OUTRAGEOUS GOINGS ON AROUND TOWN (page 3 of 4)

Tidbits of Law
Do you remember Costa-Hawkins? Yes, it is still around and going strong. There is an application of Costa-Hawkins to rent controlled property with three units or less that might protect an owner from a claim of excess rent. Read this if you are in the boat. Say you own a 3-unit or less property that at one time had an exemption from rent control because the prior owner lived there and you just bought it awhile ago. Say you are collecting the rents that were in existence at the time the old owner lived there. (i.e. you did not roll back the rents to the old MAR when you bought it). The Board says that once an owner moves off the property or sells the property, s/he loses the exemption and the rents must be rolled back to the old MAR (plus intervening AGAs). Thus many new owners find themselves in the position of buying an owner-occupied exempt property with high rents and having to reduce those rents to the old MARs until they can get an owner-occupied exemption themselves. Look to Costa-Hawkins for some relief. The way this works is as follows: If the tenant moved into an owner occupied (hereinafter "OO") property exempted after 1-1-96 (i.e. after the date Costa-Hawkins took effect) then under Costa-Hawkins the owner was allowed to establish the initial rent without limitation if the property was exempt on 1-1-95 (i.e. if it was an OO exempt property then too). If the property was not OO exempt on 1-1-95, the initial rent could only be raised 15% above the underlying MAR. Since Costa-Hawkins allows the owner to set unlimited first rent, the rent the owner set does NOT fall back to the lower MAR after the owner loses the OO exemption. Otherwise, the Rent Board could pass regulations
overruling Costa-Hawkins, which is not the way it works. The Rent Control Board has acquiesced in this Costa-Hawkins interpretation (and how it applies to 3-unit or less OO exemptions) with Section 3301 (g) (4) [adopted 6-10-99]. This regulation allows an owner of 3-unit or less OO exempt property to apply for a new base rent based upon the initial rent that the owner receives from the new tenant, even while the owner is exempt under OO. Thus the current owner can freeze in a new base rent based on his current market rate rent prior to losing his OO exemption. This is a word to the wise; if you are in the process of buying a OO exempt 3-unit or less property, be sure that before escrow closes and you own the property that the old owner files a registration for establishment of the new base rent based on his market rate rents. Once he sells the property, the base rents he established through registration will carry forward to your ownership with reduction. The only difference with our Costa-Hawkins interpretation and the Board’s new regulation 3301 (g) (4) is that the Board wants the first rent charged to the tenant to start after 1-1-99, whereas it should start under Costa-Hawkins after 1-1-96. Within this 3-year difference, however, many an excess rent dollar lies.

Tidbits of Law #2 Do you remember Costa-Hawkins? Well, there is a very important provision that people overlook. It deals with the subletting of units by original tenants who then move out of their units. Costa-Hawkins states that if a tenant sublets (whether or not it is legal to do so) and then no longer "permanently resides there", an owner can increase the subtenant’s rent to market if the subtenant moved into the unit ON or AFTER January 1, 1996. Thus, don’t fret fighting the tenant over whether or not he has the right to sublet or whether or not he has actually vacated the apartment, just rely upon this section of Costa-Hawkins to raise the rent. The tenant is not "permanently residing" in the unit if he has another apartment in town, or has moved out of town. There is only one "permanent" residence, and that would be the one where the tenant resides a majority of his time. Thus hanging clothes in a closet in your unit and living and working in New York no longer allows the tenant to sublet and claim protection under Rent Control Charter 1806(h). This is a strong tool for the owner to use to keep control of his property and keep the rents fair.

Tidbits of Law #3
Do you remember Costa-Hawkins? Still? Good. We think Mr. Hawkins should be nominated as Santa Monica’s patron saint. Anyway there is a great provision in this act which protects owners from subtenants’ claims that they have been accepted as the tenant through waiver (i.e. the owner accepted rent and should have known that the tenant had sublet to some one else and by accepting the rent, the owner has now accepted the subtenant in place). This was good law before Costa-Hawkins came into being. However, read this: As of January 1, 1996, "Acceptance of rent by the owner shall not operate as a waiver or otherwise prevent enforcement of a covenant prohibiting sublease or assignment or as a waiver of an owner's rights to establish the initial rental rate unless the owner has received written notice from the tenant that is party to the agreement and thereafter accepted rent." What this means is that there will be no waivers by silence or stealth. From now on, if there is to be a waiver, it will only be after the owner has received a written notice from the tenant that s/he is subletting the unit and agrees to that subletting by accepting the rent.

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