In San Francisco and other rent-controlled jurisdictions, the longer the tenant resides in the
unit, the cheaper his or her rent becomes. As a result, tenants are discouraged from moving on to
new housing, allowing for additional opportunities for housing to actually open up.
Tenants who have a rental agreement in a building subject to rent control enjoy the protections of regulated rent increases, but can this coveted status be transferred to subtenants?
This was one of the quintessential questions in Adair Lara v. Peter Menchini, SF Appellate Division, September 3, 2021. The courts ruled that “a rent- controlled apartment cannot … be passed on freely from friend to friend’ … 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.”
The master tenant was responsible for paying $2,882 per month. When rent arrears piled up to
nearly $6,000, an unlawful detainer action was commenced against the master tenant named in the original lease.
Yet, there were other occupants residing in the unit that the landlord never met, much less
entered into an agreement with. The subtenants were more than willing to take on the rent obligations of the master tenant, even sending checks to the landlord in order to remain implanted.
Ten Years Later Later
The landlord refused to deposit the checks, asserting that there was no landlord-tenant relationship established with the unwanted occupants. Had the landlord accepted rent payments from the subtenants, a tenancy would have been inadvertently created and hence, protections would have been afforded to the occupants under San Francisco’s Rent Ordinance.
With the master tenant gone, the landlord tried to broker a deal with the four remaining oc-
cupants and made an offer: pay the market rate of $7,200 and you could stay in a brand-new tenancy. The occupants declined to pay this amount.
We’ve said earlier that amid rising crime in San Francisco, landlords do not have to tolerate criminal activity in and around their buildings, even if the criminal acts go unprosecuted. Similarly, the buck stops with the landlord on who resides in the unit.
The Progression of the Case
With the master tenant gone, the landlord successfully prosecuted an eviction action against the remaining occupants.
Those lingering dwellers argued that a 3-day Notice to Pay Rent or Quit was defective insofar as it did not allow them, as subtenants, to pay the master tenant’s rent and cure the master tenant’s default. This argument was not persuasive.
The Court of Appeals reasoned that even if the residents lawfully occupied the premises, the rights of subtenants end as soon as the master tenant forfeits his or her own rights. In other words, when the master tenant defaults in the performance of his or her duties and forfeits the rights to possession of the property, this severance of rights rolls downhill — the subtenants cannot claim that they are entitled to possession. The landlord is not obligated to accept rent from the residual subtenants.
Will the Case Law Apply Elsewhere?
The logic that courts use in deciding cases is influenced by precedent from earlier cases. But what we have is controlling law and persuasive law, meaning courts are either bound by previous court decisions or while they can study the rationale used by other cases, they are not required to follow it.
It will be interesting to see whether the thought process in Adair is exported to other locales throughout the Bay Area. Some of our takeaways follow.
- Be careful who you take rent money from.
- Clearly, when a landlord stumbles upon an occupant who is unknown, isn’t properly vetted, and is not named in the lease, no money should exchange hands unless the landlord wants to create a tenancy.
- It is entirely possible that the occupant is desirable and would make a good tenant. Perhaps, with informed legal guidance, rent can be raised, or not. The main point that should sink in is this: whenever the landlord accepts money, a tenancy is created in the eyes of the law, whether the occupant is welcomed or not.
- It is also prudent to refuse money from any tenant who is the subject of an unlawful detainer action.
- If an unlawful detainer action is filed, it may be tempting for a cash-strapped landlord to accept payment from the tenant named in the lawsuit, especially when the landlord has received little or no rental income because of COVID-related protections.
Please be careful; when payment is accepted, it reestablishes the tenancy and the landlord has forfeited the ability to evict. A revolving door of occupants makes for a confusing situation.
It became commonplace during the pandemic for tenants, subtenants, roommates, family members and friends to engage in a game of “musical chairs.”
People who were leaving the Bay Area or relocating to the suburbs, sublet their former abode; roommates were replaced; guests who stayed too long were refusing to leave; and so on.
This revolving door of people coming and going has gotten to the point where many landlords do not even know who is residing in a rental unit. Indeed, many new homeowners were aghast to find that the home they had just purchased was occupied by strangers and called upon our firm to legally remove those occupants who were staying on the premises against the wishes of the new owners.
Parting Thoughts
It may be prudent to serve notices on all occupants of the property, including any “Does,” to ensure that all of the bases are covered. Consult with legal counsel before foolhardily serving notices on your own. Keep in mind that there is case law that may allow for adult tenants to bequeath rent control protections when the minors reach adulthood, but again, this is a very
complex area of law best journeyed with an experienced attorney.
Finally, what we are experiencing is a laboratory in the courts. Tens of thousands of pages of laws and government edicts were written throughout the long, dark winter of COVID, but they have been largely untested in the courts. We are finally beginning to see the courts digest and interpret them.
Of course, Bornstein Law will bring a fresh voice in advocating for the rights of property owners during this exercise.
As the founding attorney of Bornstein Law, Daniel is a well-respected authority in landlord-tenant disputes and property management issues. With over 23 years of experience in handling real estate and civil litigation throughout the Bay Area, he also manages rental properties, is instrumental in completing real estate transactions and is renowned for his educational seminars. For more information, visit www.bornstein.law or call 415-409-7611 or Email: [email protected].