to market rate under Costa-Hawkins. This problem is easily avoided with a valid POA and a written confirmation from you to the son that (1) he is remitting rent on behalf of his mother only; and (2) by so allowing him to pay on behalf of his ailing mother and pursuant to the POA, you are not recognizing him as a co-tenant. These simple precautions will go a long way to prevent him from moving in and claiming, once mom passes, that he should be able to stay and keep her low rent.

—David Wasserman & Elizabeth Kershaw

Q.  A tenant who has been living in a studio in my rent-controlled building since 1992 was offered a job in Europe. She’d like to go but can’t afford to move. She emailed me proposing a buyout of $20,000, claiming she would vacate in thirty days. Her current rent is $1,200. Could this get me into a legal mess?

A.  To answer this question, I assume this is a legal unit (i.e. not an “illegal in-law” or otherwise) in your rent-controlled building.

I am of the strong opinion that when you are able to “recapture” a unit occupied by the same tenant for 25 years, you do it.

Further, as the total allowable rent increases (mandated to be only 60% of the annual CPI increase from year to year) over the term of the tenancy amounted to approximately 44.68% and inflation alone in the SF Bay Area increased 74.47% during that period, not only have you lost revenue over the course of this tenancy, the overall market value of your property has suffered due to this “subsidized and undervalued” tenancy. And considering the rent is $1,200 now and even after 25 years, I suspect it is a very valuable rental unit.

The San Francisco Rent Stabilization and Arbitration Ordinance (the SFRO) allows for you to proceed to make this deal with your tenant without getting into a “legal mess.” However, irrespective of the fact that the tenant approached you as the owner, this “offer by the tenant” should be construed as a Buyout Offer and subject to the provisions of SFRO §37.9.E—Tenant Buyout Agreements. You can make the deal assuming you follow the very strict and formal process of SFRO §37.9.E. Failure to comply with particular provisions of the law exposes you to liability from claims made by the tenant and by third party, not-for-profit tenant rights organizations. Thus, an attorney familiar with the proper preparation of the written agreement is imperative. Some of the process includes, by way of example—but not limited to—registration of the parties’ identities with the Rent Board, delivery of written disclosures to the tenant and recitation in the written agreement between parties (later to be filed at the Rent Board) of very particular language, including the size of the word processing fonts used for certain required provisions of the agreement.

Indeed, one of the provisions of the written agreement between parties that must be creatively addressed in this scenario is due to tenant’s offer to “be out of the apartment in thirty days.” SFRO §37.9.E (d)(3) confirms that one (of the many) provisions of the written agreement must contain a written statement disclosing the tenant’s right to rescind her commitment to the deal for 45 days after signing the agreement. That is, “she can change her mind.” Thus, logically, you risk the payout of funds early (and at 30 days) if the tenant decides to change her mind and rescind the deal. However, with legal counsel familiar with the Tenant Buyout provisions of the SFRO, this is not an insurmountable issue. This could be addressed, for example, via payment of some of the funds by you as the owner directly to third parties for bona fide relocation expenses: airline tickets, the moving company, security deposit funds for her new apartment in Europe, etc. You could confirm the legitimacy of need for these payments via documentation. That way, you can be assured that the tenant is truly committed to moving as she would probably not allow payments to these third parties otherwise.

The provisions of §37.9.E are laborious, a bit complicated and complex. However, with proper counsel familiar with its requirements, it does provide the necessary guidance to avoid a “legal mess” and recapture the very valuable unit.

—Denise Leadbetter

Q.  Comcast provides internet service for our entire building, but one tenant wants to use Sonic instead. I’d rather not allow this, because it means an additional box and more wires will be installed. What are my options?

A. As a responsible property owner, you want to ensure the safety of your occupants and maintain the appearance of your building, while moderating what businesses (if any) can gain access and solicit your tenants. A 2016 ordinance, aimed at ending “ISP monopolies” in multi-unit apartment buildings (four-plus units), now prevents property owners from “interfering with the right of an occupant to obtain communications services from the communications services provider of the occupant’s choice.” While your building currently features Comcast service, Sonic wants a share of this new market.

Make no mistake—this is an intrusion into your property rights, to the extent that the U.S. Supreme Court has held that this kind of law violates the Fifth Amendment unless the property owner receives just compensation. The ordinance accounts for this, but it also provides for more practical restrictions on ISP access, so long as you promptly engage the ISP’s requests for inspection and installation.

First, the ISP must provide two weeks’ notice of its intent to inspect the property to evaluate how to provide service. Three days prior to the proposed inspection, you may refuse access if the ISP has not provided notification that they are authorized to conduct communications services in the city, that they have actually received a request from one of your occupants, and that they will indemnify you for any damage caused by the inspection.

If the ISP provides proper notice and completes the inspection, they must also give you 30 days’ notice of the proposed installation, furnishing plans detailing the installation and what services they will offer. Five days prior, you can refuse access for several reasons, including their failure to provide proof of the above requirements, refusal to agree to your “reasonable conditions” for access, failure to agree on “just compensation” for their use of the property, or even your position that the installation will harm the building, by causing undue damage, creating a significant, adverse effect on historically/architecturally significant elements, disturbing lead paint/asbestos or impairing any essential services. You can also demand proof that they have insurance, that their installation contractors are licensed and that they’ve obtained any required permits.

The ordinance intends to promote technology and competition, while empowering a property owner to protect their building and safeguard their tenants. But the city has placed the burden on you to police your own rights, and it has instituted civil penalties, fees and injunctive relief for those who impair the rights of the ISP or the tenant. You should familiarize yourself with the finer points of Article 52 of the SF Police Code (“Occupant’s Right To Choose a Communications Services Provider”), so you can set reasonable boundaries on ISPs when they comply with the ordinance and properly refuse access when they don’t.

—Justin Goodman

Q.  A family of four is renting our two-bedroom apartment (the husband and wife, who are on the lease, and their two children). We found out that they have a friend staying in the unit long-term. Are they allowed to collect rent from a fifth tenant who is not on the lease? Our contract states that guests can stay for a maximum of 15 days in a calendar year.

A. Generally, in the absence of a clause in the lease or rental agreement prohibiting subletting or assigning a tenant’s unit, a tenant may sublet or assign that unit. However, where there is a prohibition or limitation on subletting or assigning a rental unit, the tenant must first seek the landlord’s permission before assigning or subletting.

First, it is important to distinguish between a sublease and assignment, both of which involve a tenant’s transfer of their interest in a lease. A tenant’s transfer of their entire interest in a lease is an assignment. In an assignment, the person being assigned the tenant’s interest steps into the shoes of the assigning tenant, thereby taking the tenant’s place. At this point, the lease becomes a direct lease between the new tenant, assignee, and landlord.

A sublease, on the other hand, occurs where a tenant transfers less than their entire interest. The original tenant, or master tenant, remains liable to the landlord but also acts as a landlord by leasing space to the subtenant. In that case, the subtenant has no relationship or obligation to the landlord, but is obligated to pay rent to the master tenant.

Here, it appears that the “fifth tenant” who is not a party to the lease agreement is paying rent to the master tenants. The master tenants remain obligated to comply with the lease agreement as they lease space to the “fifth tenant.” Whether the contract can be enforced depends on the language in the lease agreement. If the lease agreement has a clause prohibiting assigning or subletting of the unit, the contract should be enforceable against the “fifth tenant.” However, if there is only a clause limiting a guest’s stay at the unit, the contract is not enforceable against the tenant since the person occupying the space is considered a subtenant and not a guest.

—Jonathan Madison

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. David Wasserman is with Wasserman-Stern Law Offices and can be reached at 415-567-9600. Elizabeth Kershaw is the Director of Legal Affairs at Parkmerced and can be reached at 415-405-4600. Denise Leadbetter is with the Law Offices of Denise A. Leadbetter and can be reached at 415-713-8680. Justin A. Goodman is with Zacks, Freedman & Patterson, P.C. and can be reached at 415-956-8100.