Author: BHP.org

Eviction Protection 2.0 is made with good intentions to prevent displacement and accommodate displaced tenants. As small landlords, we are committed to work with tenant advocates for a reasonable solution. However, the current infrastructure within the rent control laws does not provide adequate support for small earnest landlords. Daily burdens that the landlords face accumulate over time into crises that force the properties to be sold into speculators’ hands. We are worried that additional legislation may become the straw that breaks the camel’s back. Unwinding this crisis, as we naively think, should be a prioritized goal.

Unfortunately, we did not have a chance to join the review process of Eviction Protection 2.0.  When it was presented, we found 5 major unintended consequences from the legislation, including: 1) Eviction Protection 2.0  unintentionally allows rent scammers to stay free in an illegal in-law unit; 2) Eviction Protection 2.0 unintentionally allows additional occupants without pre-approval; 3) Eviction Protection 2.0 unintentionally makes property owners shoulder an exorbitant amount of additional costs; 4) Eviction Protection 2.0 may unintentionally exacerbate problems among residents; 5) Eviction Protection 2.0’s implication that maximum occupancy can be enforced is untrue.

We really hope we are wrong on every point found above. But what if there were one ounce of truth?  Would San Francisco’s small guys, renters and small property owners alike, on the verge of losing their homes or being wiped out in lightning speed, seeing the beginning of the end of their residency in the City?

1. How would Eviction Protection 2.0 unintentionally allow rent scammers stay free in an illegal in-law unit?

[As of 4/20/2016, illegal in-law units must go through legalization. Removing In-law units is a Conditional Use Permit process, and almost impossible to even start.  In the case that DBI has determined that an illegal unit is hazardous or unsafe, applicants must still engage in the Conditional Use process, and submit their personal financial details to be examined by the Planning Department/Commission in order to be granted the permit to remove unsafe or hazardous dwelling, and prolong the risk for both the renters and the property owners on such situation.]

It is known for many years that rent scammers exploit the vulnerability in illegal units. When they stop paying rent or intentionally commit nuisance, the owners have no choice but to remove the illegal unit and pay the rent scammers the relocation fee or a bigger settlement sum for them to leave. However,  EP2.0’s (7) Illegal Unit Clause, opens up a vulnerability for rent scammers to not pay rent and stay free forever if the property owner can not afford to spend the $45,000 to legalize. See below for an Explanation from Patrick J. Connolly, Utrecht & Lenvin, LLP:

“Eviction Protection 2.0  [37.9(a)(4)(B) on page 485], will more or less kill the (a)(4) theory we have been using.  Instead, owners will need to use the (a)(10) theory, which will make the process much longer, be potentially more expensive and, depending on Planning Commission/Board of Appeals decisions in any specific case, may not allow a property owner to remove an illegal unit.

(a)(10) involves first securing the permits to remove the unit.  These applications will likely be subject to discretionary review by the Planning Commission.  There is some level of concern that the Planning Department may not approve the application and/or encourage/force owners to legalize.  The tenants will also have an opportunity to appeal issuance of the permits, which many times results in a mini-trial at the board of appeals.  The owner could lose at the board of the appeals. If the owner makes it past the planning commission/board of appeals hurdles, a sixty day notice will need to be served.

If (a)(4) can no longer be used for illegal units and the owner cannot obtain a permit to remove the illegal unit, which is possible if not likely given the hurdles discussed above, then the owner cannot stop the illegal residential use of the in-law.  This puts the owner in an untenable position: they cannot remove the illegal unit/tenancy and they face potential exposure to fines and action by the City for the illegal unit.  Further, the tenant may stop paying rent since rent cannot legally be collected from an illegal unit.  In such circumstances, the owner cannot evict the tenant, the tenant remains in occupancy without paying rent, and the owner cannot evict the tenant for non-payment.  The alternative of legalization is not viable for many owners because in most circumstances it is cost prohibitive or very difficult if not impossible given the design of the building.  (a)(4) is the only viable alternative for owners to extricate themselves from these circumstances if they cannot get permit approval.

The Kim legislation is indeed very bad news for the thousands  of illegal unit.  It will make everything more difficult and expensive for property owners. 

a. What are the costs associated with removing an illegal inlaw unit?

It is about $45,000 to $96,000, including:

• Permit fees: $5000 – $9000 (Discretionary Review + Board of Appeal). If there is illegal work done, there is a 9 times permit fee penalty assessed, that would be nearly $20,000..
• Lawyer’s fee: $12,000 – $20,000 (Planning Commission and/or Board of appeal)
• Relocation fee / Settlement: $5551 per person – $36,000 for settlement
• Legalization (if the requirements are met): $20K to $30K on improvements. [As of 5/2017, the cost collected from dozens of data points has indicated the new construction figures have gone up to $40K to $70K on a 2-bedroom in-law unit of about 400 square feet that includes 1-hour firewalls, updated electrical wiring and safety features].

b. How long does it take to remove an in-law unit under the current laws?

Anywhere from 7 months to 1 year 8 months, depending on the theory used and the duration on the settlement terms. [ As of 4/2016, illegal units can not be removed unless first going through a near-mandatory legalization process, and then a Conditional Use permit process for removal, both are very costly and almost impossible to complete for small property owners. Many of these unfit-to-habit units fall into the limbo for extensive periods of time.]

c. What is the law code that “the illegal unit is an illegal contract, and therefore can not charge rent when starting the removal process?”  

– Collecting rent on an illegal unit is not legal.  “The landlord is not entitled to back rent, and the tenant is not entitled to possession.”  Salazar v. Maradeaga (1992) 10 Cal.App.4th Supp. 1 citing Gruzen v. Henry (1978) 84 Cal.App.3d 515, 518-519;Shephard v. Lerner (1960) 182 Cal.App.2d 746, 750.  It has long been the law in California that for illegal contracts, like ones to rent illegal units, the owner is not entitled to collect rent and the tenant has a claim for rent reimbursement.   Additionally, collecting rent on an illegal unit is inconsistent with the owners intent to remove an illegal unit, which could significantly harm the owners chances of prevailing in an unlawful detainer.  Further, if the termination notice has already expired, the owner cannot accept for a third reason, which is that acceptance of rent after termination of the tenancy will likely be deemed waiver of the termination notice and/or renewal of the tenancy.    

d. Anything can be done to streamline the removal process?

Remove the legislation to allow 37.9(a)(4)(B) to remain in place for in-law units, and modify the law regarding Discretionary Review for loss of housing units or exempt in-law units from it.     [ As of 4/2016, in-law units are subject to near-mandatory legalization under a very difficult Conditional Use permit on both legalizing and removal.  It creates a race condition for renters and owners in such situation]

2. How may Eviction Protection 2.0 exacerbate problems among residents?

Extending the 3-day notice on nuisance to 10 days may allow issues among renters to get out of hand, and the landlords may miss the window of opportunity to resolve the problem. We have seen cases where a roommate had a dispute with another roommate over a violation of a  house rule in the common area. Before the landlord’s timely intervention, the dispute escalated into verbal threats and then attempts of physical assault.  Imagine if the landlords do not have a right to intervene for 10 days, the situation would be unthinkable.

3. How does Eviction Protection 2.0 allow additional occupants without pre-approval?

Found on page 484 of the legislative text, 37.9(a)(2)(D) states that the tenant if found bringing in additional occupants without landlord’s pre-approval, can cure the violation by merely making a written request to add occupants. He does not need to receive the actual approval, nor does (s)he have to remove the additional or unapproved occupants.

4. How Eviction Protection 2.0 make property owners shoulder exorbitant amount of additional costs?

Eviction Protection 2.0 does not allow rent increase for any additional roommate added but expects property owners to perform cost pass-thru’s to transfer the additional costs back to the tenants. However, in reality, cost pass-thru’s are extremely difficult for regular property owners. If done incorrectly, it would be constituted as the intent of Wrongful Eviction for raising rent above the means of the tenants. The basic cost pass-through, including general bond, water bond, rent board fee, in addition to the annual rent increase and security deposit interests, are almost impossible to do for a lay person.

Yet the advanced pass-thru’s, such as the Operational & Maintenance Pass-thru and Capital Improvement Pass-thru, are even more complicated and worthless. These pass-thru’s require a lot of historic documentation BEFORE & AFTER the incidents as the basis for the calculation, which most of the owners would not have the records due to transfer of ownership or simply being a lay person.  And the calculations are tedious and complex, and most of them need a rent board petition.  In addition, these complex pass-thru’s are spread out many years, and cannot be more than 7% to 10% of the renter’s base rent.  They do NOT cover the actual costs the tenants and their roommates have incurred.  Even worse, to guarantee these numbers are correct and avoid the risk of being sued $150,000 or more on Wrongful Eviction, professional help could cost $1,000, for a mere pass-thru of $10 a month, rendering pass-thru’s worthless.

Also, if the water heater and other facilities can not meet the requirement of housing use due to additional occupants, the landlord is required to spend on capital improvements and infrastructure to accommodate additional roommates.

5. Why Eviction Protection 2.0’s implication that maximum occupancy can be enforced is untrue?

From Member Julia Tam: “I had a good 30 minute phone call with the Chief Housing Inspector in DBI – Rosemary Bosque. I asked for clarification of how DBI manages the occupancy code violations. Supervisor Kim has responded to us with misleading information regarding DBI can enforce the maximum occupancy to the ratio of bedrooms in the household.  I went through the code with Rosemary and verified that it is not that easy for the landlord.

In order to begin the process;

a. Landlord files a complaint with Housing Inspection in DBI that there is a occupancy code violation.

b. Housing Inspection needs consent from occupants to gain access to the property for inspection and evidence assuming the occupants denies it. If the inspector cannot get access, there is nothing to enforce.

c. If the inspector is unable to find evidence there is “crowding”, the complaint is not validated.  Crowding or violation of maximum occupancy is not conditioned on the number of bedrooms, but ANY room that allows sleeping as long it is not a kitchen, closet or bathroom and meets the minimum 10 x7 square feet. For example: If a household unit has 2 bedrooms, a bath, a kitchen , living room, dining room; the occupants can claim that they use all the rooms to sleep and that means a total of 4 rooms are eligible to hold 2 occupants in each room. The max occupancy is not 4 people, but 8 people.  Occupants are defined as anyone older than 6 years old. Additional occupant is allowed in this occupancy allowance if the room has an extra 50 sq. ft., which means if any of these rooms is huge, extra footage allows for another occupant-the occupancy limit goes up.

d. To make matter worse-in Chapter 5 section 503 said that any lessor (owner) cannot refuse additional family members.

“To promote access to housing by families, it shall be unlawful for the owner, lessor, lessee, sublessee, real estate broker, assignee, or other person having the rights of ownership, the right of possession, or other right to rent or lease any dwelling unit or any agent or employee of such person to refuse to rent or lease, or otherwise deny, a dwelling unit to a family, as defined in Section 401 of this Code, on the basis of the actual or potential number of occupants if the total number of persons occupying a room for sleeping purposes does not violate the minimum superficial floor area standards prescribed in Subsection (b) of this Section.”

e. Even if the crowding complaint is legitimate and there is substantiation to support the findings, DBI will only file the notice of violation to the property owner and NOT the tenants.  DBI may or may not conduct a director’s hearing, depending on how bad the situation is (if there is property damage, safety concerns etc). At the hearing, the negotiation begins between the parties.  The occupants don’t necessarily show up since this is not a jurisdiction case.  DBI does not come and take the occupants out. DBI will likely ask the landlord to pursue legal consult or to seek assistance from the SF Apartment Association.

In some cases, if this violation of code lingers on without a resolution, an order of abatement can be attached to the property.  It is clear that we cannot depend on Housing Inspection to enforce subleasing nor addition of unauthorized housemates.

In summary, the code of enforcement by housing inspectors do not protect the property owner. End the end, the property owner must resolve this with legal action and legal fees.“

Conclusion:

Eviction Protection 2.0 is made with good intentions to prevent displacement and accommodate displaced tenants, however, it was not done in a reasonable way and may end up driving more rental stock off market, and hurting small guys from both sides. 

• To conduct myself in an honest and ethical manner at all times
• To adhere to all fair housing principles and laws
• To respect rights and responsibilities of residents
• To respond diligently to residents’ requests
• To maintain the property in a safe and habitable condition
• To comply with all laws and regulations applicable to the rental housing industry
• To believe in the value of contracts and their enforcement.
• To believe in the importance of continuing education for rental housing owners, managers, and residents.
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