Legal Corner Q & A
by Various Authors
Q. What happens if, after signing a lease and giving keys to the tenant, the tenant’s check bounces? (I believe the tenant has not moved into the unit yet.)
A. This situation is one of a landlord’s worst nightmares. While there is the possibility that the tenant was not directly at fault, the fact that the tenant’s initial check bounced sends an ominous signal to the landlord that, “I have just rented to a deadbeat tenant who probably knows all the protections given tenants here in San Francisco.” We hope that you performed a thorough credit check, reference check and unlawful detainer check, which could have avoided this problem. Once the problem occurs, however, the landlord has immediate options for action.
Find out if the tenant has moved into the unit. In the scenario described in the question, most likely the tenant legally occupies the unit. Under state law, a transfer of the owner’s possessory interest is key to the creation of a tenancy, for it gives the tenant a protected property right. After executing a rental agreement with the tenant, the landlord must deliver possession of the unit to his or her new tenant. In the typical rental, the landlord’s obligation for delivery of possession is satisfied by providing the tenant with the keys. When the landlord has delivered possession, the tenant’s contractual right of possession (under the rental agreement) has probably ripened into a property right and an exclusive right of possession. However, even if the rental agreement is signed by both the landlord and the tenant, if the landlord has not yet delivered legal possession, he/she possibly could rescind the lease (which is a contract) on grounds of fraud and failure of consideration.
On the other hand, a landlord could argue that the tenant has not occupied the rental unit until the tenant actually takes physical possession of it. However, we would never advise any landlord to unilaterally change the locks of a unit without an unequivocal surrender of possession by the tenant or a court-ordered sheriff’s eviction. The risk of a wrongful eviction lawsuit is too great, especially here in San Francisco with pro-tenant laws and pro-tenant juries.
You should immediately send a nicely worded letter to the tenant that explains the situation clearly and requests a quick resolution to this “oversight.” Also, you should contact the tenant by telephone regarding the resolution of this situation. If the tenant ignores the letter and phone call, you should quickly serve the tenant with the two following notices: Three Day Notice to Pay Rent or Quit and a Three Day Notice to Perform Conditions or Quit. These two notices (under most circumstances) can be served immediately. There may be times when the tenant signs the lease in advance of the date for taking possession of the unit, and the first month’s rent may not be due as of yet. However, under most circumstances, the landlord should be able to serve these notices without delay.
Hopefully, the tenant
will either rectify the situation immediately or agree
to a stipulated surrender. We cannot stress more highly
to a landlord the importance of performing a thorough screening of
prospective tenants. Also, a good written renta agreement (like the PPMA
Residential Tenancy Agreement) is helpful, for it has
a provision for returned checks (imposing returned-check
charge) and further gives the landlord the right to
demand certified funds, cashier’s checks or money
orders for future payments. Given this situation, you
should be prepared to act quickly by serving the two
three-day notices on the tenant. As always, retain
an experienced landlord-tenant attorney before taking
any action.
– Jerod Hendrickson & Lawrence M. Scancarelli
Q. The original tenant is moving out and the unapproved tenant—who was served with a 6.14 Notice—is staying and will likely sign a new lease. How does the landlord handle the return of the security deposit, the walk-through inspection and the collection of the new security deposit?
A. The first issue is whether or not the owner should return the old security deposit and sign a new lease. Better management would be to simply serve either a notice of rent increase, raising the rent to fair market value, or serve a reservation-of-right-to-increase-rent notice, which will preserve the owner’s right to increase the rent to fair market value at a later time. In most cases, the security deposit is returned, and the pre-move-out inspection occurs only when the tenancy terminates and everyone moves out. In this instance, a significant remnant of the old tenancy stays behind, so really the tenancy has not terminated, and the remaining occupant is entitled to a notice of rent increase before the new rent is charged (60 days, if the amount of increase is over 10 percent of the previous rent; or 30 days, if the increase is no more than 10 percent).
The only advantage in returning the security deposit to the departing tenant and signing a new lease with the 6.14 occupant would be if the old lease was the two-page, dime-store version, and the 6.14 occupant agreed to sign something akin to the new 2004 PPMA Lease. In this case, the owner could justify performing a pre-move-out inspection (if requested) with the departing tenant and returning the old security deposit, while simultaneously accepting a new one from the 6.14 occupant. However, the owner may be hard pressed to defend any deductions, since the unit will not be cleaned because someone is staying behind. Perhaps the only legitimate deduction, other than for unpaid rent owed by the departing tenant, would be damage beyond normal wear and tear that was identified during the pre-move-out inspection and repaired by the owner after the original tenant left (with receipts provided if the work exceeded $125). In addition, some tenant attorneys take the compelling position that occupancy by the 6.14 roommates continues the original tenancy, and therefore the submission of a new lease with different and additional terms is not lawful.
As a general rule, the tenancy ends, and the security deposit is returned only when everyone vacates, including the 6.14 occupants. When the last original tenant leaves, and 6.14 subsequent occupants stay behind, the owner may (and should) either (1) raise the rent to fair market value or reserve the right to do so in writing or (2) in some cases, terminate the tenancy and evict all remaining unapproved occupants. If people stay behind, and you decide to keep them on as 6.14 occupants, then raise the rent (or serve a reservation of right to raise the rent) and keep the original security deposit in place until the unit is delivered back to you. The departing tenant can get the security deposit reimbursement from the roommates who stay in the unit.
Last, the state legislature
very likely will amend the Costa-Hawkins Rental Housing
Act this year. The amendment will absolutely require
an owner in San Francisco to serve a 6.14 Notice on
subsequent occupants, if the owner wants to raise rents
to fair market value when the last original tenant
leaves. At present, the prevailing view is that state
law does not require the 6.14 Notice to be served, but good management
requires service of these notices because of political uncertainty (see
related article on page 11.) With this new amendment on the horizon,
make sure you (1) pay close attention to who is in your rental unit and
(2) serve 6.14 Notices on both the original and subsequent occupants
no later than 60 days after becoming aware of a new person’s occupancy.
– David Wasserman
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.The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Jerod Hendrickson and Lawrence M. Scancarelli are with the Law Office of Lawrence M. Scancarelli, 398-1644 x 100 or sfrealestatelaw. David Wasserman is with Wasserman-Taxman, 415-567-9600. Copyright © 2004 by the San Francisco Apartment Magazine. All rights reserved.