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New Rate for Interest on Security Deposits in San Francisco, Effective March 1, 2015

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Beginning March 1, 2015, the new rate for interest on security deposits is 0.1%, for the period of March 1, 2015 to February 29, 2016.

Security deposit interest must be paid every year on the tenant’s “annual due date”. For tenancies beginning after September 1, 1983, the annual due date is the same day and month the landlord received the deposit from the tenant. If the tenant moved in and paid a deposit before September 1, 1983, interest was due on September 1, 1984 and every September 1st thereafter.

For more information, please visit the Rent Board website.

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New Allowable Rent Increase for San Francisco, Effective March 1, 2015

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The new allowable rent increase rate for San Francisco rent controlled tenancies goes into effect on March 1, 2015. For rent increases between March 1, 2015 and February 29, 2016, the allowable increase is 1.9%.

For additional information, please visit the Rent Board website:
A landlord may increase the tenant’s base rent once every 12 months by the amount of the allowable annual rent increase without filing a petition at the Rent Board.

Effective March 1, 2015 through February 29, 2016, the allowable annual increase amount is 1.9%.

This amount is based on 60% of the increase in the Consumer Price Index for All Urban Consumers in the Bay Area, which was 3.2% as posted in November 2014 by the Bureau of Labor Statistics.

To calculate the dollar amount of the 1.9% annual rent increase, multiply the tenant’s base rent by .019. For example, if the tenant’s base rent is $1,500.00, the annual increase would be calculated as follows: $1,500.00 x .019 = $28.50. The tenant’s new base rent would be $1,528.50 ($1,500.00 + $28.50).

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Airbnb Pays Hotel Tax to the City of San Francisco

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SFist reports that Airbnb recently paid an undisclosed amount (believed to be $25 million) to the City of San Francisco for an assessed “hotel tax”. San Francisco recently passed an “Airbnb legitimacy law” (available here), allowing tenants to participate in the sharing economy as long as they follow the rules of the regulation (including limitations on number of days per year, registration with the Planning Department, carrying insurance, etc). A proposed amendment – requiring that Airbnb pay back taxes – failed to pass, but Airbnb nonetheless made good on the assessment.

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San Francisco Rent Board Clarifies Position on Effective Date of New Buy-Out Agreement Compliance Requirements, Effective March 7, 2015

The San Francisco Rent Board recently clarified their position on when the new Buy-Out negotiation disclosure statements must be obtained from tenants and when they must be filed. That information is copied below and available on the Rent Board website here.

It is important to note that, even if the negotiations begin prior to March 7, 2015, such that the landlord is not required to obtain a signed disclosure form, the actual buy-out agreement must still be filed with the Rent Board if the agreement is executed after March 7, 2015.

New Ordinance Amendment Regulating Buyout Agreements
Rent Ordinance Section 37.9E, effective March 7, 2015, is a new provision that regulates “buyout agreements” between landlords and tenants under which landlords pay tenants money or other consideration to vacate their rent-controlled rental units. An agreement to settle a pending unlawful detainer action does not constitute a “buyout agreement” for purposes of Section 37.9E.

Starting March 7, 2015, Section 37.9E requires landlords to provide tenants with a Rent Board-approved Disclosure Form and to file a Rent Board-approved Notification Form with the Rent Board before beginning buyout negotiations. The Rent Board will make this information publicly available (except for information regarding the identity of the tenants). Section 37.9E also requires that all buyout agreements be in writing and contain certain disclosures, including a tenant’s right to rescind the agreement within 45 days of execution. For buyout agreements executed on or after March 7, 2015, the new law requires the landlord to file a copy of the buyout agreement with the Rent Board within 46 to 59 days after execution. The Rent Board will post all such buyout agreements in a searchable database that is available to the public at the Rent Board’s office. Before posting a copy of a buyout agreement on its database, the Rent Board will redact all information regarding the identity of the tenants.

If a landlord begins buyout negotiations before March 7, 2015, but those negotiations result in a buyout agreement executed after March 7, 2015, the Disclosure and Notification Forms are not required, but the buyout agreement must still be filed with the Rent Board. Any dispute about when buyout negotiations began must be resolved in court and not at the Rent Board.

Section 37.9E also specifies various remedies and penalties against a landlord for violation of the above requirements that can be enforced in a civil action in state court. In addition, Subdivision Code Section 1396(e)(4) was amended to provide that buyout agreements with certain tenants after October 31, 2014 shall be the basis to deny an application for condominium conversion of the building.

A copy of Ordinance No. 225-14 amending Rent Ordinance Section 37.9E and Subdivision Code 1396 is provided here for your convenience.

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Will Mosser Companies v. City and County of San Francisco Prompt Another Amendment to Costa-Hawkins?

“Whether the application of rent control protection to occupants who begin their residency as minors is wise economic policy is a question for legislative, not judicial, determination.”

The First Appellate District recently determined the effect of Costa-Hawkins on a tenancy where the only parties to a lease have moved, leaving behind their son, who entered the rental unit, as a minor, and who became an adult during his parents’ occupancy.

In Mosser Co. v. City and County of San Francisco, the Court held that the son was an “original occupant”, having moved in at the commencement of the tenancy and with the consent of the landlord, even though he was not a party to the lease. It followed that the decontrol provisions of Costa-Hawkins would not allow the establishment of a new rental rate while an “original occupant” was still in possession.

This is a difficult decision. The court began its analysis with the uncontroversial proposition that an “occupant” is someone who can claim a right of “possession” in a rental unit, and that such an occupant may be considered an “original occupant”, even where they are not a party to the lease, so long as they took possession at the commencement of the tenancy with knowledge of the landlord.

This is a fair interpretation of Costa-Hawkins, as applied to the Rent Ordinance, and it is rooted in well-established law, predating Costa-Hawkins. (The Mosser court referred to Parkmerced Co. v. San Francisco Rent Stabilization & Arbitration Bd. (1989) 215 Cal.App.3d 490, 495, for the rule that “[o]ne may become a tenant at will or a periodic tenant under an invalid lease, or without any lease at all, by occupancy with consent”.) And this rule would avoid, for instance, a landlord renting a three room unit to three people, but only entering a written contract with one of them, in an effort to game the decontrol provisions if that single person ever left. (The other two would obviously be “original occupants”, who would be no less obligated to honor the original lease provisions or entitled to receive the benefit of them.)

However, in allowing an inter-generational, rent-controlled tenancy, the Mosser court may have taken this rule beyond any reasonable construction. The court effectively found that the son had the same rights as any other adult, who might have moved in at the commencement of the tenancy.

This logic glosses over the fact that a landlord may not want, e.g., three or more adults to move into a one-bedroom apartment, and may limit the number of occupants on the lease accordingly, but that this landlord may not (and probably should not) object to a space-appropriate number of adults moving in with their children.

It also gives the son all of the benefits of legal capacity, without any of its obligations, until such time as he may unilaterally elect to secure a rent-controlled tenancy at sub-market rates in the future. The court was not persuaded by the landlord’s argument that it was allowing the son to “inherit” the rent-controlled tenancy and receive rights without concomitant obligations. It nonetheless held that the son has his own personal right of occupancy.

But what would happen if the parents vacated, and the son remained behind while he was still a minor? By the court’s application of Parkmerced Co., the right could not become a tenancy by operation of law, because a minor is incapable of contracting generally (Cal. Civ., §§1556, 1557), and, in particular, incapable of entering “a contract relating to real property or an interest therein”. (Cal. Fam., §6701(b).)

In that event, the son has no “concomitant obligations” that offset the rights given to him by the court. It seems, therefore, inescapable, that the son only enjoyed these rights by virtue of becoming an adult. Now, of course, this is not the same thing as “inheriting” (at least in the legal sense), but the court took a snapshot of his rights in the present (now that he’s an adult) and retroactively applied them to the minor child, at the inception of the tenancy, where they could not possibly manifest.

The court bolstered its policy determination by warding off concerns that this would allow an occupant to indefinitely parlay a rent-controlled tenancy indefinitely. “[T]he protection afforded here is limited in scope to lawful and original occupants. A rent-controlled apartment cannot, as landlord fears, be passed on freely ‘from friend to friend or generation to generation.’ Only those occupants who reside in the apartment at the start of the tenancy and do so with the landlord’s express or implicit consent are protected from unregulated rent increases.”

However, the court also says that the son – an occupant, despite not being a party to the original lease, who became a tenant by “occupation and consent” – will be creating a tenancy of his own, now that his parents are vacated and the landlord still needs to collect rent.

This establishes a new tenancy. Presumably, now that the rest of the family is gone, the son has roommates. Are these occupants? Yes. Are they occupants who took possession under the (now newly “original”) lease? Yes. Can the landlord do anything other than consent to their occupancy, now that he has no choice but to accept rent from the son or let him live there for free…

Despite its airs of judicial self-restraint, the Mosser court made a public policy choice here, and this may have undesired consequences to landlord-tenant relationships in rent-controlled jurisdictions, unless the California Legislature takes the court up on its invitation to amend Costa-Hawkins.

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Surreal Estate Q&A #3: Effective Date of Costa-Hawkins; Decontrol of Newly Constructed Units

Hello,

I have seen varying statements regarding the date before which a building must have been built in order to be subject to rent control laws under Costa-Hawkins. Some writing states that no unit in a building built in 1979 or later can be subject to rent control. However, other sources state (and as far as I can tell the law reads) that any unit in a building built before in 1995 or before could be subject to rent control.

Can you please resolve this confusion for me?

Thank you,

Jacob – Berkeley, CA

Jacob,

Thank you for your question. First, the year 1979 does not appear in Costa Hawkins. I’m assuming you got this date from the Berkeley Rent Stabilization and Eviction for Good Cause Ordinance. (Keep in mind that rent control is a local matter – Costa Hawkins is a state-wide law that decontrols rental rates under certain circumstances.)

The Berkeley Ordinance exempts “Newly constructed rental units which are completed and offered for rent for the first time after the effective date” of the Ordinance. (See, Section 13.76.050.) So, any new construction will not be subject to rent (or eviction) control of the Ordinance. This kind of language is common in rent ordinances, because the city legislatures want to protect existing tenancies but do not want to impair incentives for new construction. (After all, most of these ordinances were enacted in the late 70s/ early 80s to address shortages in “affordable, safe and sanitary housing”.

Costa-Hawkins became effective in 1996 (with some holdover dates from 1995 while its provisions phased in), and it made a similar distinction between existing property (with existing tenancies) and new construction, regulating the former and deregulating the latter (among other reasons, to avoid discouraging new construction). In fact, the California Court of Appeals just recently confirmed that the boundaries of the “certificate of occupancy” requirement from §1954.52(a)(1) of Costa-Hawkins in the case Burien, LLC v. Wiley: A landlord tried to take a structure with existing residential tenancies and deregulate it based on obtaining a new certificate of occupancy for change in use… the court held that this exception refers to the first certificate of occupancy for residential use, not any subsequently acquired one.)

As a practical matter… rental units are generally not regulated by local ordinances, like Berkeley’s, if they are certified for residential occupancy, for the first time, after the effective date of the rent control ordinance. This provision of Costa-Hawkins wouldn’t need to come into play, because the units are already free from rent increase limitations, so there’s nothing to deregulate.

~JAG

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