Court Talk
By Various Authors
Q. I would like to mandate that all future tenants have renter’s insurance. Am I allowed to make that part of my rental agreement?
A. You may require in your rental agreement that all tenants carry renter’s insurance. However, as a practical matter, enforcing this lease covenant will be difficult, if not impossible. In fact, many landlord attorneys will tell you that evicting a tenant for failing to renew a policy of renter’s insurance will not be easy. Most likely, the owner will probably fail in an attempt to terminate the tenancy when a tenant decides, after moving in, to cancel the policy.
The better approach is to state, in the text of the lease agreement, that tenants are advised to carry renter’s insurance, and that the landlord’s policy will not cover any loss to the tenant’s property. The 2007 SFAA Lease contains such language. Paragraph 33 of the new lease states as follows: “Owner’s insurance does not provide for coverage of Tenant’s personal belongings or personal liability unless as a direct and proximate result of Owner’s negligence. Therefore, Owner strongly urges and recommends to each Tenant that Tenant secure sufficient insurance to protect against losses such as fire, flood, theft, vandalism, personal injury or other casualty.”
Thus, a properly worded lease agreement will achieve the owner’s objective of properly advising the tenant to carry insurance and not to rely on the building’s coverage to pay for personal injury and property damage. The owner will also not be in the difficult position of checking annually for policy renewals and then, if the policy has lapsed, be compelled to commence legal action, which could very likely yield a negative result for the landlord.
Owners should still understand that a tenant may seek indemnity from the building’s insurance when a loss occurs as a result of the landlord’s negligence. As stated in the 2007 SFAA Lease, coverage is excluded unless the loss occurs because the owner did some wrongful act or failed to take necessary precautions to prevent harm from occurring. For example, if you know that the roof leaks and you fail to fix it, the tenant can sue you for water damage, including harm caused by mold. A premises that is not properly lit is a magnet for injury claims. Likewise, if you do not maintain code-compliant fire/smoke alarms and extinguishers in working order, your carrier, and perhaps you, will be paying for injuries and property damage should a fire occur. As a general rule, when damage happens due to your own negligence, your policy pays regardless of whether the tenant has renter’s insurance. Yet when the tenant’s bike is stolen out of the garage, or the entertainment system is destroyed during an earthquake, you can lessen the likelihood of the tenant receiving indemnity from you and your insurer when the rental agreement places the tenant on notice to procure adequate protection.
So, in conclusion, tell your tenant to carry renter’s insurance in the lease agreement, but you probably cannot enforce a rule requiring annual renewal of such a policy. More importantly, ensure that your building is well maintained so that the tenant can never make a claim against you or your policy.
–David Wasserman
Q. I have a tenant who has paid her rent late for three consecutive months. I have the postmarked envelopes as proof. The tenant has also ignored written requests for late fees. Do I have enough evidence to evict, and if so should I opt for a habitual late payment eviction or a breach of covenant eviction?
A. It’s difficult to answer your question without having more information. As is so often the case, your rights are very much determined by the specific language of your lease or rental agreement. For example, although the San Francisco Rent Ordinance permits you to evict a tenant for habitual late payment, it does not define what constitutes “habitual.” As a result, there is always some wiggle room for the tenant to argue that the incidents of late payment are not sufficiently numerous to be habitual. A good rental agreement will define “habitual” for purposes of late payment, for example, 3 times within 12 consecutive months. In such a case, the tenant and landlord agreed at the time the tenancy began how that term would be defined, and if you have 3 such late payments, you may have sufficient grounds for moving forward on that basis. There still may be other considerations, however, such as whether there is a history between you and the tenant of late payments, which has been tolerated over a sufficient period of time so as to actually change the terms of the tenancy to permit payment after the due date. The question might also be asked whether you are tolerating such late payment routinely from other tenants, but for some reason have chosen to come down hard on this particular tenant. That might be circumstantial evidence of a state of mind or an ulterior motive, which is inconsistent with eviction on the grounds of habitual late payment.
Generally, before seeking to evict a tenant for habitual late payment, it is advisable to establish a strong paper trail of warnings and demands to the tenant to pay rent on time before an actual eviction is initiated. One of the problems frequently seen with correspondence about late payment is that the landlord will demand payment of a late charge rather than informing the tenant that habitual late payment of rent is itself grounds for eviction and demanding that it cease. The effect can be to suggest that there is a trade-off the tenant may elect, i.e., if you pay late, then you pay a late charge and all is forgiven.
Which, of course, brings us to the issue of the late charge itself. There is very little in California law regarding the enforceability of a late charge. There was a Los Angeles case a year or so ago where the court held that in order to be collectible, a late charge must approximate the damage suffered by the landlord from the tenant’s late payment, and the landlord must prove that damage. This is often a very difficult burden to meet, and frequently, particularly where rents are high, there is no such relationship. Instead, the late charge falls into the category of a “penalty,” rather than a reimbursement for damage caused. Penalties are disfavored under California law and generally are not enforceable. Therefore, in order to advise you on whether or not a basis exists for bringing an eviction action for failure to pay the late fee, it would be important to see the specific language in your rental agreement regarding late fees, and whether the amount prescribed is reasonable, reflecting actual damages to you. I have seen some such clauses that provide for a daily penalty of $20 to $30, which can result in a late “fee” of thousands of dollars, depending on how long the rent remains outstanding.
–Saul M. Ferster
Q. If the ancient furnace from the unit of my only tenant fails and cannot be repaired, I would prefer to invoke the Ellis Act and go out of the rental business, rather than replace it. The tenant is a wealthy heir and business owner who would nevertheless claim disability. What legal issues would I face between the time the furnace fails and the completion of the Ellis Act process?
A. You would likely face three issues: (1) to what extent will liability be created by virtue of a nonfunctioning furnace, (2) will such a problem delay or hinder the process of withdrawal under the Ellis Act, and (3) is the tenant entitled to an extended, one-year withdrawal period?
As many readers know, the Ellis Act is a state law which permits a landlord the right to go out of the rental housing business by withdrawing all residential units in a building from the rental housing market via termination of all residential tenancies. Landlords have this right under state law and can rely on it to get out of the rental housing business when a local eviction-control ordinance would otherwise compel that landlord to stay in business by offering no local grounds on which to terminate all such tenancies. The Ellis Act was passed by the California legislature specifically in response to a California Supreme Court decision which upheld Santa Monica’s attempt to compel a landlord to stay in the rental housing business against his will (by refusing to permit him to evict the tenants in his building so that he could demolish it).
To the extent that the furnace must function in order for the unit to have heat, then the lack of heat will likely render the unit uninhabitable. If this were to happen, the tenant would likely be entitled to various remedies, including partial or complete rent reductions from the San Francisco Rent Board, or damages from the San Francisco Superior Court based on a habitability claim. The tenant might also call the city’s Department of Building Inspection, which might issue a notice of violation demanding that the furnace be fixed.
In terms of the Ellis Act, however, these facts would likely not affect the landlord’s right to withdraw, as state law has specifically decreed that serious habitability violations cannot defeat Ellis Act rights and otherwise become a basis on which to compel property owners to continue to rent properties against their will.
California Civil Code §1942.4 provides that, in cases of serious habitability violations in which the government has issued a notice to abate violations, and in which the landlord has failed to cure that notice within 35 days (without good reason for the delay), the landlord essentially forfeits the right to even demand or collect rent from the tenant until the violations are cured. With that said, Civil Code §1942.4(f) makes clear that “[n]othing in this section shall require any landlord to comply with this section if he or she pursues his or her rights” under the Ellis Act. In other words, the fact that the furnace no longer operates (thereby creating a serious habitability problem) will not compel you to remain a landlord.
Notwithstanding the tenant’s personal circumstances and the fact he is wealthy and gainfully employed, if he is disabled within the meaning of the Ellis Act, has resided in the unit for at least one year and timely elects an extended withdrawal period, the tenant will be permitted 365 days to vacate the premises, as opposed to the standard 120 days. You will also be required to make relocation payments. Assuming this tenant is the only one in the unit, he will be entitled to $7,500 (plus any annual adjustments in that amount, as permitted by law).
–Curtis F. Dowling
The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF 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-Stern and can be reached at 415-567-9600. Saul M. Ferster can be reached at 415-863-2678. Curtis F. Dowling is a partner at Beckman Marquez, LLP and can be reached at 415-495-8500. Copyright © 2007 by SF Apartment Magazine. All rights reserved.