Court Talk
by Clifford E. Fried
MHC Operating Ltd. Partnership v. City of San Jose
A mobile-home park owner applied for an extraordinary rent increase. The rent control hearing officer denied the application because the landlord failed to provide base-year net operating income. The landlord challenged the hearing officer's interpretation of the applicable rent law, and also argued that the evidence did not support the decision.
This case is important because it illustrates that barring an unfair hearing, a prejudicial abuse of discretion, or action in excess of jurisdiction, a rent board decision can withstand judicial scrutiny.
Using standard principles of judicial review, the Court of Appeal upheld the hearing officer's decision. The court ruled that the landlord failed to carry his/her burden of showing that the hearing officer's interpretation of the rent law was either unreasonable or unlawful. It also held that there was substantial evidence to support the decision.
Predictably, the landlord's attack on the rent law failed. Nevertheless, this case contains the basic rules and standards for attacking rent board decisions and should be read by any landlord or attorney attempting a similar challenge. The case should also serve as a reminder of the difficult task of proving a rent law invalid.
Bullard v. City & County of San Francisco
SFAA members James and Emily Bullard purchased their first home a few years ago—a two-unit building south of Market Street. A tenant occupied the nicer unit and the other was vacant. They served an Owner Move-In Notice on the tenant.
In accordance with the San Francisco Rent Ordinance, the Bullards offered the vacant unit to the tenant. A dispute arose regarding the rental rate on the vacant unit. The Bullards contended that since the replacement unit was vacant, the Costa-Hawkins Act gave them the right to establish the beginning rent. However, the city's Rent Ordinance states that the Rent Board will establish the rent on the vacant unit.
As expected, the Rent Board ignored Costa-Hawkins and set the rent quite low. The basis of the Rent Board's decision, notwithstanding Costa-Hawkins, was that a rent board has the power to regulate and monitor the grounds for eviction. Since the Bullards chose to evict, they were bound to play by the local rules.
The Bullards' lawsuit in Superior Court argued that the Rent Board's interpretation of Costa-Hawkins was incorrect. The act of regulating the grounds for evictions is not the same as setting rents on vacant units. The trial judge sided with the Rent Board, forcing the Bullards to seek relief in the Court of Appeal. That court ruled that since the Costa-Hawkins Act permits an owner of residential property to establish the initial rental rate for a dwelling, the act preempts San Francisco's Rent Ordinance. A local law preempted by a California state law is invalid.
While this case does not do away with the entire rent law (only the provision challenged by the Bullards disappears), the Bullards' challenge does chip away at the Rent Ordinance and sends a message to our city's lawmakers that property owners will fight for their rights. This case also paves the way for future attacks on the Rent Ordinance and makes life easier for landlords appearing at the Rent Board.
Congratulations to James and Emily Bullard. Thanks also to SFAA for its support in this particular battle. My law firm, Wiegel & Fried, LLP, represented the Bullards in the case.
City of West Hollywood v. 1112 Investment Co.
Sometimes, the best argument a landlord can make is that his/her property is not subject to the local rent control law. That is exactly what one property owner did in West Hollywood when he increased rents beyond what was permitted under local law. The landlord's position was that the Costa-Hawkins Act precluded application of the local rent law to a unit that could be sold as a condominium. Costa-Hawkins exempts condominium units from rent control. The law applies to owners who obtained both the approval for the final subdivision map and the issuance of a public report from the Department of Real Estate.
Not long ago, the owner received all required state approvals to convert his building into condominiums. But he never actually sold any units as condominiums. Instead, he continued to use the building as apartment rentals. Due to the passage of time—from conversion to rent increase—one of the necessary state approvals for conversion (a public report) had lapsed.
The City of West Hollywood's suit was based on the owner's illegal rent increases. The suit claimed that since the public report had lapsed, the owner lost his right to be free of city regulations imposed on condominium conversions. The Court of Appeal held that with the expiration of the public report, the Costa-Hawkins exemption did not apply and the rent increases violated the rent control law.
This case illustrates how the courts will strictly construe state law in order to give effect to local rent control laws. It is also a reminder to owners that they cannot sit on their rights: they must actively pursue their legal entitlements or suffer adverse consequences.
Village Trailer Park, Inc. v. Santa Monica Rent Control Board
In another mobile-home rent control case, the Court of Appeal ruled that a rent control board has jurisdiction to determine whether mobile-home tenancies are exempt from local rent control. The ruling also confirmed that a tenant couldn't waive his rent law claims in a lease. Rent laws, such as those in Santa Monica, Oakland, and San Francisco, prohibit waivers of tenant rights. Until now, there has been little guidance from the courts on this issue.
Last, the Court of Appeal upheld the rent board's award to the tenant of interest in excess of the rent collected by the landlord. Not only did the Santa Monica Rent Ordinance authorize an award of interest (in addition to costs and penalties), but state law permitted the recovery of interest as well.
Many local rent boards don't award penalties, fees or interest to a prevailing tenant in a rent board proceeding. This decision is bad news because it gives thumbs up to such awards.
Wasatch Property Management v. Siriah Degrate
Section 8 tenancies have become controversial throughout the state as well as in San Francisco. In this case, the Court of Appeal ruled that the state law's provision of the 90-day notice relating to termination of Section 8 tenancies, applies to non-rent control tenancies.
Prior to this case's decision, California landlords simply assumed that a mere 30-day notice (60 days as of January 1, 2003) was all that was required to terminate a Section 8 tenancy. Now, however, the court has reasoned that the purpose of the state law requirement for 90 days' notice is to give Section 8 tenants enough time to find replacement income and housing when the owner opts out of the program, thereby forcing the tenant to move.
The undecided issue in San Francisco, and possibly in other jurisdictions, is whether or not a landlord may opt out of the Section 8 program altogether. The local housing authority takes the position that a San Francisco landlord cannot opt out of the program. In fact, the San Francisco Housing Authority believes that landlords must accept applications from Section 8 tenants.
The courts will no doubt resolve this controversy at a later date. We all have to remember that justice is slow and can be expensive for property owners.
The opinions expressed in this article are those of the authors and do not necessarily reflect the view point of the SFAA or the San Francisco Apartment Magazine. The information within this article is general in nature. Consult an attorney for any specific problem. Clifford E. Fried is with Wiegel & Fried, 415-552-8230. Copyright © 2003 Clifford E. Fried