Case Law – Costa-Hawkins.com

March 2, 2022

SFAA v. CCSF (2022): Court of Appeal Affirms San Francisco’s Eviction Control Authority in Prohibiting Rent Increases that Coerce a Tenant To Vacate

“Plaintiffs contend the amendment is preempted by Costa Hawkins because it seeks to regulate the rent a landlord may charge on exempt properties. The city contends and the trial court agreed that the amendment at issue here is a valid exercise of the city�s authority to regulate evictions. We agree that the amendment is designed to deter landlords from attempting to avoid local eviction rules by imposing artificially high rents in bad faith, and thus is a reasonable exercise of the city�s authority to regulate the grounds for eviction, which is not preempted. Accordingly, we shall affirm the judgment.”

The Court of Appeals upheld the San Francisco Real Property Court’s denial of the petition of San Francisco Apartment Association (and others) for a writ of mandate, enjoining Ordinance 5-19 – an amendment to the tenant harassment ordinance prohibiting increases for units exempt under Costa-Hawkins, if the increase coerced a tenant to vacate.

Petitioners argued that Costa-Hawkins’ preemptive effect on local price controls displaced local authority to circuitously discourage a landlord from exercising their rights. The panel was particularly focused, however, on the specter of the hypothetical “$1 million dollar a month” rent increase (which does not appear to have ever actually happened). It questioned why a local government would not have the authority to protect tenants from displacement, when the rent increase itself wasn’t the true goal. The ruling undercuts Costa-Hawkins and turns ordinary market transactions into jury questions. Landlords would be wise to obtain market advice from qualified experts – and perhaps even negotiate with tenants – before imposing increases.

February 26, 2022March 2, 2022

Lara v. Menchini (2021): Appellate Division of San Francisco Superior Court Affirm’s Landlord’s Ability To Reject Coerced Creation of Rent-Controlled Subtenancy Following Rent Default

“When Menchini failed to pay the rent for February and March 2019 before the three-day notice to pay rent or quit expired, he forfeited the lease, and the landlord was entitled to possession as against the sublessee. Lara was not required to accept rent from Menchini’s subtenants. (See Civ. Code, � 1947.3, subd. (a)(3)(A) [‘A landlord . . . is not required to accept the rent payment tendered by a third party unless the third party has provided to the landlord . . . a signed acknowledgment stating that they are not currently a tenant of the premises for which the rent payment is being made and that acceptance of the rent payment does not create a new tenancy with the third party.’]. Had Lara accepted rent directly from the subtenants without such a signed acknowledgment from them, she may have inadvertently created a new tenant-landlord relationship with them.”

In Lara v. Menchini, a landlord prosecuted an unlawful detainer for non-payment of rent, following non-payment by the master tenant. Subtenants approached the landlord in response to her initial rent demand, attempting to pay their rent directly to her. She refused.

The landlord prevailed at trial and the subtenants appealed on the basis that unlawful detainer law and Civil Code �1947.3 required her to accept their rent to cure the notice. The court of appeal rejected this contention.

It held that the non-payment of a master tenant effected the forfeiture of the lease, except in previous, distinguishable cases, where the landlord demanded rent from the subtenants. Further, Civil Code �1947.3 (which allows third party rent payers to help tenants avoid default) did not apply, because the landlord was permitted to require that they declare they are not �occupants�. (After all, occupancy coupled with payment of rent to the landlord creates a tenancy.)

Of course, the subtext of this dispute is that the subtenants were attempting to usurp their departed master tenant�s rent control, but without a basis for doing so. The court concluded that the landlord was entitled to demand the subtenants enter a new lease at market rent if they were going to remain in possession and then to proceed in unlawful detainer, when they declined.

January 16, 2021January 16, 2021

Graylee v. Castro (2020): Liquidated Damages in Stipulated Judgment Unenforceable Unless They Bear a Reasonable Relationship to Anticipated Damages Flowing from Breach

“Section 1671, subdivision (b), provides that a liquidated damages clause ‘is valid unless the party seeking to invalidate the provision establishes that the provision was unreasonable under the circumstances existing at the time the contract was made’. Under this subdivision, a liquidated damages clause becomes an unenforceable penalty ‘if it bears no reasonable relationship to the range of actual damages that the parties could have anticipated would flow from a breach’. The amount set as liquidated damages ‘must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained’. Absent a relationship between the liquidated damages and the damages the parties anticipated would result from a breach, a liquidated damages clause will be construed as an unenforceable penalty’. In the context of a stipulated judgment, the amount of the judgment must reasonably relate to the damages likely to arise from the breach of the stipulation, not the alleged breach of the underlying contract, because it is the breach of the stipulation that allows the plaintiff to enter judgment against the defendant. Thus, we analyze the damages flowing from the breach of the stipulation itself, not any damages that may have arisen from the tenants’ alleged breach of the underlying lease agreement.”

In Graylee v. Castro, a landlord served a three-day notice to pay rent or quit, contending his tenants owed $27,170 in unpaid rent for a house they leased, and filed an unlawful detainer action when they failed to cure the notice. The tenants answered and disputed the amount claimed in the notice. The parties settled prior to trial, pursuant to Section 664.6 of the Code of Civil Procedure, which allows parties to pending litigation to enter a settlement contract that calls for entry of a stipulated judgment (sometimes, as in this case, only in the event of breach).

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December 29, 2019

1041 20th St., LLC v. Santa Monica Rent Control Bd. (2019): Permits To Remove Apartments from Rental Market Do Not Amount to Removal from Rent Control

In 1041 20th St., LLC v. Santa Monica Rent Control Bd., property owners had applied for, and received, “removal permits” allowing them to take certain rental units off of the rental market, back in the 1990s. (As opposed to invoking the state-law Ellis Act, these local regulations allowed a landlord to apply for various permits under local law: “Category A permits are for landlords who are ‘unable to collect the current Maximum Allowable Rent (MAR) on the unit’. Category C permits are for landlords who prove a controlled rental unit ‘is uninhabitable and cannot be made habitable in an economically feasible manner’.”

Over the years, the Rent Board “unequivocally stated that the properties had been granted permanent exemptions from the Rent Control Law and did not need to be registered with the Board”. However, in 2016, the Rent Board notified the owners that the units were subject to the rent ordinance because they were not demolished or converted and continue to be used as residential rental units.

The owners had been charging rents that they would not have been permitted to under the rent ordinance, and so the tenants petitioned for a reduction in rent and an award of the overpayment. The owners petitioned for writ of mandate, on the theory that the Rent Board was equitably estopped from now treating the properties as subject to the rent ordinance. The trial court entered judgment reversing the rent board decisions, but the Court of Appeal disagreed.

It reasoned the equitable estoppel could, in theory, apply to a governmental entity in this context, but the Rent Board never had jurisdiction to create new categories of permanently exempt units. It did have authority to issue the permits to allow the owners to stop renting them, but that is not what the owners did. Further, the doctrine of administrative finality (i.e., a bar to revisiting a decades� old administrative decision) did not bar the current treatment of these units for two reasons. First, the Rent Board continued to maintain that the owners could withdraw the units � but that is not what the owners did. Second, even if the decision amounted to a permanent exemption, administrative finality cannot apply to a ruling that exceeded the administrative agency�s jurisdiction.

October 13, 2019October 13, 2019

Olivares v. Pineda � Litigation Privilege Only Counts If Your Math Checks Out, and Rent Demand Without Eviction May Be Actionable

In Olivares v. Pineda, attorneys for a landlord appealed from the denial of their anti-SLAPP motion. The attorneys moved to strike a tenant�s lawsuit for wrongful eviction and misuse of a security deposit, directed at a failed first eviction lawsuit followed by a corrected three-day notice that never resulted in a second.
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October 13, 2019October 13, 2019

What�s a “Good Faith” Owner or Relative Move-In Eviction? Recent Court Rulings Explore OMI/RMI’s, But Following The Letter Of The Law Might Not Be Enough To Avoid A Lawsuit

Two recent opinions on owner and relative move-in evictions analyze the murky area of “good faith”.
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July 22, 2019October 20, 2019

HERO v. City of Los Angeles (2019): Relevant Baseline for CEQA Analysis Properly Evaluated a Property Already Withdrawn under the Ellis Act and Therefore Properly Excluded Evidence of Impact on Housing and Population

The City was not required to prepare an EIR to address the Project’s alleged impact on the loss of rent-stabilized housing units or the displacement of tenants because the property previously had been withdrawn from the rental market pursuant to the Ellis Act; under CEQA the assessment of impacts of a proposed project ordinarily is based on conditions as they exist at the time the environmental analysis is commenced.

Hollywoodians Encouraging Rental Opportunities v. City of Los Angeles affirmed a trial court’s determination that an EIR was not required under CEQA to evaluate impacts of tenant displacement for a property withdrawn from the rental market under the Ellis Act.

When a developer sought to convert an 18 unit apartment building into a 24 guestroom boutique hotel, a neighborhood association (Hollywoodians Encouraging Rental Opportunities (“HERO”)) appealed approval of the permit. The City Council denied the appeal, so the association petitioned the superior court for writ of mandate to reverse the City Council’s decision.
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June 20, 2019October 20, 2019

Hilaly v. Allen: Tenant Successfully Defends Ellis Act Eviction with “Change to Terms of Tenancy” Defense, Following Landlord�s Reliance on Estoppel Statement

“Allen had no contractual duty to complete the questionnaire. The parties indicated no shared understanding, discussions or advisement of the questionnaire’s binding nature. The questionnaire contained no express statement that the tenant would be bound by the assertions made in the questionnaire. The questionnaire was ambiguous on relevant terms, indicating that it was not the sort of communication that would lead to binding statements regarding terms and conditions of tenancy. And the record contains no indication that all parties were highly sophisticated or enjoyed similar bargaining power.”

Naseem and Naser Hilaly were residential landlords of a multiunit property in San Francisco. They purchased the building along with their son and his wife, who wanted to live together with each of their parents in the same property. Betty Allen was a long-term tenant who, prior to the sale of the building to the Hilalys, executed an estoppel statement describing that she did not have parking.

After failing to negotiate a buyout agreement, the Hilalys proceeded to withdraw the property pursuant to the Ellis Act. Allen�s mother lived with her during this period, and a visiting nurse parked in the curb cut of the street, blocking the garage that the Hilalys were parking in. The Hilalys left a note that said, “I’ve told you not to park here again”.
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June 8, 2019

Veiseh v. Stapp (2019): Defect in Transfer under Uniform Transfer to Minors Act Is No Impediment to Standing in Trespass Action

In Veiseh v. Stapp, the Fifth District addressed a novel turn on an old rule � that the plaintiff in an action for trespass need not establish title, but is merely required to establish actual possession.

The plaintiff owned farmland, and though he used it for his own purposes, he attempted to transfer it to his ex-wife, for the benefit of their daughter, for estate planning purposes. However, the form of transfer implicated the Uniform Transfer to Minors Act, which required such assets to be held for the benefit of the transferee minor. Plaintiff’s transfer was defective, because he continued to use the property himself. The owner of the adjacent parcel leased to a cattle rancher, whose cattle grazed on plaintiff�s land, damaging it. Plaintiff sued for trespass.

The defendants moved for a bifurcated trial to first litigate the issue of standing. They argued that a trespass plaintiff was required to establish that he was in “lawful possession” of the trespassed land. Because the transfer violated the Uniform Transfer to Minors Act, the plaintiff was not the right plaintiff. The trial court agreed.

The Court of Appeals, however, noted the “well-settled proposition that the proper party plaintiff in an action for trespass to real property is the person in actual possession”. “The proper person to bring an action for trespass to real property is the person in actual possession. In the context of a trespass action, ‘possession’ is synonymous with ‘occupation’ and connotes a subjection of property to one�s will and control. We adopt this definition.”

While the term “lawful possession” is sometimes used to describe the trespass plaintiff’s status, the term “lawful” in this context merely means “not tortious”. The father’s occupation and possession was sufficient to maintain the action, and the Court of Appeal reversed with directions to litigate the second phase of the trial.

May 8, 2019May 8, 2019

Chun v. Del Cid (2019) � Second District Court of Appeal Interprets LA Municipal Code To Find “Rooming House” No Longer Exempt as “Single Family Home” from Eviction Protections

In Chun v. Del Cid, a landlord of a single family home in Los Angeles served 60-day termination notices on multiple tenants who were leasing individual bedrooms in a single family home. The Los Angeles Rent Stabilization Ordinance generally exempts single family homes from eviction protections, and without LARSO eviction protections, a 60-day notice under state law can often be served at any time, for (almost) any reason.

The tenants defended an unlawful detainer lawsuit on the basis that their use of the property as a “rooming house” took the single family home out of the exemption. The trial court and appellate division disagreed, finding that the property was designed as a single family home: that is, a detached dwelling containing only one dwelling unit � a group of two or more rooms, one of which is a kitchen. The Court of Appeal granted review, evaluating several interlocking definitions under the LA municipal code to reach a different conclusion.
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