Yesterday’s News

During a Zoom meeting last week the attorney began the meeting by disclosing that; “The information you are about to receive may change.” This has never been a truer statement than it has during the last few months. Almost daily we are receiving reports from state and local officials about everything from Covid 19 to eviction moratoriums. Often the information is obsolete a few days later. What does seem to be reliable news is that we are making progress towards opening up and getting back to work.

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Shelter in Place = No Paycheck for Many

While some individuals can continue to work, most people have temporarily lost their jobs. Fortunately we live in a world of very generous and compasionate individuals.

Large tech giants have stepped up and donated millions toward the Santa Clara County Homelessness Prevention System. The emergency assistance program is intended to provide help with rent payments or other basic needs to county residents who make less than 80 percent of the area median income.

Those with COVID-related impacts can now apply for financial assistance ($4,000/month max) at sacredheartcs.org/covid19 or call (408) 780-9134.

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New Legislation 2019 Includes “Just Cause”

Summary of New Legislation, AB 1482, Presented by RHN

Rent Increases:

Cap of 5% + cost of living (CPI) or 10%, whichever is the lower of the gross rental rate, over the course of any 12-month period.

No more than 2 increments in any 12-month period.

Just Cause

  • At Fault

Nonpayment of rent

Violation of the lease after being issued a written notice to correct

Committing or permitting a nuisance

Committing waste

Upon termination of a lease (after Jan 1, 2020), and receipt of a written request from owner, tenant refuses to execute a written extension or renewal of the lease with similar provisions.

Assigning or subletting the premises in violation of the lease

Refusal to allow the owner to enter

Using the premises for an unlawful purpose

An employee, agent or licensee’s failure to vacate after their termination as an employee

After giving written notice to vacate that is accepted in writing by landlord but fails to deliver possession at the time specified in the written notice

  • No Fault

Intent to occupy the property by the owner, their spouse, domestic partner, children, grandchildren, parents or grandparents*

*For leases entered into on or after July 1, 2020, shall only apply if tenant agrees in writing to the termination to allow or owner or family member to occupy or there is a provision in the lease allowing the owner to terminate the lease for this reason

Withdrawal from the rental market:

An order issued by government agency or court relating to the habitability

An order issued by government agency or court to vacate the property

A local ordinance the necessitates the vacating of the property

It is determined by government agency or court that the tenant is at fault for the conditions triggering the order to vacate (Tenant not entitled to relocation fees)

Intent to demolish or substantially remodel the property

For No Fault Owner is required to do one of the following:

Shall notify tenant of their right to relocation assistance by:

Waiving rent for the final month

Make direct payment to tenant for an amount equal to one month rent. For this option, owner must pay with 15 calendar days of service of the notice

If tenant fails to vacate upon expiration of the notice to terminate, the relocation assistance shall be recoverable as damages in an action to recover possession

Owner’s failure to comply shall render the termination notice void

Not included are single-family and condos owned by private individuals

Duplexes where owner occupies one of the units as their principal place of residency

Housing that has been issued a certificate of occupancy within the previous 15 years

Not exempt are any of the following:

(i) A real estate investment trust, as defined in Section 856 of the Internal Revenue Code.

(ii) A corporation.

(iii) A limited liability company in which at least one member is a corporation 

Clause to be included in lease agreements after July 1, 2020

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New 2019 Laws

Here’s a summary of the new laws that have been passed this year. Some of them still waiting for Governor Newsom’s signature.

AB 1482 by Assembly Member Chiu

Rent Increases: Cap of 5% + cost of living or 10%, whichever is the lower of the gross rental rate, over the course of any 12-month period. AB 1482 includes Just Cause and No Fault Evictions. It does not include single-family homes or condos owned by individuals.

SB 330 by Sen Nancy Skinner

The California Legislature has approved Senate Bill 330, the Housing Crisis Act of 2019. SB 330 will accelerate housing construction in California by cutting the time it takes to obtain building permits, limiting fees on housing, and barring local governments from reducing the number of homes that can be built.

SB 234 by Sen Nancy Skinner

Gov. Gavin Newsom signed into law Senate Bill 234, the “Keeping Kids Close to Home Act”.  The new law will expand childcare opportunities for California families and reduce costs and red tape for home childcare providers statewide. Large family daycare homes that provide care to up to 14 children will receive the same exemptions under local neighborhood zoning and permitting laws that small family daycare homes now enjoy.

AB 1188 by Assembly Member Gabriel

This bill would authorize a tenant to temporarily permit the occupancy of their dwelling unit by a person who is at risk of homelessness, regardless of the terms of the lease or rental agreement. The tenant would need written approval of the owner or landlord of the property, which could be subject to extension under certain circumstances.

SB 329 by Senator Mitchell

This bill clarifies source of income discrimination to include verifiable income paid directly to tenant, or paid to a housing owner or landlord on behalf of a tenant. Verifiable income would include, but not limited to, federal housing assistance vouchers issued under Section 8.

SB 644 by Senator Glazer

Security deposits requested of service members residing in a property will now be limited to an amount equal to one months’ rent, in the case of unfurnished residential property. In the case of furnished residential property the deposit is limited to an amount equal to 2 months’ rent. This does not apply to a situation in which the property is rented to a group of individuals, one or more of whom is not the service member’s spouse, parent, domestic partner, or dependent.

AB 1110 by Assembly Member Friedman

This bill would require 90 days’ notice if a landlord of a residential dwelling with a month-to-month tenancy increases the rent by more than 10% of the amount of the rent charged to a tenant annually.

Proposed New Laws for 2019

California Legislation

When Prop 10 was defeated we thought legislators would back off and we could relax for a while. Not so. In fact, the legislators have been quite busy. Here’s the latest list of proposed bills to watch.

AB 36 would allow rent control to be imposed on multifamily buildings 10 years old or older and on single family homes. This means some of the protections small owners have under Costa Hawkins would be removed.

AB 1482 would cap rent increases statewide. The percentage to be used for the cap has yet to be determined. Oregon recently passed a similar bill. This proposal is being touted as an anti-gouging cap.

AB 1481 would impose “just cause” statewide.

AB 724 would create a statewide rent registry.

AB 1188 would allow renters to house an individual or family at risk of homelessness for up to 12 months, even if doing so would violate the lease. In other words, the owner would have no ability to accept or deny these new occupants.

SB 329 would clarify source of income discrimination to include verifiable income paid directly to tenant, or paid to a housing owner or landlord on behalf of a tenant. Verifiable income would include, but not limited to, federal housing assistance vouchers issued under Section 8

Milder tenant protections:

AB 1110 would require 90 days’ notice if a landlord increased the rent by more than 10%, but no more than 15%, of the amount of the rent charged to a tenant. The bill would require 120 days’ notice if the landlord increased the rent by more than 15%

Duplex Owners Are Trapped in San Jose

Owners with only one rental unit may be facing rent contol in San Jose.

We’ve had this discussion several times and yet, some of our San Jose City Council members keep bringing it back to the table. The question they keep asking is, should duplexes be added to the TPO (Tenant Protection Ordinance)?

Many duplex owners (including me) purchased our property years ago with a plan. The plan was to rent out one side and live in the other. Due to the cost of housing in San Jose, the rented side did not pay the mortgage. In fact, in the beginning an owner did well to receive even so much as a third of the property costs. But as time went on and rents went up the percentage got closer to being a shared cost. If an owner worked at paying down the mortgage over the years, they could possibly refinance with little or no mortgage when the time came for them to retire. For a number of owners with no company retirement or pension, this is the best scenario they could hope for.

Now that the TPO issue is back on the table, those of us who  live in our duplexes are faced with quite a dilemma.  So, what do we do now?

  • We can keep the property and live in fear that one day we may get an unreasonable or hostile tenant.  Remember we live on the other side of the wall from our tenant.  There is no anonymity.  We don’t have a property manager with whom we can file a complaint.
  • Today we don’t have to give a reason that could create bitter debate.  We can simply serve a no cause 60 Day Notice to Vacate.  Under the TPO we would be required to have a well documented “just cause” to even begin the process with the aid of an eviction attorney.  Or, we could offer to give the tenant an excessive amount of money (which could equal nearly a half year of rent) to buy them out of the unit.
  • We can sell or exhange for a property outside of San Jose. But wait.  It’s not quite that simple.  Duplexes fall under special circumstances.  One side of the property is owner occupied.  The other side is a rental.  If we sell the property we will pay substantial capital gains for any gain in equity on the investment side.  To exchange we would have to purchase a more expensive (higher debt) investment property to avoid the capital gains.  This sends us backwards in the goal to eventually retire.  And somewhere in the mix we would still need a place to live.  In otherwords, it would have to be just the right property to meet both the investment and the owner-occupied needs.  On top of higher debt, we would be strapped with higher property taxes making it even more difficult to meet the ultimate goal.
  • There is one other option.  We can let the rental unit set vacant.  That, of course, would blow the whole purpose of owning a duplex out of the water. What seemed like a well thought out plan has now become a stressful trap.

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Reversing Costa Hawkins will not help the housing crisis

Our state legislature has made several unsuccessful attempts to reverse Costa Hawkins. Perhaps the reason they’ve failed to reverse the ruling is the unintended consequences that would result from such a dramatic change. Often with good intentions our representatives pass knee-jerk legislation to pander to a moment of emotional outcry.

Clearly the need for more affordable housing is a pressing issue, not just for California but for several highly populated states. Cities with large populations and low unemployment rates are most affected by the lack of housing. For every article we read on residents leaving the bay area for more affordable lifestyles there’s an article on yet another big company (Apple, Google, Amazon, etc.) buying up real estate for future sites to expand their work force. Currently, many bay area cities already have a unemployment rate of less than three percent.

For a few of our bay area cities the knee-jerk response to the “not enough housing” has been rent control. In conflict to the views of most economists, the response has been to cater to outcry with a band-aid approach, capping rent increases and imposing just cause terminations. Rent control does help those who have already secured housing. It provides them with lifetime low-rent and makes it more difficult to end tenancies with nuisance tenants, although not so helpful to neighboring residents.

The Costa Hawkins Rental Housing Act is a statute that limits rent control on single-family homes and new construction built after 1995. Under the ruse of “Affordable Housing” certain tenant groups are seeking to repeal the law and have succeeded in placing the initiative on the November 6th ballot. At a time when cities are challenged with the need for more housing we are faced with the possibility of discouraging new housing projects. It’s one thing to mandate a certain percentage of a new development to be offered as affordable housing for low-income applicants. It’s quite another uphill battle to require all new housing construction to be subject to rent control. What incentive would a developer have to invest in a new housing project knowing all rents could be capped forever? The more prudent tactic would be to encourage new construction as fast as they could build.

If passed, this rent control ballot measure (also known as “The Housing Freeze”) could:

Allow rent caps on properties to be locked in place forever.

Impose rent control on family homes and accessory dwelling (granny) units.

Discourage new construction.

Lead to lawsuits, as it is unclear what constitutes fair market value.

Grant new powers to regulatory bodies to impose or modify rent policies – without public oversight.

Allow advocacy groups to intervene in lawsuits with all their expenses paid by taxpayers – even if they lose.

 

According to Ballotpedia, the fiscal impact statement is as follows:

Unknown, but potentially significant, changes in state and local government tax revenues. Net decrease more likely than net increase. Potential increase in local government costs of up to tens of millions of dollars per year in the long term, likely paid by fees on owners of rental housing.(1)

Bottom line, the repeal of Costa Hawkins will not provide more housing. It’s an impulsive reaction that will help only a slight few today but deny many of housing in the future. We need long-term solutions that will benefit the masses in the coming years.

For more information check out https://noprop10.org/

  • Ballotpedia https://ballotpedia.org/California_Local_Rent_Control_Initiative_(2018)

Hiring a Property Manager

A rental property can be a great investment.  You hire a Property Manager (PM).  You get your monthly statements.  And,depending on certain factors such as the condition of the property or the debt obligation, you could receive a nice monthly income. While a great investment, it can also be a huge liability. Careful selection of a competent PM who can lower your liability, maintain your property and select qualified applicants is crucial.

How do you select an excellent Property Manager?  Here are a few questions you may want to ask.

Are they licensed?  The California Bureau of Real Estate (CALBRE, previously the DRE) requires that anyone representing a client in the sale or lease of real property have a real estate broker’s license or a salesperson’s license under a broker. This means that each individual signing contracts with or for clients’ needs a real estate license, not just the corporation or broker. Further, the license number should be on all initial points of contact, such as business cards, stationery, and rental ads.  Their CALBRE license number can be verified at http://www.dre.ca.gov/

How long have they been managing rental properties?  It takes continuous education and years of experience to become a skilled Property Manager. The hot rental market has attracted some young entrepreneurswith great technical skills to launch new management companies without any background in the industry. Hiring a rookie in such a high-liability business can be risky.  Having the latest technology is essential to communicating with clients, tenants and vendors.  But,there is no substitute for knowledge and experience.

How many properties do they manage?  Is this their main source of income?  You want someone who has a career in property management, not a side job.  Once it’s established that they are a full-time, experienced PM, you must decide if you wish to sign with a smaller company or a larger company.

Can you participate in selecting the tenant?  If the Property Manager answers “yes”, do not hire them.  A competent PM will have a selection process.  The new tenant will qualify based on the facts.  Any requested information that goes beyond the criteria to determine the applicant’s ability to pay could be considered a fair housing violation.  The PM should respectfully deny an owner’s request to interview the prospective tenant.

How do they handle maintenance calls?  More importantly, how much do they know about maintenance?  An experienced PM will sometimes get a maintenance call that can be fixed over the phone just by asking the right questions.  No owner wants to pay an electrician to flip a breaker that trippedfrom a brief power surge or a plumber to turn on the water that wasinadvertently turned off when the tenant was washing their car.

How much do they charge?  Every management company sets their own rate. Typically it’s a percentage based on the gross monthly rent or income collected.  In addition, nearly all PM’s charge a leasing fee ranging from a few hundred dollars to an amount equal to one month’s rent. This fee is normally charged only when the property is turned over and the PM finds a new qualified resident.

Do they charge an “overhead” or “service fee” on repairs?  One of the advantages to hiring a professional Property Manager is that they can work with the best tradespeople while delivering the best prices to their clients due to the volume of work they can offer to vendors. The amount of work they can provide to vendors gives a PM a lot of clout with tradespeople to get jobs done properly and in a timely manner. Some property management companies have in-house maintenance crews,for which they must pay overhead and make a profit.  Therefore, it may or may not save the client money.  Other PM’s charge a service fee on all repair bills paid to vendors.  Not only does this not save the client money, it could influencea PM’sdecision in the course of approving repairs.  The more repairs they authorize the more money the PM makes.

Do they have suggestions for preparing your property prior to offering it for rent?  A good Property Manager will be open and candid about what will make your property more marketable.  On one hand, you might not want to spend tens of thousands of dollars on remodeling only to net a few hundred dollars more in rent each month.  On the other hand, you don’t want your property to remain on the market longer than needed because your PM was afraid to suggest you change the green carpet or get rid of the flowered drapes.

When will you get paid?  Every Property Manager has a different timetable or structure as to when they can disburse the owner’s funds.  Keep in mind the PM needs to have all the bills paid and all the tenantsrent payments have cleared.  This is especially important for companies with large portfolios.  Most PM’s pay all their owners at the same time, typically between the 15th and the 20th of the month.

Will I receive a statement?You should receive a monthly statement of all monies that have gone in or out of your account. Additionally, many Property Managers will furnish you with copies of any bills they have paid on your behalf.  Every January, the PM should furnish you with a statement for the previous year along with a 1099 Misc.

Just like choosing any business professional, personal referrals are the best.  If you have family or friends with rental properties, ask them who manages their properties and are they happy with the service. Realtors, lenders, vendors, attorneys and tax accountants may be able to recommend a good manager. Ideally, this will be the beginning of a great long-term business relationship. So, above all and foremost you should hire the Property Manager with whom you feel the most confident to represent you.

Landlord Liability

Did you know?  Should you have known?

I’ve always said, “You can do everything right, and still, someone will sue you.”  Being a housing provider is a high-liability business.  No matter how well you maintain your property there is always something that could go wrong.

Michele Holt Mamertoand NielMamerto (referred to as the Mamertos) owned a residential property located in Escondido, California.  In 2005, they rented the property to George Jakubec.  The same year the Mamertos hired Mario Garcia to maintain the landscaping, which he continued to do at least once every two weeks throughout the duration of the tenant’s residency.  On November 18, 2010, Garcia was injured when he walked over unstable explosive (bomb) material on the backside of the premises and the material exploded under him.

The Garcias sued for premises liability alleging the Mamertos were negligent in maintaining the premises by allowing explosive materials to be kept on the premises.  It was undisputed the Mamertos did not have actual knowledge of the explosive materials on the premises.Nor were they made aware of any suspicious behavior or activity. In addition, Garcia and his employees admitted they found no indication of a dangerous condition during the five years they provided landscaping services.

A repairman entered the premises to replace the garbage disposal in September 2009 and reported to the Mamertos that everything was fine at the house. A pest control company did not notice suspicious activity when servicing the exterior of the property on a quarterly contract. Niel also visited the premises himself on one occasion and did not observe any problems

Although it was clear the Mamertos had no knowledge of explosive materials on the premises, the Garcias argued the Mamertos had a corresponding duty to make “reasonable periodic inspections” regardless of actual knowledge of a dangerous condition. The Garcias misconstrued the law. The obligation to inspect arises “only if the property owner had some reason to know there was a need for such action.” Once the original lease expired, the month-to-month tenancy may have given the Mamertos the right and the ability to cure a condition by terminating the lease on proper notice, but only if they knew about the condition or had some reason to know inspection was necessary.

The court ruled in favor of the Mamertos.  However, the court noted, if there was some reasonable basis that an inference could be drawn that the property owners were aware of what was going on at their property they would have been held liable.

Case:  Mario Garcia and Esperanza Garcia v. Michele Holt and NielMamerto(erroneously sued as Neil Mamerto) – 2016