Feature

by David Wasserman

In August 2006, San Francisco’s Rent Ordinance was amended to require an owner to have “just cause” to remove or sever certain housing services. Specifically, the law now states that garage facilities, parking facilities, driveways, storage spaces, laundry rooms, decks, patios or gardens on the same lot cannot be taken away from tenants in apartment rentals absent the landlord invoking one of the just causes for eviction. In single-room occupancy hotels, kitchen facilities and lobby access is also precluded from severance.

This legislation was apparently motivated by tenants complaining to various supervisors that real-estate developers and speculators who did not want to empty the building by using the Ellis Act would instead take away tenant services like parking and storage, thereby effectively forcing tenants out of their units. Indeed, Supervisor Ross Mirkarimi supposedly became alarmed after hearing reports of tenants moving because the new owner rescinded their parking or storage privileges; without these amenities, the tenants could no longer comfortably live in their units.

Prior to this law, owners could sever housing services as long as a rent reduction was simultaneously granted to the affected tenant. For example, a buyer of a duplex with one parking space rented to a tenant in Unit B could serve notice that the new landlord would now use the garage for himself in Unit A, but that the tenant’s rent would be reduced by the value of the parking. In addition, oftentimes when a new landlord would owner-occupy a building, certain amenities, like garden areas or roofs, would be transformed into private space for the owner-occupiers. As long as a fair rent reduction was given as a concession, the change in terms of tenancy would be honored.

Many times, tenants contested the amount of the rent reduction, and the San Francisco Rent Board would adjudicate disputes about the value assigned by the landlord. In recent years, some tenants refused to cede to the owner’s effort to remove or sever housing services. This led to eviction litigation, where the landlord was forced to pursue an action for termination of tenancy based upon the tenant’s failure to abide by the newly imposed lease requirement. Most commonly, a tenant would not remove a vehicle from a parking space reclaimed by the landlord and—after the landlord gave proper notice to take back the space, and upon issuance of a three-day demand notification to comply with the new lease rule—both sides would wind up in a court battle.

Owners did not always prevail in these evictions, as many judges at the San Francisco Superior Court viewed garages and storage as essential and nonseverable components of a tenancy. As a result, landlord attorneys became increasingly concerned about the ability to unilaterally withdraw certain services, although the rent law permitted severances that related to garage, storage space or access to common areas for which a commensurate rent reduction had been provided by the landlord.

Now, however, this right is no longer afforded to owners. The action by the San Francisco Board of Supervisors halted debate as to whether or not certain services could be removed or severed, even with a rent reduction. Under the new law, any severance must be accompanied by just cause. Just cause is confined to the 14 grounds stated in the San Francisco Rent Ordinance. The most common just causes are nonpayment/habitual late payment of rent, nuisance, illegal use of the unit, owner/relative move-in, temporary evictions for capital improvement work, and breach of a lawful lease covenant or obligation.

Thus, an owner who buys a two-unit apartment building and wants to move into the empty upstairs unit, and further desires to take over the one garage parking space used by the tenant in the downstairs unit, is probably prevented from effectuating this plan. Likewise, a landlord who wants to remodel a building’s common area cannot do so if the work will require severance of the laundry room facility. Oddly, the new law states that if severance, reduction or removal does occur, the tenant will be granted a corresponding rent reduction. However, because a literal reading of this law states that a severance can only occur if there is just cause to terminate the tenancy, how can a rent reduction be envisioned when the tenancy no longer exists?

The San Francisco Rent Board was mindful of the nonsensicalness of this statute, and the Rent Board Commissioners considered a series of proposed regulations that would interpret the law in a manner that would impart some degree of fairness onto the landlord community. The final draft of these regulations made the following clarifications:

• A housing service would not include a service that was removed for 90 or fewer days to perform capital improvement work, lead remediation, or necessary repairs and maintenance. In addition, a housing service would not include a service added after the tenancy began if no additional rent was charged.
• Owners, or an owner’s qualified relative, could sever the housing service for their own use for a period of at least three years.
• A landlord could temporarily sever a housing service to perform capital improvement or lead abatement work.
• No civil or criminal liability would be imposed upon a landlord who seeks to sever a housing service in good faith pursuant to these regulations.

Unfortunately, the Rent Board Commissioners could not agree to pass these regulations. The tenant commissioners were supposedly unhappy with the latitude afforded to owners by the proposed regulations, and negotiations ended in March. At present, the Rent Board takes the position that the Superior Court must interpret the provisions of this new law. As a result, there is a high degree of uncertainty in both the landlord and tenant communities.

A Rent Board memorandum from senior staff to the commissioners, issued on August 31, 2006, summarized the current predicament. Senior staff noted that some of the 14 just-cause grounds are not applicable to the removal of housing services. For example, condominium conversion, substantial rehabilitation of a unit and the removal from rental use of all units pursuant to the Ellis Act could not be invoked to remove a housing service only. Other grounds, such as nonpayment of rent and nuisance, terminate the entire tenancy and thus were likewise inapplicable. This left owner/relative move-ins, temporary evictions for capital improvement work, demolition of units and temporary relocation for lead abatement as possible candidates for consideration.

Yet even these just causes presented a problem. Staff highlighted the inherent illogic of the new law as it applied to owner move-ins. In the memorandum they ask, “Does the landlord have to ‘reside’ in the parking or storage space or garden as their principal place of residence for 36 months?” Indeed, does a landlord have to pay a tenant displaced from parking, but not the unit, the massive relocation payments now required under Proposition H? Staff also noted that substantial relocation payments would be due for temporarily removing services under the lead remediation and capital improvement grounds. In essence, you could pay your tenants in excess of $15,000 to clear the garage for three months!

Staff observed that the law has no explanation about the type of eviction notice required, or if an unlawful detainer (court eviction action) would be the appropriate mechanism to enforce compliance. More disturbingly, the rent law’s amendment is silent as to what happens if a landlord allows a tenant to use a service, for no additional rent, after the tenancy commenced. Thus, an owner could grant garden access, charging no additional compensation for its use, and then be precluded from taking back exclusive access.

Finally, Rent Board staff correctly reported that the current law seems to conflict with a California Court of Appeal case from San Francisco, entitled Golden Gateway Center v. San Francisco Rent Board. In that case, the Rent Board wrongfully awarded tenants at the Golden Gateway apartment complex rent reductions for the temporary loss of their decks while the owner was repainting and repairing the exterior of the building. The Court of Appeal stated that reasonably necessary repair and maintenance work on the property, which has the effect of temporarily interfering with the tenant’s full use of a housing service but does not interfere with the right of occupancy, does not constitute a decrease in housing services warranting a rent reduction. This new law contains no exception to allow a decrease in services for necessary repair and maintenance work, and therefore creates a conflict with California case law.

Some practitioners argue that because the law states that the specified housing services cannot be “severed” without just cause, a reduction may be imposed provided that a rent reduction is allowed. Thus, an owner could reduce the amount of hours a tenant spends in the garden, but as long as there is no severance, arguably no unlawful interference with housing amenities has occurred. The Rent Board does not support this interpretation, and conceivably a landlord who imposes a significant reduction of access to a service may be subject to severe wrongful eviction penalties.

A real challenge relates to new owners who encounter tenants using services not designated as such by the lease agreement. In other words, many times tenants store items in places not designated as their storage, or they use a roof deck that is not specified on the lease as a housing service. In these situations, current or future owners may now be unable to correct the tenant’s conduct, as undoubtedly tenants will assert that they were given permission to use these services.
Most importantly, an owner who simply wants to reconfigure the building by changing parking or taking away a dangerous roof deck may face the prospect of preclusion. Worse yet, a failed attempt to alter services could result in a wrongful eviction lawsuit.

The courts will undoubtedly interpret the new housing services law. Hopefully, judicial analysis will favor the housing industry, as the outright prohibition envisioned by the supervisors makes good-faith remodels and alterations of a building’s use impossible. Thus, while the supervisors sought to curtail abuse by real-estate speculators, the current result is that law-abiding landlords are subject to this punitive restriction. Unfortunately, the housing industry may have to fund an appropriate legal challenge to rectify this situation.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the SF Apartment Magazine. David Wasserman is the president of SFAA. He can be reached at Wasserman-Stern Law Offices, 415-567-9600. Copyright © 2007 by SF Apartment Magazine. All rights reserved.