Category Archives: Los Angeles

Los Angeles Stiffens Rules for Replacing Units Following Ellis Act Evictions

LA Times

Los Angeles Times reports that Los Angeles is stiffening the affordable housing requirements for new rental units constructed after demolition following an Ellis Act withdrawal of the building from the residential rental market. While “new construction” is generally exempt from local rent control ordinances (and by Costa-Hawkins), the Ellis Act specifically exempts new units (built within five years) from these exemptions, subjecting the units to existing price controls. Cities may also allow certain density bonuses for new construction in exchange for a commitment by the developer to maintain price controls on a certain number of “affordable housing units”.

The new regulation would require developers to earmark the greater of the number of demolished units or 20% of the total number of new units to affordable housing.

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Los Angeles Introduces “Cash for Keys” Amendment To Regulate Tenant “Buyout Agreements”

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Effective January 25, 2017, the Los Angeles City Council enacted Ordinance 184673, amending the Los Angeles Municipal Code §151.31, to require certain disclosures by landlords to their tenants concerning their rights in “cash for keys” agreements.

Landlords must now provide a notice informing tenants that they do not have to accept a “buyout offer” and that a landlord may not retaliate against them for declining, that they may consult an attorney or the city, that they have 30 days to rescind a properly executed agreement, and they may rescind an improper one at any time. Notices must also be filed with the city.

Los Angeles now joins Berkeley, Santa Monica and San Francisco in regulating buyout discussions between landlords and tenants. Landlords often find these agreements to be an attractive alternative to non-fault eviction regulations, which require noticing periods and relocation assistance payments, and which may lead to relinquishing certain land use rights (e.g., approval for condominium conversion) and to the uncertainty of litigation.

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North 7th Street Associates v. Constante: Rent Demand Notice Will Not Support an Unlawful Detainer Judgment for Possession of Non-permitted Units

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For decades, the Second District Court of Appeals case Gruzen v. Henry (1978) 84 Cal. App. 3d 515 has stood for the proposition that a landlord may not collect “rent” under a residential lease where the premises lacks a certificate of occupancy. These agreements are void, and landlords cannot enforce these void agreements, in the event the tenant stops paying rent, with an unlawful detainer lawsuit for recovery of the putative rental payment obligations. No rent can be owed on a void agreement.

Unfortunately, Gruzen, which reviewed entry of judgment for the plaintiff/landlord for past due rent and possession of the premises, only modified the judgment to strike the money damages. It otherwise allowed the landlord to recover possession. And this has led to some confusion, especially in San Francisco, where these “unauthorized dwelling units” are still somehow considered a valuable part of the City’s rental housing stock, despite their lack of permits or building code requirements to obtain permits.

North 7th Street Associates v. Constante thankfully clarifies the application of the ruling in Gruzen:

“[T]he court in Gruzen was never asked to decide – and did not decide – the issue we address here, namely, whether the three-day notice alleging past-due rent of $739.35 was fatally defective because defendant’s actual rent obligation was zero, and whether defendant was consequently entitled to summary judgment as a matter of law. It is axiomatic that an opinion is not authority for a proposition that was not considered in that appeal.”

In North 7th Street Associates v. Constante, a landlord issued a three day notice to pay rent or quit, based on the tenant’s failure to pay for several months of rent under the oral lease. When the tenant failed to cure the notice, the landlord filed an unlawful detainer lawsuit, demanding the past due rent and possession.

The tenant resisted the lawsuit, filing a motion for summary judgment and advancing “a January 29, 2015 housing inspector’s Notice of Abatement which found, inter alia, that defendant’s unit (in which he had lived for approximately 15 years) had been constructed without a building permit, that it was not authorized to be used as a dwelling, and that no certificate of occupancy was ever issued for it”.

On appeal, the landlord relied on Gruzen to argue that he was nonetheless entitled to possession (and that, essentially, that the tenant could keep the 800 bucks and get out). The Appellate Division of the Los Angeles Superior Court was not convinced:

“[I]f plaintiff could not collect any rent from defendant, then defendant had no obligation to pay any rent to plaintiff. Furthermore, if defendant did not owe any rent to plaintiff, the three-day notice claiming $739.35 in past-due rent was necessarily an overstatement of defendant’s rental obligation, which could only be properly calculated as zero. Since the three-day notice which was the basis for this unlawful detainer action failed to comply with the strict statutory requirements, it was invalid and could not support the action.”

It correctly noted that unlawful detainers are creatures of statute, and if you do not comply with the provision you invoke to get into court, you may not avail yourself of this summary proceeding for possession. Neither could the landlord simply terminate the tenancy, because – while it was not technically a “rental unit” – it is nonetheless covered by the Los Angeles Rent Stabilization Ordinance.

However, it does not follow that a tenant may live in an unpermitted unit, free from both evictions and the obligation to pay rent, indefinitely. In a footnote, the Appellate Division noted, “Plaintiff is, of course, not without a remedy in this circumstance since it may initiate an unlawful detainer to recover possession of the premises from defendant in order to comply with the January 2015 Notice of Abatement. (LARSO, § 151.09A, subd. (11).)”

Ultimately, the Appellate Division decision is only binding on other trial courts, but its interpretation of Gruzen is sound, and its ruling creates a common sense distinction between a tenant’s ability to resist obligations on a void contract and a landlord’s need to recover an unpermitted unit to either legalize it or demolish it.

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Chen v. Kraft: Illegal Hotel Use Not Mitigated by Illegal Contract

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In Chen v. Kraft, a rent-controlled tenant used her apartment for “transient occupancy” (listing it on Airbnb), and her landlord was successful in enforcing provisions of the Los Angeles Municipal Code, prohibiting bed and breakfasts in “R1 Zones”.

The Appellate Division of the Superior Court reasonably found a violation of law where someone (whether tenant or not) uses their dwelling unit as a hotel in violation of zoning law. (Compare, for example, San Francisco, whose “Airbnb law” constituted a city-wide zoning change in favor of short term rentals.)

However, the language of the opinion suggests a gross misunderstanding of unlawful detainer law. Generally, under the unlawful detainer statutes, a landlord will have to serve a three-day notice for, e.g., non-payment of rent, breach of lease or illegal use. The tenant’s lease required a ten day notice period (which is fine) for breaches of covenants of the lease (including non-payment of rent). It is not clear whether one of these covenants included using the apartment for “legal purposes”.

The tenant understandably opposed the landlord’s motion for summary judgment in seeking to prove a case, other than what was put at issue by the complaint – specifically, whether the tenant was making an illegal use of the apartment, as opposed to, e.g., breaching a provision of the lease prohibiting illegal use. And, while this may seem like a distinction without a difference, the unlawful detainer statutes provide for specific bases for standing to bring an action for unlawful detainer. The court upheld the trial court determination that the landlord had standing under Cal. Code Civ. Proc., §1161(4) (for illegal use). However, among the three distinct notices to cure or quit that the landlord served, not one of them was under section 1161(4). Where the unlawful detainer statutes are supposed to be strictly construed, this ruling was incorrect as a matter of law.

Now, a three day notice based on illegal use (under section 1161(4)) is the only such notice that cannot be “cured”. (The Appellate Division also got this wrong, concluding that one element of this claim was that the “defendant continued to use the premises for an unlawful purpose after expiration of the period stated in the notice”. As this notice cannot be “cured”, it doesn’t matter if the tenant ceases the offending behavior.) Therefore, in the long term, the landlords would most likely have prevailed in a second action to recover the unit based on Airbnb use. But this should not have mitigated the failure to correctly plead a case for unlawful detainer based on illegal use, and the court’s conflation of illegal use and breach of covenant pervaded its analysis.

For instance, the tenant offered as a defense a lease addendum, executed by the prior landlord, authorizing Airbnb use. The Appellate Division correctly noted that Cal. Civ., §1598 regards contracts with a single unlawful object as void. However, it was not clear that the addendum was an insular contract (as opposed to a revision of a broader contract for leasing the property), making suspect the wisdom in completely ignoring it. More importantly, if this truly were a “breach of covenant” case, the landlord (or successor) should probably have been estopped from enforcing conduct he condoned under a theory of breach. Again, this would unlikely vindicate the illegal use itself, and a subsequent, correctly pled case for unlawful detainer under the proper statute would seem to have been successful, but this kind of “shotgun” pleading and prosecuting, based on three three-day notices, none of which was for 1161(4) illegal use, has no place in strict compliance “five day land” (as we call it in San Francisco).

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Parties in Boston, LLC v. Juarez Go To Trial Over Curable Breach; Appellate Division of Los Angeles Superior Court Praises Plaintiff for Being “Technically Correct”.

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“Given the statutory basis of unlawful detainer law, parties must comply with the statutes, including the time periods specified therein, with exactitude”.

In Boston, LLC v. Juarez (2015) 240 Cal. App. 4th Supp. 28, the Appellate Division of the Los Angeles Superior Court explores the application of a “forfeiture clause” in a residential lease.

Defendant Juan Juarez was a tenant of a residential unit covered by the Los Angeles Rent Stabilization Ordinance, who first moved in under a 1999 lease. That lease had two provisions relevant to the dispute: one required that he obtain renters insurance (which he didn’t do). Another stated that all lease covenants were “material”. (This means that instead of having a jury decide the materiality of a breach, the court can just decide – yes or no – if there was a breach.)

There are several important defenses available in an unlawful detainer action based on breach of a lease covenant. (For example, where the defendant had been in possession for a decade and a half, waiver is the most obvious choice.) And, while this lease also had an anti-waiver clause, the court declined to explore waiver of the anti-waiver clause, as the defendant had not adequately preserved the argument for appeal.

The court did opine that “unconscionability/adhesion” might have been an effective defense, were it raised. But then it moved on to explain how interpretation of statutes and contracts are a matter of law, how clear and explicit lease provisions govern, and how, if a lease has a “forfeiture clause”, the materiality of the breach is irrelevant. The dispute becomes a binary issue of law: did the defendant breach the provision or not.

The defendant’s main defense concerned substantial performance: where the breached provision of the lease required him to obtain renters insurance, and he obtained it seven days after receiving a three day notice, that should be considered “close enough” to cure the notice. The appellate division correctly pointed out that “substantial compliance” would only be relevant in measuring performance in the context of an uncurable breach (unlike this provision, where he easily could have obtained renters insurance within the three day notice period). Moreover, there is no basis in law to suggest that a tenant is allowed to comply with a three day notice in seven days, as this would somewhat defeat the point of having a statutory time period for unlawful detainer notices.

Boston, LLC v. Juarez will be satisfying for those who have had the frustrating experience of being technically correct but advised against proceeding on the merits. Given the cost of litigation and the chance of losing, this kind of case most often results in a private settlement agreement where the tenant does better than a complete forfeiture of their rights. Further, a tenant can generally obtain relief from forfeiture – even after an adverse judgment – if they are capable of curing the breach and making the plaintiff whole. Where this tenant actually had cured the breach (and before he even had to respond to the complaint), it is unusual that this case would have fully litigated.

In San Francisco, this outcome is all the less likely, following the new Jane Kim Amendment to the San Francisco Rent Ordinance. The Rent Ordinance now requires that, where a lawsuit is based on violation of a lease covenant, the violation must be “substantial”. This would likely thrust such a controversy back into the purview of a jury, “forfeiture clause” notwithstanding. At the very least, Boston, LLC v. Juarez tells us definitively that a three day notice is not a seven day notice (unless of course you serve it on the Monday before Thanksgiving).

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Ellis Act Gets Attention of U.S. Representative Waters

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Congresswoman Maxine Waters, who represents California’s 43rd District, has called for an end to the Ellis Act on a statewide level.

In her letter to the President pro Tempore and Speaker of the California State Senate, she urges that, during California’s worst housing crisis in history, the Ellis Act is being used by real estate speculators for mass evictions of mostly elderly tenants, instead of for small time landlords who simply seek to retire from the rental business. Waters’ district is located in Los Angeles County, where, she notes, there were 725 Ellis Act evictions in 2014 alone (compared to, for instance, 113 in San Francisco that year).

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