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Legal • February 1, 2004

The Sublet Issue and the Cobb Decision

Revolving Roommates:  Rent Board’s Advice is Wrong!

 

Savvy BPOA members were shocked to read the latest edition of the “Berkeley Rental News,” that spiffy piece of propaganda mailed out each quarter by your friends at the Rent Board.

 

Contained in the Rental News is an announcement of a new “interpretation” of the so-called “last original tenant doctrine” contained in the Costa-Hawkins Rental Housing Act.  The last original tenant doctrine is supposed to protect owners from losing a Costa-Hawkins rent increase to perpetually revolving roommates.  It guarantees that if you rent to A & B & C, you can raise the rent to market once there has been complete turnover of all three tenants, even if each was replaced by a new roommate.  Put another way, when the “last original tenant” has moved on, it’s officially a new tenancy for anyone left.

 

Citing an unnamed “recent Appellate Court decision,” however, the Rental News explains that if a replacement roommate has a direct landlord-tenant relationship with the owner, then the replacement roommate will still be considered an original tenant.  According to this reasoning, even if the departing roommate was the “last original tenant,” the owner would be denied a Costa-Hawkins rent increase if he or she created a direct landlord-tenant relationship with the replacement.  A direct landlord-tenant relationship (as opposed to a landlord-subtenant or landlord-assignee relationship) might be created by putting the replacement’s name on the lease, or accepting rent directly from the replacement, or negotiating changes in lease terms with the replacement.

 

There is just one problem with the Rent Board’s announcement.  It’s wrong.  The “recent Appellate Court decision” has a name, Cobb v. San Francisco Residential Rent Stabilization and Arbitration Board, and that decision simply doesn’t say what our rent board seems to think it says.  In fact, San Francisco itself (which won the case) doesn’t share Berkeley’s extreme “interpretation.”

 

BPOA has reviewed the Cobb case extensively.  Here are the significant and unusual facts:  back in 1984, Cobb rented to Restoni, and never raised the rent.  In 1996, Restoni’s son Passalacqua moved in.  Passalacqua’s own 15 year-old son also started living there “part-time.”  Neither Passalacqua nor his son had Cobb’s permission to be there, but they always told Cobb they were only staying “temporarily,” and Cobb did nothing about the situation.  In mid-1998, her health failing, Restoni moved out.  At that point, Cobb knew Restoni had moved out and he began accepting rent directly from Passalacqua.  In November 1998, Cobb also negotiated a rent increase (to a whopping $600) with Passalacqua. 

 

In May 1999, Passalacqua’s son (now an adult) moved in with him full-time, and Cobb apparently began to realize that he was being too generous.  Relying on the last original tenant doctrine, Cobb attempted to institute a full Costa-Hawkins rent increase to $1500 in November 1999.  Under Costa-Hawkins, such a large increase would be possible only if Passalacqua’s initial occupancy as a new tenant began in November 1999, or if he was Restoni’s sublessee or assignee as of that date.

 

Understanding these facts, the Court’s ruling in the case is completely unremarkable.  The Court held that Passalacqua’s initial occupancy as a new tenant began in 1998, sometime between June (when Restoni moved out and Cobb accepted rent from Passalacqua directly) and November (when Cobb and Passalacqua negotiated the new $600 rent).  Six hundred dollars was, consequently, Passalacqua’s initial rent for Costa-Hawkins purposes.  Cobb treated Passalacqua as the primary tenant at that point, and there was no reason to believe he was a mere subtenant of Restoni.  Thus, Cobb had no basis for seeking a fresh increase to $1500 a year later, in November 1999.

 

The Cobb opinion is hardly a masterpiece.  It is confusingly written, and it employs incorrectly narrow definitions of “sublessee” and “assignee.”  But whatever it does, it does not gut the last original tenant doctrine in the way the Berkeley Rent Board seems to believe.

 

BPOA is already taking action to address the Rent Board’s “interpretation” of Cobb.  We should know the results shortly. 

 

In the meantime, housing providers have a few options.  One option, of course, is to ignore the Rent Board on the assumption that they are mistaken.  Alternatively, you can carefully enforce your subletting clauses and always demand a written assignment from departing tenants before permitting replacements (it usually helps to remind the departing tenant that a clean assignment eliminates any risk of future liability that they might otherwise have).  Yet another alternative is to act as if the Rent Board is correct and avoid creating a direct landlord-tenant relationship (declining, for example, to put the replacement roommate on the lease).  Obviously, this approach means that you are left dealing with a subtenant, which carries its own risks (subtenants are not, for example, liable for the entire rent in the same way that a full tenant is.)

 

For updates on this issue, and a link to the Cobb decision, visit www.bpoa.org.

 

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