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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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Justin Goodman’s Column “Surreal Estate” Featured in SF Apartment Magazine October 2020 Issue

Justin Goodman’s quarterly column Surreal Estate was featured in the October 2020 issue of SF Apartment Magazine. The October column looked at the expanding use of “parklets”, as local restaurants and other businesses work to recover from the impacts of the pandemic amid continued and onerous regulation.


SFAA is dedicated to educating, advocating for, and supporting the rental housing community so that its members operate ethically, fairly, and profitably. SFAA’s is a trade association whose main focus is to support rental owners by offering a wide variety of benefits that address all aspects of rental housing industry.

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AB 3088 (2020): The COVID-19 Tenant Relief Act of 2020

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In the face of a global pandemic affecting all levels of economic activity and threatening massive tenant displacement, it was no surprise that existing law was unfit to the task of moderating the deluge of unpaid rent by residential tenants who were ordered to shelter-in-place at the cost of their paychecks.

Patchwork laws emerged from the California Governor and , San Francisco’s Mayor and even from the Federal Government. The Judicial Council’s freeze on unlawful detainers was set to thaw at the end of August, so Sacramento finally passed a long-awaited answer to months of open questions.

Among other things, AB 3088 enacted the COVID-19 Tenant Relief Act of 2020. The CTRA makes comprehensive changes to state unlawful detainer law, it supersedes many local ordinances and orders addressing COVID-19, it excuses certain tenant nonpayment of rent during the covered period, and it expands non-eviction remedies for collection of rent.

First, for non-payment of rent evictions, the CTRA covers what it calls the “Covered Time Period” (i.e., March 1, 2020 through January 31, 2021), which encompasses the “Protected Time Period” (March 1, 2020 through August 31, 2020) and the “Transition Time Period” (September 1, 2020 through January 31, 2021).

During the entire Covered Time Period, a tenant still owes their rent, however, most of it will become a form of consumer debt, as the CTRA significantly alters the unlawful detainer statutes in issuing rent default notices and prosecuting evictions. If a tenant owes rent during the Protected Time Period, they can cure a “15-day notice to cure or quit” by paying the full amount due, quitting the property, or merely by signing a declaration stating that they’ve suffered “COVID-19-related financial distress”. The same scheme applies in the Transition Time Period, except that the tenant must also pay at least 25% of the rent due for each of the five months in this period before the end of January of 2021. If they do, they have cured the eviction notice.

The CTRA also significantly expands small claims jurisdiction (the obvious purpose being to lower the transaction costs for landlords in collecting this consumer debt). Formerly, a small claims plaintiff could seek $10,000 in damages (or $5,000 if they are a fictitious entity), and they may bring two such lawsuits per year. The CTRA removes the dollar limit, as well as filing limit. However, landlords cannot avail themselves of this expanded jurisdiction prior to March 1, 2021.

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San Francisco Legislative Update (2020) COVID-19 Edition: Ordinance 158-20 Continues Suspension of Rent Increases Pending Eviction Moratorium

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San Francisco has enacted its third emergency rent increase freeze. Like the previous one, Ordinance 158-20 was meant to apply (retroactively) upon the expiration of its predecessor.

However, Section 2.107 of the San Francisco Charter dictates that emergency ordinances are effective immediately upon passage, not “whenever the Board of Supervisors feels like”. Therefore, the previous ordinance (probably) expired later than it claimed to, which makes it unclear when the Board believes the 60 days of emergency Ordinance 158-20 is supposed to start running.

According to the Charter, its passage on August 25, 2020 means that it will expire October 25th.

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Small Property Owners of San Francisco Urge Voters To Vote “No on Prop. 21” This November

The Small Property Owners of San Francisco asked two of its board members, Paul Utrecht of Utrecht Lenvin, LLP and Costa-Hawkins.com’s own Justin Goodman of Zacks, Freedman & Patterson, PC, to discuss November’s Proposition 21 – a statewide ballot initiative to effectively repeal the Costa-Hawkins Rental Housing Act and allow cities to impose vacancy control.

Paul and Justin discussed existing law and the nuances of Proposition 21 – this year’s effort to repeal the operative provisions of the Costa-Hawkins Rental Housing Act (succeeding a previous effort by Michael Weinstein in 2018, and a legislative effort in 2017).

Paul and Justin also contemplated the likely unintended and perverse consequences of once again allowing the vacancy control that Costa-Hawkins eliminated at the state level back in 1996. We at Costa-Hawkins.com rarely take political stances on potential changes in law, but if for no other reason than we would need a new domain name (and that the change in law would authorize misguided rental housing policy statewide), we urge you to donate and vote!

SPOSF’s mission is to provide owners of small rental properties in San Francisco with the tools and information necessary to conduct business successfully in a difficult regulatory climate, through educational programs, publications, and workshops that seek to help members better understand their rights and obligations, how to work constructively with city and state officials, and how to deal effectively with their tenants. SPOSF also seeks to protect the rights of small property owners against unfair and burdensome regulations through legal advocacy.

SPOSF holds monthly meetings at St. Mary’s Cathedral, located at 1111 Gough Street in San Francisco. You can join SPOSF by clicking here. Members have access to the full monthly newsletter.

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San Francisco Legislative Update (2020): “Intermediate Length Occupancy” Now Regulated

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Ordinance 78-20, sponsored by Supervisor Peskin, amends the Planning Code to regulate “intermediate length occupancy” of residential dwellings. The Planning Code now defines intermediate length occupancy as “A Residential Use characteristic that applies to a Dwelling Unit offered for occupancy by a natural person for an initial stay, whether through lease, subscription, license, or otherwise, for a duration of greater than 30 consecutive days but less than one year”.

Intermediate length occupancy is now prohibited for buildings with three or fewer units. It is a principally permitted use for buildings with four to nine units, provided that no more than 25% of the units are occupied in this manner. And for buildings of ten or more units, conditional use authorization is required. Further, only 1,000 of these uses are allowed in the City, and rent-controlled units may not but used this way.

Finally, Ordinance 78-20 prohibits “non-tenant uses”, which is when “the landlord is allowing the unit to be occupied by a person or entity who is not a “tenant” as defined in [the Rent Ordinance]”. Given the broad definition of “rental units” in the Rent Ordinance (i.e., all dwellings in the City), this would appear to prohibit the use of dwellings by a property owner’s family members, and many other common sense uses that most property owners would assume to be lawful.

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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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Owens v. City of Oakland: Court of Appeals Fleshes Out Meaning of “Dwelling or Unit” under State Law

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“When the owner of a single-family home rents bedrooms in the home to separate tenants, does the Costa-Hawkins Rental Housing Act exempt each of the tenants’ rooms from local rent control because the home is considered an exempt dwelling under the Act? Jonathan Owens rented out bedrooms in his home to three unrelated individuals. He contends the City of Oakland’s Housing, Residential Rent and Relocation Board (the Rent Board) and the trial court erred when they determined the rented rooms are subject to Oakland’s rent control ordinance. We agree with the Rent Board and the court and affirm the trial court order denying Owens’s petition for writ of mandamus.”

Landlord Jonathan Owens owns a single-family home in Oakland. He lives in the home and rents three individual bedrooms to three unrelated tenants. One tenant filed a petition at the Oakland rent board “alleging her housing became unsuitable due to disruptive construction work and hazardous conditions on the premises [and that] Owens failed to provide required notice of the Rent Adjustment Program and retaliated against her by terminating her lease when she complained about the construction work and sought a reduction in rent.”

Owens responded that her tenancy was exempt from the jurisdiction of the rent board because the entire property was “alienable, separate from the title of any other dwelling unit” – a status that would exempt the property from local rent controls under Costa-Hawkins.

What happened next was procedurally bizarre. The hearing officer dismissed the petition on a finding that the tenant was in arrears on rent without justification. However, for some reason, the hearing officer made a gratuitous finding that the tenancy was not exempt because the rental of individual rooms meant that no dwelling was “separately alienable”.

Owens appealed to the rent board commission – presumably to avoid any collateral estoppel effect of this determination and renewed his argument for exemption under Costa-Hawkins/ The rent board unanimously affirmed the decision. Owens then petitioned for writ of mandate in the superior court, and the court affirmed as well, on the narrow issue of Costa-Hawkins preemption. The First District Court of Appeal affirmed.

The decision is problematic for several reasons. First, the broad scope of the petition related to many things having nothing to do with rent adjustments. As a result of the judicial powers doctrine, the rent board likely lacked the jurisdiction to render any relief. To render such a determination on a dismissed petition compounded the overreach. Finally, to the extent that most of this was about eviction controls (which Costa-Hawkins does not regulate), it is puzzling that Owens did not raise the argument that Section 8.22.350E of the Oakland Municipal Code exempts owner-occupied homes from eviction controls, if the owner shares “kitchen or bath facilities” with the tenants. While the opinion does not discuss whether Owens shares such facilities, it can almost be assumed from the description “single family home” that he and all the tenants shared the same half-and-half carton when making their coffees.

The rule of law is also somewhat hollow. The purpose of eviction controls is to prevent landlords from circumventing rent controls by the expediency of terminating the existing tenancy and raising rates on a new one. A finding that this is a multi-dwelling property for rent control purposes has little effect if Owens can capriciously terminate tenancies whenever he wants to increase the rents. Further, from a policy perspective, it is inconsistent that the institutional landlord of a single-family home can escape rent control, but a mom-and-pop owner-occupying landlord cannot. Nonetheless, Owens is a warning that landlords should be particularly cautious in renting multiple rooms under different leases.

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San Francisco Legislative Update (2020) COVID-19 Edition: Ordinance 114-20 Continues Suspension of Rent Increases Pending Eviction Moratorium

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Ordinance 114-20, passed as an emergency ordinance, re-enacts its predecessor Ordinance 68-20 to suspend the annual allowable rent increase for 60 days, per Section 2.107 of the San Francisco Charter (unless re-enacted again).

According to Section 2.107, an emergency ordinance is effectively immediately upon passage (which, for this ordinance was July 7, 2020). However, Ordinance 114-20 states that it is instead effective immediately after the expiration of Ordinance 68-20 (which is likely because the first emergency ordinance expired on June 23, 2020, before it this one was passed.

When in doubt, follow the charter. Ordinance 114-20 probably expires on the 61st day after passage – or September 6, 2020.

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