Will Mosser Companies v. City and County of San Francisco Prompt Another Amendment to Costa-Hawkins?

“Whether the application of rent control protection to occupants who begin their residency as minors is wise economic policy is a question for legislative, not judicial, determination.”

The First Appellate District recently determined the effect of Costa-Hawkins on a tenancy where the only parties to a lease have moved, leaving behind their son, who entered the rental unit, as a minor, and who became an adult during his parents’ occupancy.

In Mosser Co. v. City and County of San Francisco, the Court held that the son was an “original occupant”, having moved in at the commencement of the tenancy and with the consent of the landlord, even though he was not a party to the lease. It followed that the decontrol provisions of Costa-Hawkins would not allow the establishment of a new rental rate while an “original occupant” was still in possession.

This is a difficult decision. The court began its analysis with the uncontroversial proposition that an “occupant” is someone who can claim a right of “possession” in a rental unit, and that such an occupant may be considered an “original occupant”, even where they are not a party to the lease, so long as they took possession at the commencement of the tenancy with knowledge of the landlord.

This is a fair interpretation of Costa-Hawkins, as applied to the Rent Ordinance, and it is rooted in well-established law, predating Costa-Hawkins. (The Mosser court referred to Parkmerced Co. v. San Francisco Rent Stabilization & Arbitration Bd. (1989) 215 Cal.App.3d 490, 495, for the rule that “[o]ne may become a tenant at will or a periodic tenant under an invalid lease, or without any lease at all, by occupancy with consent”.) And this rule would avoid, for instance, a landlord renting a three room unit to three people, but only entering a written contract with one of them, in an effort to game the decontrol provisions if that single person ever left. (The other two would obviously be “original occupants”, who would be no less obligated to honor the original lease provisions or entitled to receive the benefit of them.)

However, in allowing an inter-generational, rent-controlled tenancy, the Mosser court may have taken this rule beyond any reasonable construction. The court effectively found that the son had the same rights as any other adult, who might have moved in at the commencement of the tenancy.

This logic glosses over the fact that a landlord may not want, e.g., three or more adults to move into a one-bedroom apartment, and may limit the number of occupants on the lease accordingly, but that this landlord may not (and probably should not) object to a space-appropriate number of adults moving in with their children.

It also gives the son all of the benefits of legal capacity, without any of its obligations, until such time as he may unilaterally elect to secure a rent-controlled tenancy at sub-market rates in the future. The court was not persuaded by the landlord’s argument that it was allowing the son to “inherit” the rent-controlled tenancy and receive rights without concomitant obligations. It nonetheless held that the son has his own personal right of occupancy.

But what would happen if the parents vacated, and the son remained behind while he was still a minor? By the court’s application of Parkmerced Co., the right could not become a tenancy by operation of law, because a minor is incapable of contracting generally (Cal. Civ., §§1556, 1557), and, in particular, incapable of entering “a contract relating to real property or an interest therein”. (Cal. Fam., §6701(b).)

In that event, the son has no “concomitant obligations” that offset the rights given to him by the court. It seems, therefore, inescapable, that the son only enjoyed these rights by virtue of becoming an adult. Now, of course, this is not the same thing as “inheriting” (at least in the legal sense), but the court took a snapshot of his rights in the present (now that he’s an adult) and retroactively applied them to the minor child, at the inception of the tenancy, where they could not possibly manifest.

The court bolstered its policy determination by warding off concerns that this would allow an occupant to indefinitely parlay a rent-controlled tenancy indefinitely. “[T]he protection afforded here is limited in scope to lawful and original occupants. A rent-controlled apartment cannot, as landlord fears, be passed on freely ‘from friend to friend or generation to generation.’ Only those occupants who reside in the apartment at the start of the tenancy and do so with the landlord’s express or implicit consent are protected from unregulated rent increases.”

However, the court also says that the son – an occupant, despite not being a party to the original lease, who became a tenant by “occupation and consent” – will be creating a tenancy of his own, now that his parents are vacated and the landlord still needs to collect rent.

This establishes a new tenancy. Presumably, now that the rest of the family is gone, the son has roommates. Are these occupants? Yes. Are they occupants who took possession under the (now newly “original”) lease? Yes. Can the landlord do anything other than consent to their occupancy, now that he has no choice but to accept rent from the son or let him live there for free…

Despite its airs of judicial self-restraint, the Mosser court made a public policy choice here, and this may have undesired consequences to landlord-tenant relationships in rent-controlled jurisdictions, unless the California Legislature takes the court up on its invitation to amend Costa-Hawkins.

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Surreal Estate Q&A #3: Effective Date of Costa-Hawkins; Decontrol of Newly Constructed Units

Hello,

I have seen varying statements regarding the date before which a building must have been built in order to be subject to rent control laws under Costa-Hawkins. Some writing states that no unit in a building built in 1979 or later can be subject to rent control. However, other sources state (and as far as I can tell the law reads) that any unit in a building built before in 1995 or before could be subject to rent control.

Can you please resolve this confusion for me?

Thank you,

Jacob – Berkeley, CA

Jacob,

Thank you for your question. First, the year 1979 does not appear in Costa Hawkins. I’m assuming you got this date from the Berkeley Rent Stabilization and Eviction for Good Cause Ordinance. (Keep in mind that rent control is a local matter – Costa Hawkins is a state-wide law that decontrols rental rates under certain circumstances.)

The Berkeley Ordinance exempts “Newly constructed rental units which are completed and offered for rent for the first time after the effective date” of the Ordinance. (See, Section 13.76.050.) So, any new construction will not be subject to rent (or eviction) control of the Ordinance. This kind of language is common in rent ordinances, because the city legislatures want to protect existing tenancies but do not want to impair incentives for new construction. (After all, most of these ordinances were enacted in the late 70s/ early 80s to address shortages in “affordable, safe and sanitary housing”.

Costa-Hawkins became effective in 1996 (with some holdover dates from 1995 while its provisions phased in), and it made a similar distinction between existing property (with existing tenancies) and new construction, regulating the former and deregulating the latter (among other reasons, to avoid discouraging new construction). In fact, the California Court of Appeals just recently confirmed that the boundaries of the “certificate of occupancy” requirement from §1954.52(a)(1) of Costa-Hawkins in the case Burien, LLC v. Wiley: A landlord tried to take a structure with existing residential tenancies and deregulate it based on obtaining a new certificate of occupancy for change in use… the court held that this exception refers to the first certificate of occupancy for residential use, not any subsequently acquired one.)

As a practical matter… rental units are generally not regulated by local ordinances, like Berkeley’s, if they are certified for residential occupancy, for the first time, after the effective date of the rent control ordinance. This provision of Costa-Hawkins wouldn’t need to come into play, because the units are already free from rent increase limitations, so there’s nothing to deregulate.

~JAG

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Surreal Estate Q&A #2: San Francisco Condominium Subdivision and Rent Control

I have a question about one of the exceptions in the Costa Hawkins Rent Housing Act. Section 1954.52(a)(3)(B)(ii): “[a] condominium dwelling or unit that has not been sold separately by the subdivider to a bona fide purchaser for value.”

I am trying to determine how the below scenario is affected by that exception: A multi-unit building is subdivided by an owner, then a renter of a unit moves in in 2006 after the subdivision, then that subdividing owner dies in 2007 after the renter had moved in. Finally, in 2007 the entire building is purchased by a single new owner (the condos are never marketed or sold separately), who continues to operate the building like an apartment building.

Does this mean the renter that moved in in 2006 is still covered by rent control? How does the fact the property was sold as one entire building to one buyer and continued to operate as an apartment building affect the situation? Does that trigger the “has not been sold separately” part of this exemption to the Costa-Hawkins Housing Act and thus the unit remains under rent control?

~Ryan from San Francisco, CA.

Thank you for your question, Ryan. We would actually need a bit more information to fully answer, but just for a quick survey of the facts you emailed:

“A multi-unit building is subdivided by an owner”
* This isn’t really relevant (because all condos are subdivided by an owner or owners). The relevant issue for your question is whether this was done before or after the 2001 amendment to Costa Hawkins that added the subdividing condition you’re talking about – Cal. Civ., §1954.52(a)(3)(B)(ii).

“Then a renter of a unit moves in in 2006 after the subdivision.”
* This… probably isn’t relevant. There is a pending appeal from a San Francisco Rent Board decision where the Rent Board held that the relevant date is the date the tenancy commenced (i.e., whether it started before or after the 2001 amendment was enacted) as opposed to when the multi-unit structure was subdivided. Here at Costa-Hawkins.com, we’re fairly certain the relevant inquiry is if the unit was completely subdivided before the 2001 amendment, not whether a tenancy commenced afterward.

“Then In 2007 the entire building is purchased by a single new owner (the condos are never marketed or sold separately) who continues to operate the building like an apartment building.”
* Again, unless the subdivision occurred before the effective date of the 2001 amendment or the units come within the conditions of its exemption, probably these are still covered by the Rent Ordinance.

~JAG

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San Francisco Legislative Updates for 2015: Regulation of Tenant Buyout Agreements

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Ordinance 225-14 becomes operative on April 6, 2015. It adds section 37.9E to the Rent Ordinance, and it imposes onerous requirements to the conduct of an owner/landlord who wishes to negotiate for a “buy-out” with their tenants. Some of these requirements even apply prior to the commencement of negotiations.

The Rent Board will create a form with some required information that a landlord needs to provide a tenant prior to commencing negotiations. The form includes a dated signature from the tenant, indicating when they received the disclosure. Then – and still prior to “negotiating” – the landlord has to file a form with the Rent Board with some biographical information about the landlord, tenant and property and an affidavit that the tenants received the form.

Then… the landlord can start negotiating. The actual agreement must be in writing, and it must include several specific statements – the lack of any of which will allow the tenant to rescind the agreement at any time! And, even if all of those statements are included, the tenants may rescind for up to 45 days after execution.

Buy-out agreements must also be filed with the Rent Board, after the tenant’s right to rescind has expired, but no later than 59 days after execution (i.e., there’s a two week window).

This also requires the Rent Board to make a searcheable database of buyout agreements. So, this is probably headed toward creating an “MLS of buy-outs” to equip tenants with better information for fetching the highest price for their rent controlled tenancies.

This section creates civil liability and provides an attorneys’ fee provision for tenants in suing landlords who haven’t complied with the requirements, and it has a four year statute of limitations.

It also imposes strict limitations in the condo conversion lottery. This will add language to section 1396 of the Subdivision Code preventing conversion if the owner has bought out a single elderly or disabled tenant, or if they’ve bought out any two tenants within ten years of final map approval.

Legislative language available here.

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San Francisco Legislative Update for 2015: Compensation, Or Substitute Housing Service, for Tenants Affected by Temporary Severance of Specified Housing Services During Mandatory Seismic Work

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Ordinance 173-14 became effective on August 30, 2014. Building Code chapter 34B requires building owners to perform seismic retrofitting work on wood-frame buildings. This ordinance altered the language of section 37.2(r) of the Rent Ordinance (“rental units”), to allow for “housing services” to be severed from the tenancy when it is necessary for the specific purpose of performing this retrofit work. It also added chapter 65A to the Administrative Code, which describes the procedure and sets the rate of compensation for the severance.

Landlord’s severing housing services to retrofit must give thirty days notice to the tenants of the housing services to be severed and the amount of time they’re going to be severed. The rate is either the value of the housing service as stated in the rental agreement (if applicable) or the per diem cost of a replacement service on the open market, not to exceed 15% of the base rent, per unit.

Legislative language available here.

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San Francisco Legislative Update for 2015: Amending Regulation of Short-Term Residential Rentals and Establishing Fee

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Ordinance 218-14 will become operative on February 1, 2015. It is a big piece of a broader effort by San Francisco to regulate AirBnb, VRBO and other hosting platforms in the increasingly popular “sharing economy”. The changes impact the eviction provisions of the Rent Ordinance, as well as the interpretation of this kind of use within the Residential Unit Conversion Ordinance. The short version is that owners may not offer rental units on hosting platforms, and tenants might be able to, under certain conditions.

In order to comply, a tenant has to register the unit with the new Planning Department registry for keeping track of transient use. They have to obtain insurance and a business license, pay the transient occupancy tax. They must occupy the unit for at least 275 days out of the year (or 75% of a prorated year), and they cannot profit off the “subletting” (to the extent they are subject to the rent-control provisions of Section 37.3 of the Rent Ordinance).

This new exception expressly does not supersede restrictions against housing platform listings in CC&Rs, leases or TIC agreements, so, as with many landlord-tenant issues, the first place to check for authorization is the lease agreement itself.

The biggest change for landlords is probably the new language in Rent Ordinance Section 37.9(a)(4): “The tenant is using or permitting a rental unit to be used for any illegal purpose, provided however that a landlord shall not endeavor to recover possession of a rental unit solely as a result of a first violation of Chapter 41A that has been cured within 30 days written notice to the tenant.” (New language in bold.)

Legislative language available here.

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San Francisco Legislative Update for 2015: Campos Amendment relocation assistance on Ellis Act Evictions

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Ordinance 54-14 amended the Rent Ordinance to increase relocation assistance to two years worth of rent payment differential between the existing unit and a comparable unit. At the moment, this has been found unconstitutional (see, Jacoby, et al. v. CCSF, San Francisco Superior Court Case No. CGC-14-540709, and Levin v. CCSF, Federal District Court case no. 3:14-cv-03352), but the City is appealing the decision. Keep checking Costa-Hawkins.com for updates.

Legislative language available here.

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San Francisco Legislative Update for 2015: Temporary Tenant Household Dislocation Compensation

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Ordinance 44-14 became effective on May 18, 2014, and it was enacted to bring the Rent Ordinance into compliance with California Civil Code, section 1947.9 (January 1, 2013,), which limits relocation assistance payable for temporary evictions where the landlord carries out capital improvements or rehabilitation work.

Section 1947.9 limits the compensation that a landlord would otherwise have to pay to tenants (under section 37.9C) for displacements of twenty days or less to $275 per day and actual moving expenses. Or, in lieu of payment, the landlord can provide a “comparable dwelling unit”.

Legislative language available here.

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San Francisco Legislative Update for 2015: “Authorization of Dwelling Units Constructed Without a Permit in an Existing Building Zoned for Residential Use”

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Ordinance 43-14 became effective May 7, 2014. It allows an owner of a building with an illegal “in-law” unit (one built without a permit), which was built before January 1, 2013, to apply to the Building Department for a permit to legalize it.

The owner may not legalize the in law unit where they have evicted a tenant under section 37.9(a)(8) of the Rent Ordinance (“owner move-in” eviction) within five years or under any of the other non-fault eviction provisions within ten years (with an exception for capital improvement evictions if the tenant received an offer to re-rent and/or actually moved back in). The owner may not pass costs of conversion through to the tenant. And the new unit is not eligible for condo conversion.

Legislative language available here.

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Residential Rent and Eviction Control Resources