Feature
by Andrew J. Wiegel & Clifford E. Fried
In San Francisco, the rent for a rent-controlled unit can only be raised to market at the time of vacancy. This leads to musical-roommate abuse by tenants who perpetuate revolving multiple-occupant tenancies, and it denies owners the right to raise the rent to market.
In 1989, the San Francisco Rent Board promulgated Section 6.14. Rather than preventing new roommates from automatically acquiring the full rights of the original tenant, the regulation provided limited protection for the diligent property owner who was willing to monitor occupants and jump through procedural hoops to prepare and properly serve a technically exacting notice.
If a property owner was not aware of the regulation or did not comply with its special notice requirements, interlopers could easily acquire the windfall benefit of a controlled rent—established by a much earlier tenancy—even after the tenant for whom that base rent had been established had vacated the unit.
When the California Legislature passed the Costa-Hawkins Act in 1995, it confirmed certain rights to property owners as a matter of state law. One of these rights was the right to increase the rent for the remaining occupants when the last original occupant “…who took possession of the dwelling pursuant to the rental agreement with the landlord no longer permanently resides there,” provided that none of those other occupants resided there as “lawful sublessees or assignees” prior to January 1, 1996.
For many years, the provisions of the Costa-Hawkins Act and the provisions of Section 6.14 seemed to operate somewhat independently. In some respects, the provisions of Section 6.14 were in conflict with the landlord's rights under Costa-Hawkins. In April 2000, Section 6.14 was overhauled and brought into conformance with the Costa-Hawkins Act.
Despite the passage of the Costa-Hawkins Act and the amendments to San Francisco's Section 6.14, the problem of revolving roommates continues. As time goes on, and rent control in San Francisco continues to mature, the incentive for new roommates to capture low rents from old tenancies will become even greater.
Section
6.14
Section 6.14 begins by defining three classes of occupant:
the original occupant, the subsequent occupant and
the co-
occupant (Reg. 6.14 (a)). The “original occupant” is defined in
the manner one would expect, but includes anyone who took possession with the
express consent of the landlord “at the time that the base rent for the
unit was first established.” It would, therefore, include not only a
named tenant who signed a rental agreement, but also anyone who was known to
the landlord to take possession as a roommate or co-
occupant. For example, persons named as additional occupants on the rental
agreement or persons from whom applications were received along with
the named tenant would be included.
The “subsequent occupant” is defined as including anyone who later commenced occupancy with an original occupant.
“Co-occupant” is defined as a special subgroup of the subsequent-occupant category, including only those subsequent occupants who have “a rental agreement directly with the owner.”
The regulation then sets forth the rights of the three different classes of occupants, depending on when their occupancy commenced with respect to the January 1, 1996 cutoff date established under the Costa-Hawkins Act.
The next subsection, Section 6.14 (b), provides that subsequent occupants who commenced occupancy before January 1, 1996 and all co-occupants—regardless of when they commenced occupancy—are not subject to rent increases upon the vacating of the last original occupant, unless they were served with the traditional Section 6.14 Notice within a “reasonable time,” presumed to be within sixty days of commencing occupancy.
Subsection 6.14 (c) provides that subsequent occupants, without any direct agreement with the landlord, who commenced occupancy after January 1, 1996, are subject to rent increases when the last original occupant vacates after April 25, 2000, unless they can affirmatively prove that the landlord waived the right to that rent increase. This proof must be based on affirmative representation, failure to act within 90 days or failure to reserve the right to increase the rent at a latter date after receiving written notice of the new roommate and, thereafter, accepting rent.
Subsection 6.14 (d) addresses the same situation as 6.14 (c), except it is applied to a last original occupant who vacates prior to April 25, 2000. Under these circumstances, the regulation only allows the landlord to raise the rent on subsequent occupants who commenced occupancy after January 1, 1996, and who themselves have no direct rental agreement with the landlord, if the landlord gave a traditional Section 6.14 Notice, or if the landlord was otherwise “entitled to establish a new base rent under the Costa-Hawkins Act.”
In other words, for a situation where the last original occupant vacated prior to the effective date of the regulation, the Rent Board has inserted a default provision that recognizes that the Costa-Hawkins Act creates an independent and supervening right to raise the rent, notwithstanding the existence of any local regulations.
There is a separate subsection 6.14 (e) that addresses a special circumstance for the formerly exempt landlord who occupied a two- to four-unit building, which came under rent control as a result of Proposition I in 1994. This section provides that service of a Section 6.14 Notice by August 15, 1995, would be effective for occupants who took occupancy anytime prior to February 15, 1995, even though they would have received the notice more than 60 days after commencing occupancy. In the absence of this notice—pre-February 15, 1995—subsequent occupants could not be subjected to a rent raise. The rights of subsequent occupants who commenced occupancy after February 15, 1995, are determined by the other subsections.
When Can
I Raise the Rent?
Whether or not you can raise the rent when the last original
tenant vacates depends on several factors.
First, when did the remaining occupants take occupancy? The rules are different for occupants who took occupancy after January 1, 1996, the effective date of the Costa-Hawkins Act. Are there any occupants who were not properly served with a Section 6.14 Notice within a “reasonable time,” after commencing occupancy? If there are, and they took occupancy before January 1996, you cannot raise the rent on them.
Second, has the landlord made any assurance of continuing controlled rent or entered into any direct rental agreement with the new occupant? Depending upon representations or the terms of any agreement, that occupant may be entitled to continue the benefit of the controlled rent, even if he or she took occupancy after January 1, 1996. Any rental agreement with the landlord makes this person a co-occupant, which the regulation appears to construe as automatically conferring the same benefits as the original occupant.
However, the rent could still be increased as long as this co-occupant was also served with a Section 6.14 Notice or equivalent, or if the co-occupant's agreement with the landlord specifically states that it is not a rental agreement but rather a confirmation of rights and obligations consistent with Costa-Hawkins and Section 6.14. This latter confirmation of rights sets forth that the co-occupant understands and agrees he or she is not an original occupant, and that his or her rent is subject to an increase at the time the original occupants vacate.
Third, did the landlord receive a written notification from the original occupant that a roommate or subtenant had taken occupancy and, thereafter, accepted rent without giving a Section 6.14 Notice or other effective notice of the right to raise the rent when the last original tenant vacated?
Under Costa-Hawkins, a waiver can only occur if the written notice comes from “the tenant that is a party to the agreement,” and the landlord thereafter accepts rent. The regulation seeks to expand the basis for a waiver to include a notice from any original occupant, including persons who were not necessarily actual parties to the agreement. That expansion is probably void as contrary to state law, and the waiver should only exist when the written notice comes from someone who is actually named in a rental agreement. If the landlord waived the right to increase the rent, the rent cannot be increased.
Last, is it still within 90 days since the tenant sent written notice of the new roommate to the landlord, or actual knowledge of the original occupant vacating? Failure to act quickly, at least by giving a proper notice that reserves the right to raise the rent or by actually raising the rent within 90 days is stated in the regulation as a basis for a waiver. I doubt that this provision, which does not appear in Costa-Hawkins itself, is enforceable if rent has not been accepted during that period.
The best protection remains the service of a written notice whenever a new occupant appears in a unit. A current example of the Section 6.14 Notice has been prepared by Wiegel & Fried, LLP and is printed on pages 13 and 14, without warranty and for use at your own risk. Even if you neglect to serve the notice, you should consult with an attorney about your ability to increase the rent on new roommates.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Andrew J. Wiegel and Clifford E. Fried are attorneys with offices in San Francisco and Oakland. Since 1977, they have been litigating real estate disputes, rent control, leasing and property management issues. The information contained in this article is general in nature. Consult an attorney for advice with regard to any specific problem. © 2004 by Wiegel & Fried, LLP. All rights reserved.