Hello everybody. This past April, the California Court of Appeal decided two important cases relevant to many AOA members. Both cases, thankfully, eased up on certain requirements imposed by the Rent Stabilization Ordinance for the City of Los Angeles, otherwise known as the Los Angeles Rent Control Law, or the RSO.
The first ruling loosens and clarifies the sanction if a landlord does not timely deliver a copy of the registration renewal statement to a tenant, and the second allows for cumulative increases to a resident manager’s rent upon termination of his employment.
Failure to Deliver the Rent Registration Statement
For rent controlled units in the City of Los Angeles, owners are required to pay an annual fee to renew the registration of their rental units. The City then issues a “Statement of Registration of Rental Units” which is to be circulated among all tenants.
Prominently featured on the document is the following legalese: “No landlord shall demand or collect rent for a rental unit without first serving a copy of a valid registration statement from City of Los Angeles on the tenant of that rental unit.” That is exactly what Section 151.05 of the Los Angeles Municipal Code provides.
The Ordinance’s verbiage raises the principal issue of what penalty, if any, should be imposed on the landlord if he collects rent from a tenant without first having delivered the registration statement. Must the lessor refund the rent he collected prior to delivering the document? Before reading further, what do you think?
A secondary issue is what is the legal effect if the tenant withholds his rent until the landlord delivers the statement to the renter? Is the landlord barred from recovering the back rent for the period of time preceding the landlord’s delivery of the paperwork?
In Lyles v. Sangadeo-Patel, decided by the California Court of Appeal on April 17, 2014, the three justices deciding the case unanimously cut the landlord much slack on both issues.
The facts in the litigation were that during the period from October 2003 through June 2012 the tenant paid in excess of $77,000.00 in rent. The problem was that the landlord had not served the renter with a copy of the Rent Control Registration Statement.
The tenant sued for a refund for the money she paid, plus treble damages as a penalty under the Rent Stabilization Ordinance, seeking a total judgment against the owner of more than $230,000.00.
In discussing the issues, the Court agreed that a tenant is permitted to withhold rent until such time as the lessor complies with the RSO statute and delivers the registration statement to the tenant. But fortunately it went on to hold that once the landlord has registered the unit and complied with the delivery of the statement, he is entitled to retain all back rent paid and recover any unpaid rent. In a delightfully blunt observation, the Court said:
“The idea that the failure of the landlord to serve a copy of a registration statement upon the tenant would lead to a forfeiture of all rent, thereby allowing the tenant to reside rent free in a unit and recover treble damage penalty, would be an absurd and unreasonable consequence.”
Thus, nothing is lost for an owner who fails to deliver the registration statement to the tenant, as he can easily rectify the problem: Just deliver the statement as soon as possible thereafter!
Raising a Resident Manager’s Rent
Until April 4, 2014 when the Court of Appeal decided 1300 North Curson Investors v. Drumea, another troublesome issue was how much an owner could increase a resident manager’s rent upon termination of that individual as the manager.
The conundrum has been whether a landlord could impose cumulative rent increases on the terminated manager considering that Section 151.06 of the Rent Stabilization Ordinance prohibits a landlord from charging tenants cumulative or retroactive rent increases.
For example, with an ordinary tenant, if the RSO permitted a 3% rent increase in 2013 and another 3% increase in 2014, a landlord who did not raise the rent in 2013 may only raise the rent in 2014 by 3%. He may not retroactively collect the increase permitted in 2013 for a cumulative rent increase of 6% in 2014.
Further, the ordinance makes it unlawful for any landlord to demand, accept or retain more than the maximum adjusted rent permitted under the Los Angeles Rent Control law.
In the Curson Investors case, the former resident manager was already a tenant in the unit before being appointed manager, and she continued to occupy the unit after being relieved of her managerial duty.
As a prior tenant, she was paying $850 per month. During the years of her service as the resident manager (i.e., from 1993 through 2011), she paid no rent. Upon her termination as the manager, the landlord served her with a notice of rent increase, with the new rent of $1,552 per month commencing 60 days thereafter.
The rent increase would have equaled the total annual allowable percentage increases from 1993 through 2011 had the landlord served rent notices on her when she was the manager. But the owner did not do so during any of those years.
The manager challenged the $702 single, cumulative increase on a number of bases, the two most significant being that the increase was more than the 3% allowed in a given year and that the landlord had unlawfully imposed a cumulative increase.
In a decision consistent with common sense, the appellate court explained that, “We find it would be impractical to require landlords to serve annual registration statements and notices of rent increases on resident managers who do not pay rent.”
The Court further noted that nothing in the RSO suggests an intent “to require a landlord to give notice of theoretical rent increases to a manager who does not pay any rent.”
The Court also compared the situation with a manager who pays no rent to one who pays partial rent. Relying on certain regulations of the Rent Control Commission, the Court held that a manager who pays only partial rent each month must be given notices of increases of the partial rent payments.
The Court further explained that a resident manager who continues to occupy the unit, but who was not a tenant of the unit before serving as manager, may have his/her rent set at the average rent of comparable occupied units in the building upon termination as a manager. Consistent with that finding, the Court of Appeal said that the RSO does not require landlords to give notice of the average rent of comparable occupied units during the years that the resident manager occupies the unit rent free. The Court wrapped up its discussion with the following:
“We conclude that a former resident manager who was already a tenant in the unit before being appointed resident manager may be charged rent upon termination of managerial services in the amount of the rent the former manager had been paying as a tenant, plus the annual adjustments authorized under the ordinance, and the landlord has no obligation to serve annual registration statements or notices of rent increases during the time that the former manager occupied the unit rent-free.”
These two California Court of Appeal decisions are not only a rational interpretation of the RSO, but more importantly, show that the Court is sensitive to the practical realities of owning and operating an apartment building.
On other matters, AOA readers should bear in mind that starting July 1, 2014 the minimum wage which must be paid to a resident manager will be $9.00 per hour, up from $8.00 per hour. Also, absent an exception, the maximum rent which may be charged to a manager who is required to live on the premises as a condition of employment increases from $451.89 per month to $508.38 per month. For a couple it increases from $668.46 per month to $752.02 per month.
Finally, beginning July 1, the maximum offset that an owner or management company can credit against the minimum wages owed to a manager similarly increases to $508.38 per month for a single employee, and $752.02 per month for a couple. However, those offsets may only be applied if a written employment contract between the employer and the manager specifically allows for them as a credit against the minimum wage. Failure to precisely follow the law in that regard may expose the employer to hundreds of thousands of dollars of back wages, damages and penalties.
In next month’s issue of this AOA Magazine, I will present a detailed discussion of all the new manager laws then effective.
Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 37 years. He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association. He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.
Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell. An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity. You may Google “Dale S. Alberstone” for further background.
The foregoing article was authored on May 1, 2014. It is intended as a general overview of the law and may not apply to the reader’s particular case. Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.
Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067. Phone: (310) 277-7300.