Geraghty v. Shalizi (2017) – Landlord-Tenant “Buyout Agreements” Are Not “Non-Fault Evictions” and Tenants May Waive Rent Ordinance Rights To Settle Disputes

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“Looking at the history of the city’s legislation concerning landlord-tenant buyout agreements and the case law concerning these agreements, the conclusion is inescapable that these agreements have been utilized and honored for decades. The city has plainly taken this view of its rent ordinance.”

UPDATE: The First District has certified Geraghty v. Shalizi for publication.

In the landmark case, Kaufman v. Goldman (2011) 195 Cal. App. 4th 734, Division One of the First District Court of Appeal resolved that, even though the San Francisco Rent Ordinance purports to void any waiver of tenant rights under the Rent Ordinance, the settlement of a lawsuit will suffice to circumvent that rule. It reasoned that, “Parties frequently settle landlord-tenant disputes, and move-out provisions are not uncommon. If [the anti-waiver provision] were deemed to apply to such move-out provisions, this would have a chilling effect on future settlements of unlawful detainer actions as landlords would have little incentive to enter into pre-litigation negotiations”.

Geraghty v. Shalizi featured such an agreement, and once again, Division One was faced with the question of whether to enforce the protections of the Rent Ordinance against a landlord, in light of the anti-waiver provisions, or to give deference to an agreement for possession that was freely negotiated between the parties.

Ultimately, Geraghty v. Shalizi applied the same rule as Kaufman v. Goldman – the settlement of a lawsuit is the exception to the rule against voiding a waiver of rights – and it did so, despite several different circumstances.

Shalizi, the landlord, purchased a four-unit building and expressed an interest in invoking the “owner move-in” provision of the Rent Ordinance as a basis to terminate Geraghty’s tenancy and move into his unit. This would come with some restrictions on use (e.g., he would have to live there for 36 months, and he would have to reoffer the unit to Geraghty if he moved). Meanwhile, Geraghty would only receive the statutory relocation payment for a non-fault eviction. The parties agreed that $25,000 was a fair price for a buyout agreement: Geraghty would move and receive more money; Shalizi would receive the unit without the restrictions.

Despite reaching terms for a contract, Shalizi nonetheless filed a lawsuit so that the parties could enter a “settlement agreement”. (Compared to a regular contract, this strategy had the advantage of conforming to the Kaufman rule and subjecting the parties to court enforcement, in the event of a breach.)

Shalizi ended up relocating to take a new job, and Geraghty suffered some buyer’s remorse, and so Geraghty sued for violations of the Rent Ordinance and rescission of the settlement agreement. Aside from the fact that Geraghty never offered to return the $25,000, the court was unwilling to find a basis for rescission, particularly with no misrepresentations by Shalizi that might justify this remedy.

Further, for the same reasons that supported its reasoning in Kaufman, the court found that the agreement avoided the anti-waiver provision of the Rent Ordinance. While “litigation did not actually commence . . . Shalizi made clear he intended to institute legal action to recover Geraghty’s unit if the parties were unable to reach a negotiated agreement”. The intention to invoke the owner move-in just cause for eviction was sufficient to constitute a settlement of claims and justify the waiver of rights under the Rent Ordinance.

In disagreeing with Geraghty’s claim that the history the anti-waiver provision urges against settlement agreements, the court first referenced its own decision in Kaufman, and then went further back to the Daly Amendment and the case Baba v. CCSF, which overturned its provisions on constitutional grounds.

In 2002, the Daly Amendment sought to conform all landlord-tenant negotiations to the rent ceiling and eviction control provisions of the Rent Ordinance. To achieve this, it required that a landlord must have a present intent to evict, under an identifiable just cause for eviction, before entering a buyout agreement with a tenant. A tenant entering such a buyout agreement must have independent counsel, and the agreement must be court approved. Baba found these provisions constituted content-based restrictions on speech and they violated the tenant’s right to self-representation in civil proceedings, by requiring that the agreement take place in context of a lawsuit, while denying the tenant the ability to represent themselves in that negotiation. Landlords and tenants were capable of negotiating for the right of possession, in compromise of claims in a lawsuit, even without counsel.

The court also considered that, three years after Kaufman, the City enacted a comprehensive buyout regulation. Once again, it had the chance to rebuke the practice of settling around the anti-waiver provisions, but instead, it condoned the practice of “buyout agreements” (i.e., trading possession for money) – so long as the landlord complies with the provisions of those regulations.

While the decision is currently unpublished, Geraghty v. Shalizi adds several insights to the rule expressed in Kaufman. First, it reiterates that a tenant may negotiate their right to possession without waiving their rights under the Rent Ordinance, and it views this result as consistent with the buyout regulation. It distinguishes the rule in cases like Chacon v. Litke (2010) 181 Cal. App. 4th 1234, which held that a tenant’s post-vacate rights to re-rent a unit survive even an express waiver of those rights in compromise of a lawsuit. Geraghty saw no reason to apply those constraints where the landlord has not actually initiated an eviction.

And, in reaching this conclusion, it also constricts a potentially broad interpretation of the rule in expressed by Division Three, in Mak v. City of Berkeley Rent Stabilization Bd. (2015) 240 Cal. App. 4th 60. That case held that Berkeley’s Regulation 1016 may attribute all of the constraints of an owner move-in eviction (like maintaining price ceilings on a subsequent rental) if the landlord simply mentions those words in the year leading up to an agreement to vacate. Finally, it honors the form of an agreement – here, the settlement of a “DOE complaint” lawsuit – without second-guessing the basis for obtaining the court’s jurisdiction to comply with Kaufman. In fact, given that the court found that the parties could settle their prospective claims (i.e., that Shalizi would have invoked the owner move-in provision), even this may not have been necessary to avoid the anti-waiver provision.