Two Extremely Important Bills: AB 969 & AB 561

Print
PDF

The State Legislature considered two extremely important bills affecting our industry last month. The bills:

AB 969 (Ammiano) Jury Trials in Unlawful Detainer Actions: Bill Dies in the Assembly Judiciary Committee

AB 969 (Ammiano) would have drastically changed the unlawful detainer process by allowing juries (not a judge) to determine if a tenant alleged that his or her failure to pay rent was due to a claim of a substantial breach in a warranty of habitability.

The bill would have unnecessarily prolonged the unlawful detainer (summary) proceeding in contravention of the expeditious nature of these actions. Landlords know that the reason for an expedited hearing involving unlawful detainers is well established in law, and unlike other laws governing debtor - debtee relationships, landlords continually extend “credit” to tenants during the entirety of the UD proceedings, including many weeks following the decision of the court until a tenant lawfully vacates the dwelling. And we know that during this period of time, rent is not paid. The summary nature of UD actions is intended to help ensure decisions are made in a fair, timely and efficient manner. AB 969 ran counter to the expeditious process because expanding the law to permit jury trials to address habitability defenses would have added lengthy delays to adjudicate a UD proceeding.

If juries had been permitted to determine habitability issues, it would have opened the door for abusive litigation tactics.

Today, there are courts that erroneously permit juries to decide if a substantial breach of the warranty of habitability has occurred. In these courts, abuses amounting to what some refer to “extortionary” practices are occurring. In these courts, tenants and legal aid organizations are incentivized to bring meritless and frivolous habitability claims because by making a habitability claim, they can delay evictions for months—many months. This forces landlords to settle the civil dispute and landlords are agreeing to waive past due rent and free rent until the tenant vacates.

Abusive litigation tactics are working in many UD filings because landlords must choose between agreeing to the settlement terms or pay attorney fees that cost an estimated $10,000 to $15,000 to litigate.

Proponents argued that delegating authority of determining habitability claims to a court is a misinterpretation of law. We argued that the delegation to a court and not a jury is consistent with the summary nature of UD actions and ensures that actions move swiftly and efficiently through the court system. Proponents also argued that the change in law proposed was simply a clarification.

Some argued that a right to a jury trial is a constitutional right. To the contrary: there is no constitutional right to a jury trial in special summary proceedings. These proceedings are authorized by statute and the jurisdiction over these proceedings is limited to the terms and conditions of the statute which was authorized.

The difference of opinion concerning who should determine if a substantial breach in the warranty of habitability has occurred is far from over.

AB 561 (Ting) Redefining “Change in Ownership” to Determine When a Documentary Transfer Tax is Due Dies in the Assembly

AB 561 proposed to expand the application of California’s documentary transfer tax (DTT) to legal entities that own real estate and simply under go a change in ownership for tax purposes. The bill would have expanded the definition of “realty sold” to include acquisition or transfer of ownership interests in a legal entity that would have constituted a change in ownership of that legal entity’s real property under our tax laws.

Prior to Proposition 13, when a stock of a company changed hands, the DTT was not triggered because there was no “writing” of the “realty sold.” The legal entity that owned the property, therefore, did not change but this bill would have expanded the definition of ”realty sold” to apply where there is no transfer of real property.

The constitutionality was questioned. Local governments could have experienced substantive issues implementing the law and the unwary could have been in a legal trap. The constitutional issue was substantive—was it a violation of Proposition 13? Cities and counties would have had extreme difficulty in setting the purchase price for the realty when no realty was transferred.

Finally, the “triggering event” for payment of the DTT is very clear under existing law—the transfer of ownership. If AB 561 had been signed into law, owners could have inadvertently triggered the tax from transfers of equity interests that were not the equivalent of property sales. Under the bill, the DTT would have been applied to transfers of a partial entity (whenever a person or firm gained more than 50 percent control), but presumably would trigger a 100 percent tax on the real estate owned property. No one knew how the proposed change in law would have applied to existing ex emptions and exclusions to transfers of equity interests.

Related Articles

Contact AACSC

Apartment Association,

California Southern Cities
333 W. Broadway St., Suite 101
Long Beach, CA 90802
(562) 426-8341

This e-mail address is being protected from spambots. You need JavaScript enabled to view it