Question 1: Did San Francisco just pass a new law prohibiting tenant “buyouts”?
Answer 1: No, but the city supervisors did impose significant changes to this previously unregulated area of such agreements between landlords and tenants. A ‘buyout’ occurs when a landlord approaches a tenant (although it can happen the other way around), to negotiate a voluntary termination of the tenancy in exchange for a payment to the tenant. Currently, these arrangements are regulated only to the extent that if a tenant informs the landlord that the tenant is not interested in such a agreement, the landlord is legally required to desist from further efforts to negotiate such an agreement with the tenant.
Buyouts are commonly employed by a landlord who believes that paying the tenant to move will result in an increase in the value of the property, usually either through an increase in the rental income to a new tenant, or in the value to a buyer who receives a vacant unit. Arguably, the process has been subject to abuse by landlords who do not sufficiently inform the tenant that the buyout negotiation is simply that – a negotiation, and not an obligation by the tenant in any respect. In other words, the tenant can “take it or leave it,” as the tenant prefers.
Although the offer to pay a tenant to move out is sometimes based solely on the owner’s financial calculations, the buyout offer often precedes an intended eviction based on a ‘just cause’ ground such as an ‘owner move in,’ or ‘Ellis Act’ eviction. An owner is motivated to engage in such negotiations prior to initiating the formal eviction procedure because such evictions result in restrictions recorded against title to the property that binds future owners, These restrictions include limiting any future unit in the building for use as the owner’s residence, and also, perhaps more significantly, restricting the ability of the owners to convert the units in the building to condominiums. Existing eviction law with regard to Owner Move-in/Ellis Act evictions can severely limit, and in some cases completely prohibit, an owner’s right to convert apartment units to condominiums under the San Francisco subdivision ordinance. Tenant buyouts have circumvented these restrictions, and one aspect of the new legislation is to eliminate that ‘loophole’.
On October 28, the SF Board of Supervisors amended the Administrative Code to require landlords to provide tenants with a disclosure of the tenants’ rights before the landlord commences buyout negotiations, and to require landlords to file a form with the Rent Board indicating the address of the unit that may become the subject of buyout negotiations. It also requires all buyout agreements to be in writing and to include certain statements about the tenant’s rights, and to allow tenants to rescind buyout agreements for up to 45 days after the agreements are fully executed. It requires landlords to file a copy of buyout agreements with the Rent Board (prior to this law, such agreements typically include a confidentiality provision keeping the details secret from the public). The law will also require the Rent Board to create a publically available searchable database of buyout agreements. The new law authorizes tenants to bring civil actions for actual damages and civil penalties against landlords who fail to provide the required disclosures about the tenants’ rights, and to authorize certain non-profits to bring civil actions for a landlord’s failure to file a buyout agreement with the Rent Board. Finally, it amends the Subdivision Code to prohibit buildings from entering the condominium conversion lottery if the owners of the building have entered tenant buyout agreements with ‘protected’ tenants, and restricting condominium conversions for multiple buyouts in the same building.
Question 2: What actions can a landlord take when a tenant is cultivating cannabis if the tenant has a permit? Does the landlord have the right to request the cultivation be terminated and would it be grounds for termination of the lease?
Answer 2: By ‘permit’ I can only assume you mean the Medical Marijuana Identification Card. The MMIC identifies the cardholder as a person protected under the provisions of Prop 215 (the Compassionate Use Act of 1996). It is used to help law enforcement identify the cardholder as being able to legally possess certain amounts of medical marijuana under specific conditions. The application of the cardholder’s rights to use and grow pot in a rental unit is a very complicated situation these days. The long and the short of it is that there is no certain answer as to the landlord’s right to prohibit such activity, and it depends to some degree on the lease, the local laws and the tenant’s medical condition. It would take an article to explain the details, but basically, the landlord can prohibit smoking in or around the unit, by proper lease provisions, and can prohibit marijuana cultivation, though the landlord may have to fight the tenant over a claim that the use of medical pot (and the need to grow it for supply) is a ’reasonable accommodation’ to the tenant’s disability. This is a legal issue that a court or legislature needs to address to provide clarity as there is little of it now. Also, if the tenancy is under rent control, the tenant may be able claim a reduction in services if the landlord limits an existing right, such as smoking (if that is part of the problem).
If the tenant’s activities are unreasonably bothering other people – neighbors or co-tenants – that’s an independent basis to require the tenant to limit or stop his activity, under a ‘nuisance’ theory.
But again, the law on a tenant’s right to grow and/or use medicinal pot is just not clear enough to allow a definite answer one way or the other. Until the legislatures or courts provide additional guidance, it’s a murky legal area.
Question 3: How many smoke detectors are necessary for my two-bedroom apartment rental? Are they necessary in each bedroom in addition to the hallway and living area? It is a small apartment in Emeryville of about 800 square feet.
Answer 3: Currently, smoke alarms are required to be installed on every floor or level of a multi-story dwelling, (including basements) on which a sleeping room exists, as well as centrally located outside each sleeping area (e.g. the hallway) in addition to a smoke alarm inside each bedroom. Take note, however, that effective January 1, 2016, owners of rental units intended for human occupancy will be required to install additional smoke alarms, as needed, to ensure that the devices are located in compliance with local building standards in effect at that time, even if they are more stringent than State standards. Currently, California’s Building Code §310.9 already requires a smoke detector to be installed in each bedroom as well as the hallway outside the bedroom. You might want to check with your local building department to make sure the Emeryville standards are not more strict than the state standards, so you are ‘ahead of the game.’
Question 4: My long term tenant in a San Francisco rental has admitted to moving out and subletting without permission. This is a violation of the lease. He has agreed to part ways. What are my next steps and how do I force out the two people he allowed to move in?
Answer 4: Yours is a potentially complicated situation, involving the lease, the departed tenant and the remaining occupants, all mixed up with the local rent and eviction control law. On your bare facts, you would probably have the option of seeking to evict the remaining occupants under the provision of the local rent ordinance that allows an eviction when “The tenant holding at the end of the term of the oral or written agreement is a subtenant not approved by the landlord.” You would also probably be permitted to allow the occupants to remain, but subject to a rent increase to current market value. But it would require a close review of your actual facts before any actual legal advice could be rendered.
Question 5: I served a 3-day notice to pay rent or quit in Oakland by posting the notice on the door and mailing a copy. I was told I need to add time to the 3-day notice because I had to mail it. How much extra time do I add to the three business days?
Answer 5: Once the notice has been posted AND mailed, the three days start to run from the date of the last action – posting or mailing. If you did them the same day, then the three days starts that day. For example, if you posted Monday and mailed Tuesday, the three day notice period would start as of Wednesday and expire the following Friday. If you posted AND mailed Monday, the three day notice period would start as of Tuesday and would expire at the end of the day Thursday. No additional time is added due to the mailing. But note that a Notice can’t expire on a weekend or holiday though those days count otherwise. For example, a Notice served on Wednesday, Thursday or Friday would not expire until Monday.
Question 6: I am about to rent one of my houses to a new tenant. I may want to sell the house next spring. Should I just have them sign a six month lease? Would a month to month be better?
Answer 6: If the tenants have a lease for a term beyond month-to-month, then the buyers will take the house subject to the remaining term of the lease, unless you include a provision that it can be terminated on 30 days’ notice if the house is being sold. Of course, a month-to-month rental agreement would provide the same flexibility.
Question 7: Is there any difference between a four-unit apartment and 12-unit apartment, when managing? I heard all apartments that are over five units need to have a company to manage them? Also, if we buy a new property, should we sign a one-year lease or just sign a lease to extend their current ones? Could we just let some tenants go, if they are section 8?
Answer 7: Once your building exceeds 15 units, you are required to have an onsite manager. Otherwise there is no distinction between a four unit and 12 unit building in terms of management requirements under the law.
As to whether to enter new leases, depending on the tenants’ existing leases, you may not have the choice. As the buyer, you step into the shoes, legally speaking, of the seller, meaning if the tenant has six months remaining on a one year lease, then you would have to honor that lease. At the end of it, you could require a new lease or allow the expiring lease to roll over to a month to month version or (in non-rent controlled cities) allow the tenancy to terminate. As for Section 8, that is a more complicated area and one you would want to get specific advice on before you take any action, as Section 8 tenancies come with their own leases and Housing Assistance Program contracts that must be followed before the tenancy can be changed or terminated.
Question 8: I read something about a judge throwing out a recent San Francisco law which required owners to pay tenants hundreds of thousands of dollars to move out. What exactly occurred?
Answer 8: Effective June 1, 2014, Rent Ordinance Section 37.9A(e)(3) was amended to require a landlord to pay the greater of the existing Ellis relocation payment amount or the “Rental Payment Differential” defined as “the difference between the unit’s rental rate at the time the landlord files the notice of intent to withdraw rental units with the Board, and the market rental rate for a comparable unit in San Francisco as determined by the Controller’s Office, multiplied to cover a two-year period, and divided equally by the number of tenants in the unit”. This legislation amended the Rent Stabilization and Arbitration Ordinance (the Rent Ordinance), to require owners who were removing their building from rental use (the basic goal of an Ellis Act eviction) to pay tenants the difference in the cost of their existing rent and the replacement value of that unit on the current market. This amount would be multiplied by 24, or two years, and that would result in the relocation payment to the tenants. Previously, the location payment was similar to the payment required for an ‘owner move in’ eviction, which is approximately $5,200.00 per person, up to a maximum of three persons, with an additional payment of approximately $3,800.00 for a family with a minor occupant or a senior or disabled occupant. The amended Ellis Act eviction relocation payment could, in certain circumstances, exceed $100,000.00.
On October 22, U.S. District Court Judge Charles Breyercited this scenario as evidence that such a law was unconstitutional. Judge Breyer (coincidentally the brother of U.S. Supreme Court Justice Stephen Breyer) essentially ruled that the amended ordnance was invalid and unenforceable. The San Francisco City Attorney has elected to appeal the judge’s decision. While the case is on appeal, the decision will stand and the amended legislation is effectively nullified, with the prior relocation payment amounts back in place.
Richard Beckman, of Beckman Blair, LLP has been practicing landlord-tenant law for over 19 years, primarily in rent-controlled jurisdictions such as San Francisco, Oakland and Berkeley. He represents clients in a broad range of real estate-related disputes, including partition of co-ownership interests, purchase contract disputes, insurance coverage analysis and land use. Mr. Beckman also specializes in all aspects of landlord-tenant issues, representing landlords and tenants in residential and commercial matters. He can be reached at 415-871-0070; email [email protected] or by visiting the website www.beckmanblairllp.com