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.