Legal • February 1, 2005
Landlord/Tenant Law 101 Measure P
By David Wilson
In past issues, we have commented on specific parts of this catchall revision to the rent control ordinance. Now that the measure has been passed, it might be a good idea to summarize these changes in the law. Please note that the language isn’t always clear and that the Rent Board reserves the right to reinterpret the language to suit its own biases. As always, specific situations should be discussed with knowledgeable professionals.
What follows is a description of each part of Measure P, drawn from the City Attorney’s ballot analysis. There follows a brief BPOA commentary on practical applications and potential problems
- Section 8 Exemption: The measure would require registration and would impose rent control on units rented under the federal Section 8 program where the rent exceeds the maximum rent that is subject to federal subsidy i.e. "the payment standard". Under current law all Section 8 units are exempt because under the old federal Section 8 program, the rent that could be charged was limited to the payment standard. Practical Impact: In today’s falling market, where the federal standard is at or above the market rate for non-Section 8 housing, the impact may be limited. Even where market rates are nominally higher than the “payment standard”, the landlord should consider holding rents to the standard in order to avoid the hassle and expense of registration and all that goes with it.
- Non-profit Housing: Subsidized units rented by non-profit housing corporations to low-income tenants pursuant to a regulatory agreement with a governmental agency would be exempt from the registration and rent regulation provisions of the Rent Stabilization Ordinance. Practical Impact: the theory here is that the “regulatory agreement” provides an alternative form of rent control. However, one suspects that when taken together with the subsidies and other benefits received by “non-profit” housing providers, it is much easier to be in this category than to be subject to traditional rent control. Note also that this “reform” only touches a minority of non-profit housing, since most such housing is in exempt post-1979 construction.
- Transitional Housing: Units rented by non-profit organizations as an incident to recovery and shelter programs would be exempt from all but the Good Cause for Eviction provisions of the Rent Stabilization Ordinance, except as preempted by the Transitional Housing Participant Misconduct Act. The eviction controls would continue to apply as long as the tenant remains eligible for the organization's program. Practical Impact: very little. The exemption is conceptually related to the existing exemption for boarding houses, hotels, fraternities and the like. Note only that the definition of a “recovery and shelter program” is quite loose.
- Interest On Security Deposits: Interest (which must be paid or credited in December of each year) would have to be paid to tenants at the Federal Reserve rate for 6-month certificates of deposit [this will be published by the Rent Board every year in November]. Current law requires landlords to place security deposits in federally insured bank accounts and pay tenants the actual amount of interest earned. Practical Impact: As was pointed out in last month’s Newsletter, this new rule would allow deposits to be co-mingled in accounts with a longer-than-six month term, or indeed in any form which a reasonable prudent investor might choose for his/her own funds. On sharp-eyed reader reminded us that the new rule says that the landlord still must hold deposits as a “fiduciary” for the tenant(s). In the real world, how you hold the money is unlikely to become an issue unless you fail to pay interest, or to return the deposit at the end of the tenancy. In that situation, you would obviously be in deep trouble with or without the new interest provision.
- Confidentiality of Rent Board Filings: The City would be allowed to use information in Rent Board files for the enforcement of other City ordinances. The current ordinance prohibits such use of this information. Practical Impact: the Rent board will soon publish regulations to protect the confidentiality of tenant-related information, which will not necessarily be usable by other agencies. We may expect less concern over landlord-specific information, which will without question be made available for purposes of enforcing the City’s rules regarding business licenses. It is unfortunate that neither the old nor the new rule says whether or not tenant or landlord information may be turned over to county, state, or federal officials. In the real world, therefore, you should expect that everything you tell the Rent Board will become public information.
- Base Rent Ceilings: The base rent ceiling for a unit that was not rented on the operative base date would be the first rent charged, unless another rent was previously certified by the Rent Board. Under current law, the owner is required to set the base rent as a good faith estimate of the median rent for comparable units. Practical Impact: While the rule talks about a narrow situation, i.e. where “a unit was not rented on the operative base date”, it seems to be aimed at a more general problem, which is what to do where a tenancy was created prior to 1999, and which continues to this day, but where for whatever reason the base rent was never registered or certified by the Board. In such situations the owner may set things right by registering the rent first charged to the continuing tenant. The law would appear to have limited applicability to Costa Hawkins vacancies since 1999 since the negotiated rent, properly registered, would become the base rent for such units
- Roommates: A landlord may not evict a tenant for violation of a lease's prohibition on subletting if the tenant replaces a roommate with a tenant who meets the landlord's customary occupancy qualifications and the landlord fails to articulate a well-founded reason for the refusal. Current law does not expressly restrict eviction under these circumstances. Practical Impact: some housing providers have attempted to declare a Costa Hawkins vacancy where one of multiple tenants named in the lease moves out. Others have tried to do the same where the tenant has, with permission, taken in a roommate as a subtenant, but the roommate has left, leaving the named tenant solely responsible for lease payments. The new rule tries to plug the loophole by requiring the landlord to accept a replacement unless there is a “well-founded” reason not to do so. BPOA had a hand in drafting the language defining “well-founded” and we are reasonably satisfied that a new sub-tenant may be rejected if he/she fails to pass any of the customary tests (credit checks, references, etc.). You may also refuse permission for a new subtenant (or co-tenant) if the result would be to exceed the occupancy limits set by the lease (or, in the case of pre-1999 tenancies the base occupancy limit established in 1979). Most important points to note here: stick to your guns when the new person doesn’t pass your reasonable tests, and, when he/she does pass the tests, be careful not to document the agreement in a way which turns the new person into a full-fledged tenant entitled to remain on premises even after the original, named tenant leaves. The key word is “subtenant”, since subtenants lose their right to stay on once the master tenant has vacated. So, for example do not allow the new person to sign a lease, and do not under any circumstances accept rent from such person. Your legal relationship should continue to be with the remaining, original tenant with whom you signed the lease.
- Criminal Penalties for Violations of the Rent Stabilization Ordinance: these would be mostly eliminated except where a landlord is found guilty of willfully violating the eviction controls and the maximum penalty would be modified to conform to state law. Under current law, a landlord is subject to criminal penalties for the willful violation of any provision of the Rent Stabilization Ordinance. Practical Impact: the criminal penalties in the original ordinance (a $500 fine plus up to six months in jail) were of questionable constitutionality, and were seldom enforced. Nonetheless they gave the Rent Board useful leverage in cases of non-registration and other violations of the intricate regulations of the Board. Housing providers, to avoid the implied threat, “settled” with the Board for substantial amounts. This leverage factor is now gone.