Posted by wasserman
Title: Subtenant Safety
Author: David Wasserman
Dek: For the last five years, SFAA’s advice to owners regarding subtenants has remained the same: the less you know, the better.
Word Count: 1,700
The following is an excerpt from an SFAA membership announcement I co-wrote with three of my colleagues, Clifford Fried, Saul Ferster and Curtis Dowling, back in August of 2010. The excerpt is being reprinted today with slight editing in response to continued inquiries that SFAA receives from members about the use and non use of Section 6.14 notices for sub tenancies. At the end of this reprinting, I have added some thoughts about what I have observed over the past five years in hopes of further clarifying this topic and lending added credence to what we wrestled with during the summer of 2010.
A Look Back
Over the past several years, there has been a lot of discussion about how owners should acknowledge subtenants. We recognize that even where the lease prohibits subletting, the local rent law permits master tenants to replace departed roommates and to live with immediate family members. In addition, people just add other people, especially in this market As such, subletting is a common reality for many San Francisco landlords. (Indeed, at the time of this publication in August 2015, there is growing pressure from city hall to simply mandate that all tenants be allowed to add subtenants regardless of what the lease says.)
In 1989, the San Francisco Rent Board passed a regulation known as Section 6.14 to allow owners the ability to reset rent once the last original tenant vacates. Throughout most of the 1980s and 1990s, the industry adopted and utilized the “6.14 notice” procedure to place master tenants and subtenants on formal notice that once the last original, or master, tenant vacated, rent could be adjusted to market levels.
Yet in the mid-1990s the sub tenancy landscape significantly changed when the State of California passed a law known as the Costa-Hawkins Rental Housing Act. In 2000, Costa-Hawkins became fully implemented in the state and it applied to every California jurisdiction, including San Francisco. Under Costa-Hawkins, a landlord could reset rent once the last original tenant no longer permanently resided in the unit as long as there was no “waiver” by the owner of the right to increase rent. Waiver could be found to exist where the owner accepted a rent check from the subtenant after receiving written notice that the last original tenant had left. In addition, various cases expanded the definition of waiver to include such actions as placing the subtenant onto the original lease agreement, naming subtenants on notices of rent increases or other communication, accepting non-emergency repair requests from a subtenant, and generally treating the subtenant as a party under the rental agreement. Under Costa-Hawkins, no oral or written notice needs to be given to anyone at the time of or after the subtenant moves in.
About 15 years ago, Section 6.14 was amended by the San Francisco Rent Board Commissioners to conform this regulation to Costa-Hawkins. However, Section 6.14 contains requirements not mandated by the state law. For instance, and most significantly, the landlord may have to track down and serve a subsequent occupant, “within a reasonable time of actual knowledge of occupancy,” with a notification stating that a new tenancy for rent purposes is created when the last original occupant vacates the premises. It also seems to permit imposition of rent increases at a later time after the last original tenant vacates, which recent court cases seem to expressly prohibit. Consequently, owners were receiving questionable guidance by the rent board and industry groups with regard to use of 6.14 notices.
About seven years ago, alarms began sounding over the continued use of the 6.14 notice procedure for several reasons. First, Costa-Hawkins does not require service of a 6.14 notice, and an owner who incorrectly served this document and then sought a 6.14 rental increase could be denied this right. Second, the rent board began rejecting the owner’s ability to raise rent under another rent board regulation, Section 1.21 (which permits a rent increase when the last original tenant no longer uses the rental unit as a principal place of residence), even if the last original tenant no longer principally resided in a unit but an approved subtenant resided there. A tenant who had been given a 6.14 notice is, according to the rent board, an approved subtenant.
Third, under existing rent board policy, the standard for imposing a 6.14 rental increase is different from the trigger or standard for a Costa-Hawkins rent increase. Based upon existing rent board policy, a 6.14 rent increase is authorized only when a tenant physically and “legally” vacates a unit. “Legally vacate” seems to require that the original tenant formally disclaim occupancy rights and stop paying the rent. Costa-Hawkins has no such requirement; as such, a 6.14 rent increase could be denied where the master tenant still submits the rent check, but no longer permanently resides in the unit.
In 2010, after many meetings and discussions with industry leaders and senior rent board staff, SFAA’s volunteer legal advisors decided to discontinue the publication of the 6.14 notice. Instead, the SFAA recognizes that Costa-Hawkins is the prevailing law, which requires that no notice be given to tenants and subtenants when a subtenant moves into a unit. Consequently, what becomes relevant is the owner’s conduct towards the subtenant.
For example, the subtenant should not be added to the lease, no rent should be accepted from the subtenant, and notices generally should not be addressed to any subtenant. When the last original tenant vacates, the rent increase under Costa-Hawkins should be served immediately. In sum, the noticing procedures mean very little compared to how the subtenant is treated by the ownership.
Many owners have questions about Costa-Hawkins and concerns about dropping the 6.14 procedure. To further complicate matters, the rent board adopted another subtenancy regulation, Section 6.15, which permits owners to essentially interview and approve new subtenants and to preserve the right to increase rent by way of Section 6.14. Yet because 6.14 has significantly different and arguably more stringent requirements than CostaHawkins, use of the 6.15 guidelines may waive the owner’s rights under Costa-Hawkins and relegate the owner’s ability to raise rent to the rent board’s discretion under 6.14. Obviously, this is not the preferred route for most owners, as the current state law affords much greater latitude.
There are other nuances as well. For example, subtenants generally must be named on eviction notices, but, as stated above, should not be identified in other forms of communication.
Five years after writing the above advice, I continue to hear concerns from owners about not recognizing subtenants. One common complaint is that management wants to know the identity of people living in the building. My retort has always been, “Why?” The rent regulations basically constrain owners’ ability to deny allowable subletting if the proposed replacement roommate or family member is not represented as being rent responsible and certain defined “number of adult persons per room” standards are not exceeded. Besides, with the proliferation of fair housing laws, you may run the risk of incurring liability for denying someone the right to housing. For example, let’s say you reject a proposed replacement roommate because of some questionable credit history, yet this applicant is a member of a protected class who then argues that the denial was really a sham and that your actions were discriminatory.
In this author’s opinion, as long as the rent gets paid and there are no disturbances or illegal use of the premises, do not invite litigation by scrutinizing your tenant’s lawful subtenants. Remember, if the full rent is not paid or anyone commits a nuisance or lease violation, the entire tenancy may be terminated regardless of whether the offender is the original occupant or a sublessee.
Before being appointed to the San Francisco Rent Board Commission in January 2015, I participated in what seemed to be countless Costa-Hawkins rent increase petitions before the board. Upon reviewing my reams of cases, I found that the landlord prevailed and was able to raise rent in situations when there was no or very minimal contact between management and the subtenants. Conversely, I have boxes of rent increase denial decisions emanating out of circumstances where the owner served a 6.14 that was deemed untimely or was delivered to the wrong subtenant and then began recognizing subsequent occupants under the unfortunate misbelief that someday rent could be raised when the master left. Even more frustrating were those decisions deeming the master tenant to be physically gone but yet legally still a tenant, and in the world of 6.14s that is (sadly) a non starter.
In sum, I continue to adhere to what my colleague Curtis Dowling espouses when we teach SFAA’s subtenancy class: “Talk to the hand” when confronted with subsequent occupants. In a perfect universe, we would not have to face that uncertainty, but this is not a perfect universe. The risk of losing the right to impose an unlimited rent increase far outweighs the luxury of knowing the names and backgrounds of everyone you think may be living in your building.
Here’s one last true 6.14 story to ponder: A tenant moved into a unit in 1972. He had many subtenants over the years. Beginning in the 1990s, the landlord would issue 6.14 notices to each subtenant the landlord thought was living there. Over the course of 25 years, management lost track of who was there and who wasn’t. In 2014, the master tenant wrote the landlord to tell her that he would be moving into a care facility and giving up his possessory rights to the unit, but that his 28-year-old friend would be staying. The landlord jumped at the opportunity to raise rent.
At the inevitable rent board hearing challenging the increase, the young subtenant proved that management accepted rent from him at times during the past few years. He also established that he was not the subtenant who received the various 6.14s that were served during the prior two decades. Today, this young lad enjoys extraordinarily low rent in a prime San Francisco apartment and the landlord, who had accepted his rent because she felt secure about utilizing the 6.14 process, will be subsidizing this deal for many years to come.
David Wasserman is the ex-officio president of SFAA. He can be contacted at Wasserman-Stern Law Offices at 415-567-9600.