Legal Corner Q & A
by Various Authors
Q. Now that capital improvements are back, just what type of improvements may be passed onto the tenants?
A. Capital Improvements (CI), defined in the Rent Ordinance and Rules and Regulations, are “Those improvements which materially add to the value of the property, appreciably prolong its useful life, or adapt it to new uses, and which may be amortized over the useful life of the improvement of the building.” Regulation 1.13 states that they “…do not include normal routine maintenance of the building…” e.g., the patching of a roof is not a CI while the partial or complete replacement of the roof is. The repair of a foundation is considered a CI and not a repair. It also states that repairs incidental to a CI project, or replacement of an item normally considered a CI, are also considered a CI. Finally, it states a CI that is otherwise eligible is not eligible if the owner charges a use fee for an owner-owned facility such as a coin-operated washer and dryer.
Rehabilitation work is defined as rehab or repair work done to the rental unit or common areas in order to comply with state or local law, or done to repair damage resulting from fire, earthquake, or other casualty or natural disaster. Energy conservation work is work performed under Article 12 of the SF Housing Code. Under the regulations, the Rent Board must certify passthroughs for CI rehabilitation and energy conservation. No costs can be claimed to the extent that the owner was compensated by insurance. There are different amortization periods.
The following fall within ten-year amortization periods: new foundation, new floor structure, new ceiling or walls, new sheetrock, new plumbing (fixtures or piping), weatherstripping, ceiling insulation, seals and caulking, new furnaces and heaters, new wiring, new stairs, new roof structure, new roof cover, new windows, fire escapes, central smoke detection systems, new wood or tile floor coverings, new partitioning sprinklers, boiler replacement, air-conditioning central systems, exterior siding or stucco, and/or additions such as patios or decks, central security system, new doors, new mail boxes, new kitchen cabinets or sinks.
Seven-yearamortizationperiods apply to the following: appliances such as new stoves, disposals, refrigerators, washers, dryers and dishwashers; fixtures such as garage door openers, locks, lighting, waterheatersandblankets,shower heads, time clocks and hot water pumps, carpeting, linoleum, and exterior and interior painting of common areas. If the appliance is a replacement for which the tenant has already had the benefit, the cost will not be amortized as a CI but is considered an operating and maintenance expense. Finally, appliances may be amortized as CI when they are (1) part of a remodeled kitchen; (2) based upon an agreement between the tenant and landlord; and/or (3) a new service or appliance the tenant did not previously have.
There are numerous procedural requirements, and the Rent Board carefully scrutinizes each application and supporting documents.Tenants can object to the passthrough on numerous grounds, including that (1) the work performed was necessitated by the current owner’s deferred maintenance resulting in a code violation; (2) the luxury items in the common areas (unless the owner can establish that the items were required for reasons of health and safety or excessive maintenance costs, the items needed to be replaced and the replacement items were of equivalent quality to the items being replaced, the building is and has been a “luxury” market building, or other extraordinary circumstances). Finally, remember that, except in extraordinary circumstances found by the Rent Board, there is a cap on rent increases based on Capital Improvements of 10 percent of base rent or $30, whichever is greater.
—Larwence M. Scancarelli
Q. A couple living in my building recently had a baby. They now want their unit tested for lead-paint hazards. If lead-paint contamination is found, what am I responsible for?
A. If a landlord discovers a potential lead-based paint contamination, he/she should contact a qualified and licensed lead-remediation expert to expeditiously address and remedy the potential contamination. The landlord should not attempt to address the situation without a qualified and licensed expert. Acting reasonably and expeditiously will mitigate any potential liability.
Once the problem is addressed and remedied, the landlord may often increase the tenant’s rent to reimburse him/her for out-of-pocket costs associated with the remediation. The Rent Ordinance currently permits a landlord to increase a tenant’s rent to recover costs incurred for the remediation of lead hazards (otherwise known as “passing through” the cost to the tenant in the form of a rent increase). There are many detailed legal procedures and rules controlling passthroughs, including petitioning the Rent Board for permission to increase the tenant’s rent. Thus, once a landlord remedies a lead-based paint hazard, the landlord should contact an attorney or pass through specialist to determine first whether the work can be passed through to the tenant and then assist them with the process.
—Steve Williams
Q. How do you value furniture that has been abandoned by a tenant? I believe one needs to either declare its value less than $300 or more than $300.
A. Although the question does not specifically so state, the issue seems to focus on the determination of the value of abandoned property for purposes of Civil Code Section 1980, et seq., that deals with disposal by the landlord of property abandoned by a tenant. The law provides a mechanism by which a landlord can get rid of such personal property without incurring liability to its owner, in most cases the former tenant. The code sections involved include the following technical requirements: (1) a notice sent by the landlord to the tenant at his last known address and to every other address where the landlord knows he might receive actual notice; (2) a detailed description in the notice of all the property that has been abandoned; and (3) a statement indicating its value and the intended means of disposition. If the notice and disposition are carried out in conformity with the code requirements, Civil Code Section 1989 protects the landlord from liability to the tenant. Your notice should fully describe the materials or articles left in detail, although you are not obligated to open trunks, boxes, valises or other containers that are locked, fastened or tied in a manner that deters immediate access to its contents. These may be described as such without describing the contents themselves. Disposal of the property may not take place any sooner than 15 days after the notice is personally served, or 18 days after it is served by mail. (You should get the appropriate form from your attorney, or from a reliable source such as the San Francisco Apartment Association.)
Value is an issue raised by Civil Code Section 1988, which states that if a landlord reasonably believes that the total resale value of the abandoned property is less than $300, the landlord may retain such property for his/her own use or dispose of it in any manner. If, however, the resale value of the property is $300 or greater, then the landlord must dispose of it by means of a public sale by competitive bidding. Notice of the time and place of the sale must be given by publication in a newspaper of general circulation published in the county where the sale is to be held. The landlord is entitled to deduct from the proceeds of any such sale his/her storage costs and the costs of publication and sale of the property. Any excess after that goes to the county and may be claimed by the owner of the property for up to one year after the sale.
Obviously, it is a much greater burden on the landlord to conduct a public sale by competitive bidding than to simply place abandoned property in his/her dumpster. Therefore, the valuation of the property relative to the $300 mark becomes critically important. The code does not discuss the method of valuation, other than by using the term “resale value.” Resale value refers to the property’s current value in a public sale (presumably on your doorstep) and not its replacement or original value. In most cases, we are talking about furniture, appliances, clothing and personal belongings that would draw very little, indeed, under public auction conditions. This is a judgment call. You must use your best judgment as to the aggregate resale value, i.e. whether you think you will be able to sell to strangers on the street for $300 or more. I recommend that you not overestimate the value of the belongings. I am not saying you should undervalue the property, but you should not overvalue either. There is no reason to value a beat-up old leather couch with cigarette burns and holes at its replacement cost. If the value is under $300, you can dispose of it in a dumpster or your basement as you choose, so take advantage of this provision wherever the facts will justify it.
Occasionally, there are cases where the tenant leaves property that is clearly worth more than $300. The landlord is entitled to recover storage costs and should not release the property to the tenant until the storage costs are paid. This, of course, is another one of those theoretical rights. I advise my clients in this situation that if a tenant tells you he or she will be by with a friend’s truck to pick up “the stuff” at 3:00 a.m. on a Sunday morning, your response is, “Great, I’ll meet you there with coffee and donuts.” It is in your interest to get rid of that property without having to go through the process of a public sale. For that reason, you should bend over backwards to make yourself available to the tenant who is willing to pick up the stuff and end your headache.
Most of all, comply religiously with all requirements of the applicable statutes. The purpose of these provisions is, after all, to protect you from liability.
—Saul M. Ferster
Q. I have a great relationship with a tenant who is paying $1,500 per month for a well-maintained apartment. He recently approached me and offered to pay $2,000 a month if I would remodel his unit. Provided we both sign and document the agreement, could he turn someday to the Rent Board and claim the increase is illegal?
A. Yes, he can, and the increase is illegal, so don’t do it! Please read Rent Ordinance, Section 37.3, that states landlords may only impose rent increases for the following reasons: (1) the annual allowable increase; (2) approved capital pass-through or natural disaster petitions; (3) banked increases (accumulated annual allowable increases that were not imposed during the year that they accrued); (4) cost of utilities; (5) charges related to excess water usage; (6) certain bond passthroughs; (7) Costa-Hawkins increases when the unit is a single family home or condominium and the occupancy began after January 1, 1996, and/or pursuant to a Regulation 6.14 situation when the last original tenant has vacated; (8) an operating and maintenance increase; or (9) pursuant to a Rent Board petition requesting an increase based on extraordinary circumstances (e.g., the tenant’s rent is artificially low because of some special relationship with the previous owner). Some of these increase allowances require a formal Rent Board petition and hearing, while others require a comprehensive notice. Fortunately, when all of the tenants vacate, the rent can be adjusted to fair market value.
These categories define all of the instances when an increase is permitted. As tenants cannot waive their rights under the Rent Ordinance, any agreement in contravention to the law is null and void. Therefore, you or your successor-in-interest may be stuck with a rent refund bill (up to three years of overpaid rent) and a readjustment of the base rent to its pre-increased amount.
The Rent Ordinance even allows a landlord to move a tenant out for as long as three months in order to remodel. However, the landlord must pay relocation costs, and the tenant must be allowed to move back at the same rent after the work is completed. I only recommend this type of eviction if the landlord absolutely needs to do remodeling in order to increase substantially the building’s re-sale value.
I also do not recommend that you allow the tenant to do the work himself at his own expense. Such an arrangement is problematic and may result in work done without a proper permit and/or inferior or substandard workmanship. If the tenant would simply like to repaint or update the appliances, you may give your limited consent. Depending on the type of work, you could also file for a capital improvement petition once the work is completed. Assuming that these petitions are still allowed (see past articles on Proposition H), you can amortize improvement costs by imposing limited and temporary rent increases until the costs of the improvements are reimbursed. However, this procedure is complicated, so you should consult with the capital passthrough experts before choosing this route.
—David Wasserman
Q. This is interesting…I have a pair of tenants I had to take to small claims court for back-rent payments. They turn out also to work for a local tenant organization. Believe it or not, they asked me to provide them with a housing reference for a potential new landlord. I cannot in good conscience recommend these people. What should I do?
A. Landlords find themselves in these “catch twenty-two” predicaments more frequently than you might think. On the one hand, they would do just about anything to get their undesirable tenants to move. On the other hand, they won’t compromise their own values and dignity by providing a positive reference about these tenants.
A landlord is under no obligation to prepare a reference letter for a departing tenant. But, when it might facilitate a move, as here, the landlord should seriously consider preparing one. To preserve the landlord’s dignity and self-respect in these predicaments, I have assisted many landlords with preparing “neutral” reference letters.
When preparing a “neutral” letter, landlords should provide neutral facts about their tenants, such as: I am the landlord of 123 Park Lane; the named tenants have lived there for X years; and their rent is X. Additional neutral facts according to each particular situation can be provided such as: the rent is current or the named tenants are departing on neutral terms. Landlords should not make any false statements in a reference letter because they risk exposing themselves to potential liability to the departing tenant or the future landlord.
—Steve Williams
The information contained in this article is general in nature. Consult the advice of an attorney for any speciÞc problem. Lawrence M. Scancarelli can be reached at his law office at 398-1644. Steve Williams is with Wiegel & Fried, LLP (415) 552-8230. Saul M. Ferster can be reached at 863-2678. David Wasserman is with Wasserman & Taxman, 567-9600. © Copyright 2002.