We have two subtenants who are going to sign a new lease as master tenants. The third subtenant has elected to remain off the lease and stay a subtenant of the two other tenants. Is there anything we need to do about this third tenant to protect ourselves down the line? Or is he entirely the problem of the two master tenants?
According to the Rent Board’s interpretation of Costa Hawkins, the third subtenant, who presumably moved in at or around the same time as the other two subtenants who are now being elevated to co-master tenants, is likewise going to be considered a co-master tenant. Costa Hawkins states that a new rent may be imposed when the original occupants who took possession of the unit pursuant to the rental agreement with the owner no longer permanently reside there. If partial changes in occupancy occur as to the initial tenants, no unlimited rent raise is permitted.
In a recent Rent Board case, the landlord argued that an occupant who moved in at the same time as the lease signatory, but who did not sign the lease, did not take possession of the unit pursuant to the rental agreement with the owner. The Administrative Law Judge, as well as the Rent Board Commission, disagreed. Rather, the Rent Board held that the Costa Hawkins statute specifically refers to “the original occupant or occupants,” and not to “the party” or “signatory” to the lease. Otherwise, a landlord could pick and choose which original occupant is allowed to sign the lease, and thereafter impose an unlimited rent increase onto the remaining original occupants when the original occupant or occupants who signed the lease moved out. Indeed, it makes no difference if the landlord or the tenants decide who is going to sign the lease. Rather, the emphasis is solely placed on who actually moved in at the inception of the tenancy.
So in this instance, it appears that that there are three subtenants who are now beginning a new tenancy after the prior master tenant vacated. The landlord, in addition to imposing a new rent, is presenting the new lease which two of the three subtenants (and now new master tenants) are agreeing to sign. In reality, all three subtenants have equal status under Costa Hawkins, meaning they all must vacate before an unlimited rent increase can be imposed again. As such, the landlord should require all three to sign the rental agreement so as to bind everyone to the terms of the lease. Leaving the third person off does not help the owner in any way, as the third tenant took possession pursuant to the rental agreement with the owner and has the same rent law protection as the other two. Therefore, in sum, every adult who takes initial occupancy under a rental agreement should sign it, as not signing the lease has no bearing on the applicability of rent stabilization.