Looking to 2008  

Like last year, the legislative sessions in 2008, both in Sacramento and at City Hall, did not produce significant or numerous laws for property owners.  Hopefully, this trend will repeat itself in 2008 and beyond.   

One battle that will likely continue is the assault by some California state lawmakers to limit the use of the Ellis Act.  The Ellis Act is a state law which allows  a landlord to take all of the residential rental units in a building off of the market, provided that the “Ellised” property is subjected to various re-rental restrictions and, in San Francisco, tenants are paid relocation fees.  Several years ago, Assemblyman Mark Leno sponsored legislation to prevent the use of the Ellis Act for single-room occupancy (SRO) properties in San Francisco, Los Angeles, and San Diego.  Now, Senator Kuehl and other pro-tenant lawmakers want to limit the Ellis Act to landlords that have owned the property for a certain period of time.  In 2007, a bill was defeated in the State Senate which would have required a five-year ownership of rental property before it could be withdrawn from housing.  In a last-minute compromise, Ms. Kuehl amended the bill to require an ownership period of three years, but property rights groups succeeded in killing the measure.  Most industry leaders expect this effort to be renewed in 2008.  

The Ellis Act was also the subject of a Court of Appeal decision in Daro v. Superior Court (Foy).  In that case, a group of tenants challenged the landlords’ use of the Ellis Act by arguing that the owners committed unfair business practices with their attempting to sell subdivided interests in the property (TIC units) without complying with the state’s Subdivided Lands Act.  The trial court issued on order preventing the use of the Ellis Act in this situation and stopped the eviction. The Court of Appeal reversed this decision, stating that landlords have the absolute right to evict.  The tenants may have a right to sue for unfair business practices, but they cannot use this ground as a basis to thwart the Ellis evictions.  

In late summer of 2007, the California Supreme Court published its decision in the much anticipated Action Apartment Association v. City of Santa Monica case.  This lawsuit addressed the issue of whether or not service of an eviction notice creates liability for landlords.  Santa Monica had passed an amendment to its rent law that imposed liability on owners for serving an eviction notice if the notice was issued in “bad faith.”  Such a measure conflicted with a longstanding cornerstone of American jurisprudence, which states that communications made in the course of litigation are protected speech.  The Supreme Court noted that a “factual inquiry” is required to determine whether an eviction notice is protected speech.  The test is whether the notice was served in a good faith contemplation of an eviction action under serious consideration.  If so, then the eviction notice is protected speech.   In San Francisco, tenants often, and sometimes automatically, sue their landlords just for serving a notice, regardless of whether or not the notice was issued as a precursor for a legitimate eviction action.  Indeed, owners may find themselves as defendants even before an eviction notice expires.  While it is too early to ascertain how Action Apartment will be interpreted by the trial courts, the industry remains optimistic that this practice of suing someone for serving an eviction notice will be curtailed in light of the recent Supreme Court holding.  To this end, in September and October 2007, the Court of Appeal rendered several unpublished decisions indicating that service of a notice, as a prerequisite to an eviction, is activity done in furtherance of a property owner’s right to petition the courts and therefore protected speech.  

Laws related to discrimination in housing were also modified.  Civil Code section 782.5, which stated that rental agreements are “deemed revised” to omit any discriminatory restrictions, now specifically states that rental contracts cannot contain language to discriminate against persons because of race, color, religion, sex, sexual orientation, marital status, national origin, ancestry, familiar status, source of income or disability.  In Angelucci v. Century Supper Club, the California Supreme Court ruled that to state a claim for damages under the Unruh Act, one of California’s anti-discrimination laws, a litigant need not demonstrate that he or she affirmatively requested nondiscriminatory treatment and was refused.  Thus, a tenant or rental applicant does not need to show that a request was made on the landlord to provide discrimination-free housing services.  Rather, a housing provider may be liable for unlawful discrimination even if the tenant or prospective renter failed to make a request or demand to be treated fairly.  

Also long-awaited was the Supreme Court’s decision in Castaneda v. Olsher.  This case asked the question as to when a landlord had a duty to evict suspected gang members.  In Olsher, a tenant was shot when rival gangs engaged in a shooting incident.  The plaintiff-tenant asserted that the landlord should have evicted the gang members based on past conduct, and claimed that the stray bullet was foreseeable.  The Supreme Court disagreed, opining that the absence of brighter common area lighting was not a substantial factor in causing the incident.  In addition, a landlord has no duty not to rent to known gang members as a class, and to hold otherwise could result in unlawful discrimination on the basis of race, ethnicity, and family composition.  Furthermore, requiring landlords to obtain criminal records on tenant applicants suspected of gang membership would impose a “burdensome, dubiously effective and socially questionable obligation.”   The big local news for 2007 was the imposition of Proposition H in December 2006 on no-fault evictions.  Proposition H was passed by the San Francisco voters in November 2006 and is now codified in the rent law.  Effective March 1, 2007 (and subject to further increase on March 1, 2008 and every March 1 thereafter), all occupants residing in a unit for more than a year, regardless of age, are entitled to $4,568 each, with a cap of $13,705 per unit, when the owner is terminating the tenancy pursuant to an owner/relative move-in, removal of unwarranted rental unit/demolition of rental unit, or substantial rehabilitation of the building.  In addition, the temporary suspension of a tenancy for capital improvement work also requires this payment.  The landlord must also pay an additional $3,046 for each elderly or disabled tenant, or to each household with at least one child under the age of 18 years.  This relocation requirement substantially increased the costs of these types of evictions, and the prior exemption to pay owner/relative move-in relocation for single-family homes and condominiums was discontinued.  For Ellis Act evictions, local law requires payment of $4,571.92 per adult with a cap of $13,715.75 per unit, with an additional $3,047.94 for elderly or disabled tenants.  These rates will again increase in March 2008.   

The Board of Supervisors also passed a re-key amendment to the San Francisco Administrative Code’s security deposit chapter.  This amendment requires landlords to re-key or replace door locks when all tenants vacate a rental unit.  A landlord must re-key or replace only one lock on each door exclusive to the unit.  The “re-key of tenant’s door only” portion was inserted in large part because of the effective efforts of the SFAA and Coalition for Better Housing leadership, who convinced City Hall to change a prior draft of this bill which would have required the re-keying of all common areas when a tenant vacated.  Obviously, such a provision would be economically disastrous for many operators in the City, and owners should be grateful for this compromise.  

State courts have also expanded a prevailing party’s right to collect attorney fees where the lease or contract has a clause awarding fees to the winner.  Many residential leases have such clauses, although the SFAA Residential Tenancy Agreement does not.  In Loduca v. Polyzos, the Court of Appeal held that a non-signing party should be awarded attorney’s fees.  Conceivably, this case could be used by subtenants and “6.14 subsequent occupants,” who never signed the lease, to recover their lawyer fees if they successfully defend an eviction action and if the rental agreement contains an attorney fee provision.   

In sum, the Ellis Act has survived a major assault.  The California Supreme Court affirmed that eviction notices, when served as a precursor to legitimate litigation, are protected speech.  Landlords are not obligated to evict suspected gang members, but in San Francisco they have to re-key a tenant’s door at the conclusion of the tenancy.  Relocation payments are up, and discrimination in renting remains off limits.  If the rental agreement contains an attorney fee clause, non-signatory third party beneficiaries may make a successful claim for fees if they prevail in a legal action.  Yet all in all, 2007 was a good year for property owners, but the threat of harmful legislation remains ever-present both at the State Capitol and at 100 Van Ness Avenue.  Therefore, we need to remain actively involved in the process, both with our votes and pocketbooks.  Happy New Year!  

DW