Legal Corner Q & A

Owner-Move-Ins

By Various Authors

Q. If a tenant breaches the terms of a lease by moving out early, does he forfeit his security deposit?

A. A security deposit may be used by the landlord for any legally justifiable purpose, including compensating the landlord for damage resulting from a default by the tenant in his obligations. With a month-to-month tenancy, including one resulting from a tenant holding over after the expiration of a lease for a specific term, the landlord is entitled to a written 30-day notice of termination of tenancy from the tenant in order to have an adequate opportunity to find a new tenant without losing rent. (The same might not be true at the expiration of a lease's fixed term. The landlord should look to the language of the lease to see what notice, if any, is required, from the tenant in such case.) In the absence of a written 30-day notice terminating tenancy, the month-to-month tenancy continues for another month, with the result that the landlord is entitled to collect rent for that next month. The tenant who vacates early, without giving the requisite notice, still owes rent for that final month, and therefore the landlord is entitled to take it from the security deposit.

There is one caveat, however. Remember, the security deposit is meant to protect the landlord from damage suffered; it is not meant to provide a windfall. In the case of short notice, the landlord often cannot find a new tenant in time for a new rental to begin when the departing tenant vacates, in which case the landlord is entitled to retain enough of the security deposit to cover any damage suffered as a result. If, however, the landlord is able to substitute a new tenancy with no loss in rental income for the short-noticed month, and the departing tenant has paid his actual last month’s rent, the landlord may not retain the security deposit. Moreover, the landlord has a duty to try to “mitigate,” or reduce, his damages by re-renting as soon as he can. Thus, if the new tenant only pays for one half of the shorted month, but pays at a rate twice that paid by the departed tenant, the landlord has not been damaged, and the security deposit should be returned.

Finally, it is worth noting that financial damage suffered by the landlord as a result of the inadequate notice may not be limited to lost rent. Even with a rapid replacement, the requirement to act immediately may result in increased costs of advertising and/or other expenses that could have been avoided if given proper notice. The landlord is entitled to retain from the security deposit any sums necessary to reimburse himself for all items of damage suffered as a result of the tenant’s breach.
—Saul Ferster

Q. The current owner move-in (OMI) law requires an owner to live in the property in question for three years after completing an eviction. What happens if the evicting owner, after completing the OMI and moving in, then sells the building after two years? Does the evicted tenant retain any rights?

A. Nothing in the law prohibits an owner under this circumstance from selling the property. However, the evicted tenants do have some rights, and the buyer has certain obligations, if the evicting owner moves out before the expiration of the three-year period.

Assume Alan evicts his tenant, Tom, under the “just cause” of owner move-in. Two years later, Alan sells the building to Bob, the buyer. Under the OMI law, only Alan’s unit can be recovered pursuant to an OMI eviction, since only one unit can be designated as the “owner’s unit” during the life of the building.
Further assume that Alan moves out and Bob doesn’t move into Alan’s unit. Tom, who was evicted by Alan two years ago, has the right of first refusal to re-occupy the unit at the same base rent, subject to annual allowable increase adjustments, if the unit is offered for re-rental. Moreover, despite the fact that the State of California has banned this type of rent control, if Tom does not exercise his right to re-rent, the future tenancy can only be for the same base rent (subject to banked and current allowable increases) that Tom was paying.

Disclosures are very important here. Alan must tell Bob about the OMI, and must further disclose to Bob that this unit (Alan’s) is subject to price control if Alan vacates before the three-year period has expired. Interestingly, if Alan left and Bob moved in, the unit wouldstillbeowner-occupied. Although the law in such an instance is unclear and untested, I do not believe that this change of occupancy from the old owner to the new owner would trigger any liability. However, because a new owner steps into the shoes of the previous owner, Bob would be bound by the requisites of the Rent Ordinance should Alan move out and the unit be re-rented within the three-year period.

Please read Rent Ordinance Section 37.9B(a), which states that if the unit is offered for rent during the three-year period after the OMI, it cannot be rented at a rent greater “than that which would have been the rent had the tenant who had been required to vacate remained in continuous occupancy.

To aid tenants, the rent board graciously agreed to keep track of displaced tenants, and to notify them should the unit become available within the three-year period. As always, if you are an owner facing this situation, consult a qualified attorney who can assist you.
<—David Wasserman

Saul Ferstercan be reached at 863-2678. David Wasserman is with Wasserman & Taxman, 567-8230. The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. The information contained in this article is general in nature; you should consult the advice of an attorney for any specific problem.