Bills of Key Importance To AACSC

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There are different measurements of how we perceive time. Some say days are long and months pass quickly.

This year, the volume and complexity of landlord and tenant issues have made time pass at warp speed. We do not need to think about watching the clock.

Here are a few reasons why we are so busy in Sacramento.

The bills of key importance to AACSC:

AB 1229 (Atkins) was introduced to allow cities and counties to mandate "inclusionary housing" laws (requirements on private developers to set aside a percentage of new housing for low-income rental for a period of 30-55 years), without allowing owners to set initial or subsequent rates or requiring local government to provide developers any cost offsets. It also abrogates the Palmer v. City of Los Angeles decision, which upheld an important provision of the long-standing Costa-Hawkins Rental Housing Act exempting newly constructed rental units from price control.

  • As a result of the court case, local governments have modified their inclusionary housing ordinances and have begun to offer valuable cost offsets to incentivize the development and long-term ownership of price restricted housing.
  • Most of the cost offsets do not require direct financial participation, instead they include increases to the zoning density (through density bonuses) and reduced parking requirements.
  • The importance of the Costa-Hawkins Act is to provide incentives to build, and assurances to own, rental housing by authorizing an owner to establish the initial and subsequent rental rates for newly constructed dwellings. AB 1229 undermines these policies by allowing local governments to control prices from the outset and throughout the entire period the unit is price controlled, up to 55 years.
  • There is no need for AB 1229. Local governments already have modified their ordinances to comply with the Costa-Hawkins Act and the Palmer decision, which direct local governments to offer reasonable cost effective incentives to build affordable housing under state housing laws.

SB 603 (Leno) is sponsored by several tenant organizations that would require all landlords to pay tenants interest on security deposits. Local governments that already require the payment of interest on a security deposit are exempt from the bill (including the City and County of San Francisco). Penalties for paying a tenant's interest late include paying up to twice the interest plus damages and actual dam ages. Failure by a landlord to deposit the funds in a federally insured financial institution within 20 days or disclose where the security deposit account is located at the request of the tenant is twice the amount of the security and actual damages.

The reasons to oppose are clear:

  • Administrative and accounting costs will far exceed paying tenants an estimated $2.60 of interest for every $1,000 in deposit (the current Federal Reserve Board rate).
  • Property managers are legally prohibited from placing security deposits in interest bearing accounts. Yet, the bill requires managers to pay interest.
  • There are severe penalties for any accounting mistake or de lay in payment—BUT MIS TAKES WILL BE MADE because landlords will be required to account for the interest rate averages and changes year-to-year, and pro rating all interest payments to meet the precise length of time of a tenancy.

This is a LITIGATION BILL—every aspect of this new security deposit law is subject to legal action, just for an estimated $2.60 or any mistake in accounting.

Landlords are unfairly and incorrectly being treated like banks because they must pay interest on the deposit, but are not able to use that money or charge for opening and maintaining the account.

Proponents argue that SB 603 is necessary because some tenants claim to have had problems getting security deposits back. But under long-standing law, owners are already legally obligated to account for and return the lawfully remaining security deposit. The bill does not address this issue nor does it need to based on existing law.

AB 969 (Ammiano) would have permitted the court or a jury to determine whether a substantial breach of the warranty of habit ability occurred in an unlawful detainer action involving the failure to pay rent. We led the opposition in the Assembly Judiciary Committee and argued:

  • Jury trials are a great financial and resource burden on an already heavily burdened court system. In this case, bill proponents have not justified why further burden to our courts is necessary when current law requiring judges to determine habitability is fair and just.
  • UDs are special "summary proceedings" that are intended to be speedy court proceedings. In this way, UD actions are starkly different than other proceedings and governed by special statutory guidelines. The reason for the summary pro ceed ing is because, unlike other debtor-debtee relation ships, landlords continue to extend "credit" to every tenant that remains in possession during the entire time of the dispute and many weeks following the decision of the court. During this time, rent is never paid to a landlord, and it is extremely rare that a tenant pays a judgment.
  • Delegating the sole authority of determining habitability defenses to the court was not a mis take. Not only is the delegation consistent with the summary nature of UD actions and ensures that actions move swiftly and efficiently through the court system, the language of the governing statutes clearly requires the delegation. Specifically, while CCP, Section 1174 states, "the jury or the court" shall assess damages, CCP, Section 1174.2 states only "the court," omitting the term jury, shall determine whether a "substantial breach" of the warranty of habitability exists.
  • There is no right to a jury trial under the California Constitution in special proceedings. [Perry Farms, Inc. v Agricultural Labor Relations Bd. (1978) 86 Cal.App.3d 448, 464-465; County of Sacramento v Superior Court (1974) 42 Cal.App.3d 135, 139-140.] UD actions are special proceedings governed solely by the provisions of the statute creating it. [Fifth & Broadway Partnership v. Kimny, Inc. (1980) 102 Cal.App.3d 195, 200.] As special proceedings are created and authorized by statute, the jurisdiction over any special proceeding is limited by the terms and conditions of the stat ute under which it was authorized [Lay v Superior Court (1909) 11 Cal.App.l 558, 560].
  • A tenant-defendant may request a jury trial in UD actions as statutorily provided under CCP Section 1171. But CCP Section 1174.2 statutorily delegates to the court (not the jury) the burden of determining the habitability defense in a UD action as to whether there is a substantial breach and the amount of any reduction in rent. The delegation to the court of determining the habit ability issue in no way lessens a tenant's ability to request a jury trial in his or her defense to the underlying UD action for the failure to pay rent or any other complaint raised by the plaintiff.
  • "Substantial breach" of the warranty of habit ability means the failure of the landlord to comply with applicable building and housing code standards, which materially affect health and safety. That determination is a legal issue [see Hyatt v Tedesco, 96 Cal.App.4th Supp. 62 (2002)], and, there fore, should remain with the court.

Habitability determinations are delegated to the court for several important reasons:

  • Because UDs are summary proceedings, delegating the task of determining the habitability defense to judges assures the legal process will not be delayed or abused.
  • Judges have the experience and knowledge to understand the complex legal issues involved in assessing housing and building code standards, and whether a substantial breach materially affects health and safety.

Unlike jury members who often misunderstand the difference between habitability and maintenance, judges can effectively differentiate between a habitability issue such as a lack of heating, versus a maintenance issue like a drippy faucet.

Judges are in the best position to determine whether a claim is frivolous or whether rent reduction is warranted.

Allowing juries to determine the habitability issues opens the door for egregious abuses of the summary proceeding of unlawful detainers:

  • In courts that have erroneously allowed juries to determine habitability defenses, defendants and tenant defense legal aid groups are incentivized to bring meritless habitability claims because they have been able to delay evictions by four to six weeks, and force free rent-based settlements, including free rent for the entire duration rent has been unpaid.
  • Tenant-defendants merely need to claim a drippy faucet as the reason for failing to pay rent to force a settlement.
  • Landlords are forced to settle because even though a drippy faucet is a frivolous habitability claim, losing rental income from the delay of going to trial and paying attorney fees averaging $10,000 to $15,000 makes going to trial extremely expensive. This is how the system is being abused.

Because meritless habitability claims may be allowed before juries, tenant defense groups use the threat to demand settlements ranging from three to six months of free rent. Again, landlords are forced to settle because of the expense and delay of trial, even though most claims are completely meritless and frivolous.

Instead of a summary proceeding, which is required by law, UD actions can take months to resolve, leading to significant delays in the eviction process, and considerable economic and resource burdens on the courts.

Next month we will write about other bills directly affecting your bottom line and you will understand the need to be a member of AACSC.

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