Category Archives: Case Law

Evidentiary Presumption in Berkeley Rent Ordinance Punishes Landlords Who Fake Owner Move-Ins

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“The label placed by the parties on their relationship is not dispositive, and subterfuges are not countenanced.”

In Mak v. City of Berkeley Rent Stabilization Board (2015) 240 Cal. App. 4th 60, the First District Court of Appeals discusses what happens when a landlord coerces a tenant to enter an agreement that contravenes city law governing owner move-in evictions.

Under Berkeley law, a landlord cannot terminate a tenancy other than for “just cause”. Rental units are also rent-controlled, except to the extent that they are deregulated by state law (i.e., Costa-Hawkins). And, while a landlord can terminate a tenancy if they intend to reside in the rental unit for 36 months (under the owner move-in provisions of Section 13.76.130A.9 of the Berkeley Rent Ordinance), this does not result in a decontrolling of the unit for the next tenancy (under Costa-Hawkins) if/when the unit is put back on the rental market (as a result of Berkeley Regulation 1016). In other words, it’s fine if you want to live in your property, but you don’t get the benefit of market rent if you move afterward.

The court in Mak evaluated the rent-controlled status of a tenancy in the context of Regulation 1016. Elizabeth Burns was the long-term tenant of a unit owned by Jason and Karen Mak. The Maks served an Owner Move-In (“OMI”) notice (pursuant to Cal. Civ., §1946.1 and Section 13.76.130A.9) on Burns, but then negotiated for her to move out in an agreement where she stated that the vacating was not because of the OMI notice, reciting that she was aware that the Maks could move in, sell, or re-rent at market rates.

No longer bound, in their minds, by the OMI restrictions, the Maks immediately re-rented to Alexander and Andrea Ziem, who ultimately brought a petition for determination of lawful rent, on the theory that the unit was still controlled at the previous rate, as Regulation 1016 creates an evidentiary presumption that, where a tenant vacates within a year after an OMI notice, they vacated because of the OMI notice.

The Maks argued against this position, relying on their agreement with Burns. They also asserted that Regulation 1016 was invalid to the extent it imposed vacancy control under Bullard v. San Francisco Residential Rent Stabilization Bd. (2003) 106 Cal.App.4th 488, which invalidated a provision of the San Francisco Rent Ordinance requiring landlords displacing tenants with an OMI notice to offer a “comparable unit” at the existing rent of the displaced tenant. (While Costa-Hawkins allows local agencies to monitor the bases for eviction, and this can sometimes include imposing rent ceilings following an eviction, this did not extend to the imposition of rent controls on a unit that was not the subject of the eviction. The court found this to accord with Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009) 175 Cal.App.4th 1396, which invalidated the imposition of rent controls on new development by requiring a certain number of affordable units at regulated rental levels.)

The court was unconvinced by the Maks’ “subterfuge”. It distinguished Bullard, noting that, while regulating “comparable units” was a weak deterrent to avoid bad faith OMIs, Regulation 1016 was focused precisely on deterring the kind of conduct that would allow landlords to use threats of an OMI to cause a tenant to vacate a unit, in a manner that would avoid any of the restrictions imposed by the OMI provisions. The Ziems received a windfall here, but Regulation 1016 is designed to deter conduct, not necessarily protect the rent-controlled tenant.

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Will the California Court of Appeals Reconsider Delta Imports and the Delta Motion

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This week, the Appellate Division for the Superior Court in the County of Los Angeles found that Delta Imports as interpreted by Parsons means that an unlawful detainer defendant can challenge personal jurisdiction on the basis that an unlawful detainer complaint fails to state a cause of action for unlawful detainer through the introduction of extrinsic evidence. (If you think that sounds wordy, you should read a Delta motion sometime.)

The ruling in Borsuk v. Superior Court (La Hillcreste Apartments, LLC) is not novel. But the politic concurrence, by Acting Presiding Judge Kumar, is rallying. Acknowledging the deference the Appellate Division must pay to the Courts of Appeal (particularly, decisions by its own Second District, like Delta Imports), he agreed with the majority that a trial court must consider extrinsic evidence about service of the requisite notice to an unlawful detainer action in evaluating the sufficiency of its ability to state a cause of action and its worthiness of the unique unlawful detainer five-day summons.

Even Judge Kumar thought this reasoning wasn’t absurd: “The apparent thought process behind cloaking the notice requirement with jurisdictional ramifications is this: if there is no valid three-day notice, the summons corresponding to the complaint is necessarily invalid because the truncated time for an answer provided therein is conditioned on a valid three-day notice.” He simply asserted that, in allowing a jurisdictional challenge to test the sufficiency of a cause of action, “Delta expanded the traditional scope of a motion to quash”.

Delta stressed that it would moot the point of a jurisdictional challenge if a tenant were required to challenge the cause of action for unlawful detainer on demurrer – a general appearance in the action. The tenant should be able to specially appear and challenge jurisdiction.

However, Judge Kumar reasoned that, “If the defendant was not properly served with the precedent three-day notice, the summons remains facially valid. As the three-day notice is an element of the unlawful detainer action, a challenge to it, like a challenge to any other element of the cause of action, should be directed to the legitimacy of the complaint, not the validity of the service of the summons.”

He closed by issuing an open invitation for “a court higher than the appellate division” to revisit the matter. The Delta motion is one of the more peculiar features of unlawful detainer law, and reform would straighten out what is supposed to be a simplified and summary proceeding for recovery of possession of real property. On the other hand, this doctrine is over three decades old, and higher courts have had no shortage of opportunities to spill ink on this issue.

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Horne v. Department of Agriculture: No More Taking Raisins Without Just Compensation

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This week, the United States Supreme Court found that the United States Department of Agriculture could not take a portion of California raising growers’ crop for a market stabilization program without paying just compensation under the Takings Clause of the United States Constitution.

The Hornes, California raising growers, were required to set aside a portion of their crop under the Department of Agriculture’s “marketing order”. The marketing order called for raisin growers to set aside as much as 47% of their crop in a particular year. These raisins would then be allocated to best stabilize the market. If they were sold, profits would be returned to the Hornes. But often, the raisins were just given away.

The Hornes argued that the reserve requirement constituted a taking of their property, for which the Constitution requires just compensation. The Ninth Circuit Court of Appeals agreed, but on the basis that it was an unconstitutional condition, where the government “imposed a condition (the reserve requirement) in exchange for a Government benefit (an orderly raisin market)”. This doctrine emerged out of land-use cases, where local governments have significant discretionary authority over authorizing permits and can condition the granting of a permit on certain conditions, so long as the conditions have a “rough proportionality” to and “essential nexus” with the impact of a proposed development. If they do not, the condition is an unconstitutional taking.

The application of this doctrine to the raisin reserve requirement feels a bit forced (as it did in the recent decision of the U.S. District Court for the Northern District of California, concerning enhanced relocation payments for tenants displaced by the Ellis Act). The allocation of personal property for a broader public purpose is a deprivation of rights, and this doctrine – mixed with some analytical gymnastics to find the existence of a discretionary benefit – allows recourse for the property owner.

The Supreme Court streamlined the takings analysis by expanding the application of “per se taking” jurisprudence to personal property: “Nothing in the text or history of the Takings Clause, or our precedents, suggests that the [per se] rule is any different when it comes to appropriation of personal property. The Government has a categorical duty to pay just compensation when it takes your car, just as when it takes your home.”

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Inclusionary Housing Ordinance Prevails over Takings Challenge in CBIA v. City of San Jose

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“As a general matter, so long as a land use restriction or regulation bears a reasonable relationship to the public welfare, the restriction or regulation is constitutionally permissible.”

In California Building Industry Association v. City of San Jose, the California Supreme Court upheld the City of San Jose’s inclusionary housing ordinance against a takings challenge.

The inclusionary housing ordinance imposed a citywide requirement that developers commit 15% of new units to price limits: they must be sold as “affordable units” to lower income purchasers. (Alternatively, developers could avail themselves of alternatives for compliance, like building a greater number of units off-site or paying an “in lieu fee” for the city’s affordable housing fund.)

Generally, economic/land use regulations are given deference by the courts, where “a party challenging the facial validity of a legislative land use measure ordinarily bears the burden of demonstrating that the measure lacks a reasonable relationship to the public welfare”. Courts will find these regulations constitutional so long as they have a real and substantial relationship to the public welfare and are not “confiscatory”.

The California Building Industry Association urged the court to adopt a heightened standard of judicial review. If the city of San Jose conditioned the granting of permits upon the exacting of a benefit unrelated to mitigation of the harm inflicted by the proposed development, it would constitute an unconstitutional condition and a taking of property without just compensation.

The California Supreme Court found that the inclusionary housing price limits fell within the “municipalities’ general broad discretion to regulate the use of real property to serve the legitimate interests of the general public and the community at large”. It found that the inclusionary housing ordinance did not constitute an “exaction” – where a city conditions discretionary approval upon the surrendering of a property right, unrelated to the project, in a manner that would, on its own, constitute a taking of property.

While the ordinance required developers to, e.g., commit certain units to under market prices, the court found that this manner of price constraints was similar to many other, constitutional applications of police power affecting pricing and profitability, like zoning particular types of businesses, imposing height and density restrictions, and and instituting rent control.

On the subject of rent control, the court took note of an interesting provision of the inclusionary housing ordinance that applied to newly constructed residential units. In Palmer/Sixth St. Properties, L.P. v. City of Los Angeles, the Second District Court of Appeals found that the Costa-Hawkins Rental Housing Act preempted a Los Angeles inclusionary housing ordinance that required a certain portion of newly constructed rental units to be offered below market, as affordable housing units. The San Jose City Council, aware of Palmer, included a similar provision, but made it self-executing in the event that the case was judicially overturned or the law was legislatively modified.

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