Legal Corner Q & A

By Various Authors

Q. Last month I read that the Rent Board has set this year’s annual allowable rent increase at 0.6 percent. Can you go over the basics of banking rent increases?

A. Once again, this is that time of year when the Rent Board publishes next year’s annual allowable increase and security deposit interest rate. Pursuant to the rent law, the annual allowable increase is effective from March 1 through the following February 28 or 29 of each year (depending on if it is a leap year). Yearly increases are calculated by taking 60 percent of the Consumer Price Index for all Urban Consumers in the Bay Area. This year, the posted increase was 1 percent, so landlords are allowed to increase rent by .6 percent.

This magazine usually publishes all the past allowable increases in every issue (see page 33). For owners who do not impose an increase each year, the law allows banked increases, or a combination of all past increases, to be imposed at the owner’s election. As many of you know, incorrect increases can result in costly consequences. (For example, illegal rent petitions can result in the Rent Board ordering refunds of excesses for the past three years, and an incorrect calculation one year poisons the chain of increases so that all subsequent rental amounts are incorrect.)

Let me review a few basic rules for you. First, rent increases can only be given every 12 months. Thus, if the tenancy began on June 1, 2003, no increase can be imposed until June 1, 2004. The Rent Board allows owners to change the anniversary date, but this will cause the owner to lose out on the collection of increased rent for the months that are advanced. For example, moving the anniversary date from April to July causes the owner to permanently lose the collection of increased rent for May and June. Rule number one, therefore, is only raise the rent once a year and try to keep the same anniversary date.

Second, a written notice must precede rent increases. For total increases 10 percent or below of the current base rent, a 30-day notice is sufficient. For increases in excess of 10 percent (for instance, in cases with many banked increases), a sixty-day notice is required. The notice should state what amount is banked and the dates upon which said banking is based, and what amount represents the current annual allowable increase.

Third, never round up to the nearest dollar. The increase must be calculated precisely, or you can round it down if you want. Rounding up can result in the invalidation of the entire increase and all future increases.

The following is a sample of a rent increase notice that imposes banked increases for a tenant who began occupancy on May 1, 1999:

Dear Tenant:
Effective May 1, 2004, which is more than thirty days after service of this notice is completed upon you, your current base rent of $100 shall be increased as follows:

Banked Increase for May 2000: 2.9%
Banked Increase for May 2001: 2.8%
Banked Increase for May 2002: 2.7%
Banked increase for May 2003: 0.8%
Total Banked Increases: 9.20%

Annual Allowable Increase for May 2004: 0.6%
Total Increase: 9.80%

Rent Increase Effective 5/1/04: 9.80% x $100 = $9.80

New Base Rent Effective 5/1/04: $109.80
–Landlord

Please note that you cannot compound the banked increases. You must total the entire amount of past increases before multiplying them against the previous base rent. This is perhaps another good reason to impose increases annually and not to bank them, as yearly imposition usually yields a higher rent over time than the compounded banked rate (since each percentage increase if imposed yearly is multiplied against the preceding year’s increased rent).

In summation, make sure that your calculations are always correct, do not round up, give proper notices of the increases, do not change the anniversary date and try to impose the increases annually rather than bank them. Always look to the official rent increase chart either in this magazine or on the Rent Board’s Web site. If you have any questions, make sure you call a knowledgeable property manager or attorney.
– David Wasserman

Q. Last month in this magazine there was mention of a new state law that penalizes landlords for harassing tenants. In San Francisco, some members of the Board of Supervisors believe just chatting with a tenant is harassment. What exactly is the state’s definition of harassment?

A. There are actually two new laws that relate to harassment. AB 1059 amends Civil Code Section 1940.2. That amendment merely raises the potential civil penalties for harassing a tenant from $1,000 to $2,000. As a practical matter, this law does not apply to San Francisco because should a landlord be guilty of harassing a tenant, the laws related to wrongful eviction would provide much greater liability to the landlord.

The second change was AB 76, which amended Government Code 12940, and is much more troublesome. The prior law already made it illegal for an employer, including landlords, to allow the “harassment of an employee, an applicant, or a person providing services pursuant to a contract, by an employee, to fail to take immediate and appropriate corrective action and to take all reasonable steps to prevent harassment based upon specified categories from occurring.” The revised law now states that “An employer may also be responsible for the acts of nonemployees, with respect to sexual harassment of employees, applicants, or persons providing services pursuant to a contract in the workplace, where the employer, or its agents or supervisors, knows or should have known of the conduct and fails to take immediate and appropriate corrective action. In reviewing cases involving the acts of nonemployees, the extent of the employer’s control and any other legal responsibility which the employer may have with respect to the conduct of those nonemployees shall be considered.”

How this new law will work in practice has yet to be seen. Will landlords be responsible for sexual harassment by tenants against building managers, plumbers or janitors? Will they be liable for unwanted sexual advances by the electrician against the plumber? Undoubtedly, there will be a case-by-case determination. Your liability as a landlord will depend on the extent you had control over the situation or knowledge of the likelihood of such an event.
– Jeffery P. Woo

Q. I have a long-term tenant who pays a below-market rent. Three or four times a year she changes her roommate, charging them about 75 percent of the rent. She selects her roommates at will, kicks them out when she feels like it, or they often become disgruntled and leave on their own. I end up with the former roommates calling me to complain. Is there anything I can do?

A. I assume you have a written lease with the tenant that prohibits changes in occupancy without your prior authorization. If so, then you are not obliged to consent to such an excessive number of roommate changes per year. Rent Board Rule 6.15B (b)(vi) indicates that the owner may reasonably withhold consent to more than one roommate change per year (absent good cause). In your case, you may reasonably withhold approval of a second roommate change in any twelve-month period. However, you should probably take the precaution of first writing to your tenant to advise her of the provisions of the above rule, indicating that you intend to exercise your rights under the rule in the future, because the excessive roommate turnover has become a burden to you. The rule also allows you to insist that prior to moving into the unit, any prospective new roommate must submit a completed rental application, meet your reasonable acceptance criteria and agree to be bound by the provisions of the rental agreement. You should insist that your tenant and a new roommate seek your prior authorization of the occupancy, and that they fully comply with these provisions of the rule.

Your tenant may be acting illegally by causing her roommates to vacate at her whim and by charging them 75 percent of the rent. Under Rent Board Rule 6.15C (a), a master tenant may not evict a subtenant without just cause, unless she retains the right to do so in writing prior to the commencement of the tenancy. Also, Rent Board Rule 6.15C (c) prohibits master tenants from charging their sub-tenants more than a proportional share of the rent. In considering whether to accept your tenant’s new prospective roommate, you may inquire whether he or she has been informed about the rent that you charge for the unit.

The rule does not allow you to evict your tenant due to such illegal conduct with respect to her roommates. However, you should advise any of her roommates who contact you to seek advice from the Rent Board. The Rent Board may award them rent rebates against your tenant, and they may have claims against her for wrongful eviction, as well.

If your tenant accepts security deposits from her subtenants, then she is obligated to comply with the provisions of Civil Code Section 1950.5 concerning pre-move-out inspections; deductions for cleaning, damage and unpaid rent, and accounting for such charges in writing; and refunding the balance within 21 days. If she fails to do so, her ex-roommates could sue her in Small Claims court for damages and the statutory penalty.
– Michael C. Hall

Q. What is the eviction process for nonpayment or late payment of rent, and what is involved?

A. Actually, the eviction processes for nonpayment of rent and late payment of rent are in many ways quite different. Notices to the tenant, followed by an unlawful detainer lawsuit, precede both. The differences, however, are significant.

An eviction for nonpayment of rent starts with the service of a Three-Day Notice to Pay Rent or Quit. If the rent is not paid within the three days, the tenant loses the legal right to cure, and the landlord may file an eviction action. The landlord should have clear documentation in terms of the rent history. I suggest to all landlords that they photocopy payments made by tenants in order to appropriately determine what obligations the tenant has breached and to recreate the rent payment history. All too frequently I find that the landlord does not have a reliable ledger or other record of rent payments, or that the landlord cannot tell if a rent payment by the tenant has been directed to a particular month’s rent. Lack of information in these areas could lead to problems. Last, even after the service of a three-day notice, the landlord may need to decide whether or not to take a partial payment. It might be a good idea in such circumstances, however, to communicate to the tenant in writing, including on the check being accepted, that acceptance of a partial payment does not waive your right to collect the balance. (Make sure to strike out any language on the check that says “payment in full” or similar.)

Some landlords have a policy of never accepting partial payment, but circumstances may dictate otherwise. Sometimes, for example, you can collect a healthy chunk of the money owed you, and then simply re-issue a different three-day notice to pay rent or quit. The amount actually collected may more than cover the cost of starting again.

Eviction for habitual late payment is not so easy. The right to evict for habitual late payment may emanate from the rental agreement, if it is a good one, such as the current Professional Property Management Association Residential Tenancy Agreement or simply from the Rent Ordinance, that states in general terms that habitual late payment is just cause for eviction. The problem with the Rent Ordinance, of course, is that it does not define what habitual late payment means or how many late payments over what period of time are required. A potential rule of thumb, but certainly not fashioned in concrete, is that three late payments within a 12-month period would constitute habitual late payment (the standard used in the PPMA lease). However, eviction on this ground can be problematic. The way that the landlord can best maximize his or her ability to secure it is to lay a good paper trail tracing the late payments with escalating levels of written warnings and opportunities to cure the objectionable conduct before finally giving the notice.

I have heard one argument indicating that a 30- or 60-day notice (if the tenancy is for one year or longer) is required for habitual late payment of rent and another argument that only a three-day notice is required. Generally, if the habitual late payment can be linked to a breach of a specific covenant of tenancy, a three-day notice may be sufficient, because that is generally the period required by statute. On the other hand, if it is linked solely to the Rent Ordinance provision on habitual late payment, a 30- or 60-day notice may be required. I would suggest that the landlord play it safe and give a 30- or 60-day notice. Remember, before giving notice, you should have given more than ample warning and an opportunity to cure. (There is, of course, an issue regarding whether the opportunity to cure the conduct must be included in the eviction notice, such as the Three-Day Notice to Pay Rent or Quit. I had to litigate this issue, and the court ruled that such an opportunity in the notice was not required, but because the Rent Ordinance does not specify, the issue remains open to argument.) Whatever you do, do not give a notice terminating tenancy for habitual late payment of rent without the assistance of a qualified attorney.

Last, the most effective strategy may be to simultaneously give two notices. The first would be a Three-Day Notice to Pay Rent or Quit. The other, depending on your circumstances, would be a 3-, 30-, or 60-Day-Notice Terminating Tenancy for Habitual Late Payment of Rent. None of the latter notices are available through the SFAA. They need to be drafted by a competent landlord/ tenant attorney who knows the specifics of your case. This way, if you can’t get rid of the errant tenant one way, you can get rid of them another way.
– Saul M. Ferster

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The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. David Wasserman is with Wasserman & Taxman, 415-567-9600. Jeffery P. Woo is with the law firm of Woo & Associates, 415-705-6470. Michael C. Hall can be reached at 415-512-9865. Saul M. Ferster can be reached at 415-863-2678