SFAA and SPOSFI Defeat San Francisco “Ten Day Cure” Prerequisite to “Three Day Notice To Pay Rent or Quit”

In February of 2022, San Francisco passed Ordinance 18-22, which required landlords to first serve a “ten day notice to cure” (before serving the requisite state law eviction notice) to avail themselves of the unlawful detainer statutes in fault-based evictions.

Case law has asserted the primacy of state eviction procedure over local law to the contrary, while local law has been able to infiltrate procedure if it’s merely incidental to timing.

The San Francisco Apartment Association and the Small Property Owners of San Francisco challenged the ten-day ordinance on the basis of state law preemption, and in particular that a landlord cannot be permitted to wait ten days before serving the three day notice to pay rent or quit (rent being the basic bargain of the tenancy – what the tenant exchanges for occupancy). (The petition for writ of mandate can be found here.)

The Real Property Department of the San Francisco Superior Court granted the petition in part. It agreed that the City could not interfere with the state law procedures for recovering rent or possession of a rental unit. As to other bases for eviction, the Court found itself bound by Rental Housing Ass’n of N. Alameda Cty. v. City of Oakland (2009) 171 Cal. App. 4th 741, which upheld (without much analysis) the authority of Oakland to require a seven day cure period before enforcing certain violations. Whether this too is susceptible to challenge will be up to the Court of Appeal.

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

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“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).

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

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Hiona v. Superior Court (2154 Taylor LLC): Waiver of Incidental Damages in Unlawful Detainer Judgment Does Not Require Reclassification to Limited Jurisdiction

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In Hiona v. Superior Court, the owner of an apartment building withdrew the property from the rental market under the Ellis Act. Several tenants held over after the date of withdrawal, raising several dozen defenses each. Ultimately, the defenses lacked evidentiary support. The owner moved for (and was granted) summary judgment against each of the three groups of defendants.

A summary judgment motion is defeated if the opposing party can show that there is a “triable issue” as to any material fact. An action for unlawful detainer seeks possession of the property and per diem holdover damages, and so the easiest way for a defendant to defeat a property owner’s motion is to dispute the value of the damages. However, damages in an unlawful detainer case are merely incidental to the claim for possession. Owner 2154 Taylor LLC therefore conditionally waived damages for the purpose of seeking summary judgment.

The trial court awarded judgment to the owner. Then, because the owner had waived damages, the defendants each moved to reclassify a case from unlimited to limited jurisdiction. The distinction is partly vestigial and partly substantive. California formerly had municipal courts and superior courts, with distinct jurisdiction. In 1998, California voters amended the constitution to allow them to unify. Today, the trial court sitting in limited jurisdiction cannot award judgment above $25,000. Appeals from limited jurisdiction go to the Appellate Division of the Superior Court instead of to the Court of Appeal. There are also rules of “economic litigation” for limited cases, but these expressly do not apply to unlawful detainers.

The penalty for a plaintiff who “overpleads” their case (i.e., where the plaintiff alleges damages above $25,000 but recovers less) is that they may not be entitled to their costs, even as a prevailing party. Obviously, the cap on damages in limited jurisdiction is appealing to a defendant. But since unlawful detainer cases aren’t subject to economic litigation rules anyway, and since this owner waived damages, there would seem to be little sense in reclassifying these cases: the defendants would lose their argument that the case had been overpled.

However, there were other benefits for these defendants if the case were reclassified. It would be banal to note that Ellis Act evictions in San Francisco are political theater fixated on transfer of wealth. (A rent-controlled tenancy is, in effect, a highly valuable and non-transferrable property interest, which ends when the tenancy does.) San Francisco funds tenant eviction defense with the goal of elongating a tenant’s occupancy of their (former) rental unit. By reclassifying the case, defendants can potentially delay an adverse outcome by creating one more “rung” of appellate review. (Though not allowed by right, the Court of Appeal can grant a motion for transfer from the Appellate Division or review its ruling.)

The Appellate Division is also bound by its own decisions in a way that the Court of Appeal is not, and this is of particular importance for a San Francisco Ellis Act eviction defendant, following the excessively tenant-friendly opinion Hilaly v. Allen (2017). The reclassification motion was tantamount to forum-shopping.

The trial court denied the defendants’ motion. A judgment above $25,000 was still possible. (The defendants were preparing their appeal of the judgment, and a reversal would vacate the order where the plaintiffs waived damages.) Defendants sought a writ of mandate, reversing the trial court’s order, but the Court of Appeal affirmed.

It noted that “A party seeking to reclassify a case from unlimited to limited faces a ‘high threshold’. (Ytuarte v. Superior Court (2005) 129 Cal.App.4th 266, 278.) The trial court must conclude ‘that the verdict will ‘necessarily’ fall short of the superior court jurisdictional requirement of a claim exceeding $25,000.’ (Walker v. Superior Court (1991) 53 Cal.3d 257, 270.) ‘The unlikeliness of a judgment in excess of $25,000 is not the test. The trial court reviews the record to determine whether the result is obtainable. Simply stated, the trial court looks to the possibility of a jurisdictionally appropriate verdict, not to its probability.’ (Maldonado v. Superior Court (1996) 45 Cal.App.4th 397, 402.).”

Ultimately, the Court of Appeal found that the trial court did not abuse its discretion in denying the motions on purely statutory grounds. The reclassification statute expressly states that “Nothing in this section shall be construed to require the superior court to reclassify an action or proceeding because the judgment to be rendered, as determined at the trial or hearing, is one that might have been rendered in a limited civil case”. While the statute authorizes a defendant to reclassify the case at any time, the Court interpreted the language “the judgment to be rendered” as essentially foreclosing the option once the trial court granted the summary judgment motion.

http://costa-hawkins.com/wp-content/uploads/2020/07/2154-Taylor-Opinion.pdf

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San Francisco Legislative Update (2020) COVID-19 Edition: “Preston Amendment” Ordinance 93-20 Prohibits Evictions Based on Non-Payment of Rent Owed During Governor’s Moratorium

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San Francisco passed legislation, sponsored by Supervisor Preston, which prohibits evictions for non-payment of rent, for any rent due during Governor Newsom’s eviction moratorium, which is currently extended through September 30, 2020. Therefore, for rents due between the original March 16th order and September 30th (as may be further continued), San Francisco landlords cannot collect this rent (and the unit) via an unlawful detainer lawsuit.

Unsurprisingly, several industry groups – the San Francisco Apartment Association, the San Francisco Association of Realtors, the Coalition for Better Housing, and the Small Property Owners of San Francisco Institute have sued to overturn the ordinance.

The full text of Ordinance 93-20 is available here.

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Governor Newsom Issues Executive Order Prohibiting Price Gouging and Evictions for the Purpose of Evading Price Limits, Amid COVID-19 Quarantine

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Governor Newsom issued Executive Order N-28-20 on March 16, 2020, based on the sustained impact of COVID-19 (coronavirus) following his March 4, 2020 proclamation of a state of emergency.

Unfortunately, this proclamation is becoming an increasingly common tool to regulate housing supply and pricing, as California has witnessed frequent and significant regional and statewide emergencies in recent years. Among other things, it invokes Section 396 of the California Penal Code, which prohibits increasing rent above 10 percent for a period of 30 days following the proclamation of a state of emergency.

Its anti-price-gouging provisions also prevent evictions for the purpose of re-renting and evading the above price-limitations (but it does not apply to “an eviction process that was lawfully begun prior to the proclamation or declaration of emergency”. Executive Order N-28-20 extends the application of the eviction prohibition to May 31, 2020. It also empowers local governments to prevent evictions for non-payment of rent for both residential and commercial tenants.

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Mayor Breed Orders Moratorium on Evictions Related to COVID-19 (Coronavirus) Pandemic (March 13, 2020)

Today, March 13, 2020, Mayor London Breed ordered a moratorium on evictions based on a tenant’s inability to pay rent, if the inability is because of a “COVID-19 related impact”. For the next 30 days (and renewed as necessary), the tenant may notify their landlord of an inability to pay rent. They then have one week to provide documentation or other supporting evidence of an inability to pay rent.

Tenants who cannot pay rent will then have six months following the end of the emergency declaration to repay the rent. (Under state law, a landlord can demand rent via eviction notice a year’s worth of past due rent. At the moment, it is unclear whether the grace period would extend this.)

The press release adds that “recommendations from the San Francisco Department of Public Health can be found at www.sfdph.org/dph/alerts/coronavirus.asp along with up-to-date on coronavirus news and information. You can also call 311 and sign up for the City’s alert service for official updates: text COVID19SF to 888-777.”

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

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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.
Continue reading “Olivares v. Pineda – Litigation Privilege Only Counts If Your Math Checks Out, and Rent Demand Without Eviction May Be Actionable”

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Dr. Leevil, LLC v. Westlake Health Care Ctr. (2018): Title Must Be “Duly Perfected” Before Service of Unlawful Detainer Three-Day Notice, Despite Retroactive Perfection of Title Under Nonjudicial Foreclosure Statutes

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In Dr. Leevil, LLC v. Westlake Health Care Ctr., a property owner leased its property to a skilled nursing facility and later obtained a secured loan. It defaulted. Dr. Leevil, LLC purchased the defaulted loan and initiated a nonjudicial foreclosure sale, ultimately buying the property at the trustee’s sale. Dr. Leevil, LLC served a three day notice to quit the next day, but did not record title for five more days.

Serving the notice before becoming “record owner” seems counterintuitive. However the nonjudicial foreclosure statutes arguably condoned the practice. Cal. Civ. Code § 2924h(c) states, “the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid, and shall be deemed perfected as of 8 a.m. on the actual date of sale if the trustee’s deed is recorded within 15 calendar days after the sale, or the next business day following the 15th day if the county recorder in which the property is located is closed on the 15th day.”

The unlawful detainer statutes refer to the nonjudicial foreclosure statutes, in setting forth cases of post-foreclosure evictions. Applicable here, “a person who holds over and continues in possession of . . . real property after a three-day written notice to quit the property has been served . . . may be removed therefrom . . . Where the property has been sold in accordance with Section 2924 of the Civil Code, under a power of sale contained in a deed of trust executed by such person, or a person under whom such person claims, and the title under the sale has been duly perfected.” Cal. Code Civ. Proc., §1161a(b)(3).

In other words, Dr. Leevil, LLC believed it could serve the notice to quit first, because it was already the owner, and title could be (and ultimately was) retroactively perfected as of the actual purchase date. The Court of Appeal adopted this interpretation.
Continue reading “Dr. Leevil, LLC v. Westlake Health Care Ctr. (2018): Title Must Be “Duly Perfected” Before Service of Unlawful Detainer Three-Day Notice, Despite Retroactive Perfection of Title Under Nonjudicial Foreclosure Statutes”

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DLI Properties, LLC v. Hill (2018): Post-Foreclosure Tenant Protection Statute Inapplicable To Successor Owners Who Create New Leases with Existing Tenants

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In DLI Properties, LLC v. Hill, the Appellate Division of the Superior Court of Los Angeles parsed a state statute requiring certain notifications by new landlords to their tenants, affirming an unlawful detainer judgment for the landlord.

DLI Properties, LLC acquired a property in foreclosure that was tenant occupied. Generally, foreclosing on an earlier interest (like a deed of trust) will eliminate interests that are later in time (like a lease). But California has specific statutory protections for tenants facing foreclosures. California also requires successor owners to notify existing tenants of information how they can pay rent and how they may serve notices relating to the tenancy and civil process. These requirements (found in Civil Code §1961, et seq.) are somewhat self-policing for successor owners, who cannot serve a rent demand notice to initiate an unlawful detainer, based on rent owed during any period of non-compliance.

DLI Properties, LLC purchased the subject property in foreclosure. It hired Strategic Property Management, Inc. to manage the property, and Strategic entered into a new lease agreement with the tenant (Hill) on the date of sale. Hill had become delinquent in the payment of rent, and DLI served a three-day notice to pay rent or quit, and then filed an unlawful detainer action. Before the jury returned a verdict in favor of DLI (finding that it complied with the unlawful detainer procedures and that Hill was not entitled to offsets for habitability issues), Hill moved for nonsuit, then directed verdict, then JNOV on a single issue: failure to comply with Section 1962, et seq.

Section 1962(c) provides: “The information required by this section shall be kept current and this section shall extend to and be enforceable against any successor owner or manager, who shall comply with this section within 15 days of succeeding the previous owner or manager. A successor owner or manager shall not serve a notice pursuant to paragraph (2) of Section 1161 of the Code of Civil Procedure or otherwise evict a tenant for nonpayment of rent that accrued during the period of noncompliance by a successor owner or manager with this subdivision. Nothing in this subdivision shall relieve the tenant of any liability for unpaid rent.”

The Appellate Division upheld the trial court ruling, noting the distinction between “owners” and “successor owners” under the statute. The California Legislature was understandably concerned about the treatment of existing tenants who do not necessarily know who succeeds to their lease contracts following foreclosure. (In fact, this concern guided the California Supreme Court’s recent analysis of post-foreclosure eviction notices in Dr. Leevil, LLC v. Westlake Health Care Center.)

While DLI purchased at foreclosure, its property manager executed a new lease, and this rendered them “owner” under the statute: “This disparate treatment of owner and successor owner/manager for the same dereliction of their statutory duty indicates the prohibition is meant to specifically target successor owners and their managers to address a danger posed by the change in ownership. There is a greater likelihood a tenant would not be aware of relevant information concerning a successor owner/manager rather than an owner with which he enters into a lease agreement. Therefore, the prohibition against evictions encourages and incentivizes a successor owner/manager to disclose such information.”

Ultimately, where the owner (via its property manager) entered a new lease with an existing tenant, it created a direct relationship with the tenant, which did not resemble any of the Legislature’s concerns in enacting the statute.

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Legislative Update: AB 2343 (2018): Amendment to Unlawful Detainer Statutes To Extend Breach Cure Period and Tenants’ Time To Respond to Complaint

Assemblymember Chiu’s AB 2343 is signed into law, extending three important deadlines in the unlawful detainer statutes by excluding “Saturdays, Sundays and judicial holidays”. Effective September 1, 2019, both three day notices to pay rent or quit and three day notices to cure breach or quit will no longer include these “off days” in calculating their deadlines.

Under current law, a notice served on a Wednesday would count Thursday (day 1) and Friday (day 2), however, they cannot expire on a holiday/weekend, so the “third” day would be Monday. At least with payment of rent, this rule makes sense, because a tenant may need to go to a bank to obtain funds. (Still, this calendaring has arguably led to confusion and harsh results for some.)

The amended unlawful detainer statutes will also exclude these off days when counting the response date to the unlawful detainer five-day summons.

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