CALIFORNIA LAW REQUIRES LESSORS OF COMMERCIAL PROPERTY TO DISCLOSE WHETHER THE PREMISES HAVE UNDERGONE INSPECTION BY A CERTIFIED ACCESS SPECIALIST (CASp)

Under Civil Code section 1938, a commercial property owner or lessor is required to state on every lease form or rental agreement executed on or after January 1, 2017, whether or not the subject premises have undergone inspection by a Certified Access Specialist (CASp).

If the subject premises have undergone inspection by a CASp and, to the best of the commercial property owner's or lessor's knowledge, there have been no modifications or alterations completed or commenced between the date of the inspection and the date of the lease or rental agreement which have impacted the subject premises' compliance with construction-related accessibility standards, the commercial property owner or lessor is required to provide, prior to execution of the lease or rental agreement, a copy of any report prepared by the CASp with an agreement from the prospective lessee or tenant that information in the report shall remain confidential, except as necessary for the tenant to complete repairs and corrections of violations of construction-related accessibility standards that the lessee or tenant agrees to make.

Making any repairs or modifications necessary to correct violations of construction-related accessibility standards that are noted in a CASp report is presumed to be the responsibility of the commercial property owner or lessor, unless otherwise mutually agreed upon by the commercial property owner or lessor and the lessee or tenant. The prospective lessee or tenant shall have the opportunity to review any CASp report prior to execution of the lease or rental agreement. If the report is not provided to the prospective lessee or tenant at least 48 hours prior to execution of the lease or rental agreement, the prospective lessee or tenant shall have the right to rescind the lease or rental agreement, based upon the information contained in the report, for 72 hours after execution of the agreement.
If the subject premises have been issued an inspection report by a CASp indicating that it meets applicable standards, the commercial property owner or lessor is required to provide a copy of the current disability access inspection certificate and any inspection report to the lessee or tenant not already provided within seven days of the date of the execution of the lease form or rental agreement.

If the subject premises have not been issued a disability access inspection certificate, the commercial property owner or lessor is required to state the following on the lease form or rental agreement:

“A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2017 Ruzicka, Wallace & Coughlin, LLP

California Court of Appeal Holds That The Purchaser Of Real Property At A Foreclosure Sale Can Serve A Notice to Quit Before The Foreclosure Deed Is Recorded

In Levill v. Westlake Health Care Center, filed on March 7, 2017, the California Court of Appeal held that California’s post-foreclosure eviction statute (Code of Civil Procedure §1161a) does not require the recording of a foreclosure deed before service of a notice to quit upon the occupants of the property. The Court of Appeal concluded that statute merely requires the recording of the foreclosure deed and service of the notice to quit before the date an eviction is filed - the order of these events does not matter.

This decision directly contradicts the holding in U.S. Financial, L.P. v. McLitus (2016) 6 Cal.App.5th Supp., decided on November 30, 2016.  In that case, the Appellate Division of the San Diego Superior Court held that service of a notice to quit before the recording of a foreclosure deed renders invalid any subsequent unlawful detainer proceeding.

So, which decision is correct? Because the foreclosure eviction statute is vague on this point, various arguments have been advanced such as: (1) the notice to quit can be served as soon as the foreclosure sale is completed, (2) the notice to quit can be served as soon as the foreclosure sale is completed as long as the foreclosure deed is recorded within 15 days of the date of the sale (under the foreclosure statutes, a non-judicial foreclosure sale is deemed perfected as of 8:00 a.m. on the date of the sale as long as the foreclosure deed is recorded with the county recorder within 15 days of the sale), (3) the notice to quit can be served as soon as the foreclosure deed is delivered to the purchaser because the recording of a deed is not required to transfer title, and (4) the notice to quit cannot be served until the foreclosure deed is recorded with the county recorder. It would make sense that the foreclosure deed should be recorded before service of a notice to quit so that the world has constructive notice of the change of ownership. However, the statute does not contain this requirement and the cardinal rule of statutory construction is that courts cannot add words to statutes.

In any event, under the Doctrine of Stare Decisis, the new Court of Appeal opinion takes precedence over the San Diego Superior Court Appellate Division decision.  Unless the California Supreme Court or Legislature step in, the purchaser of real property at a foreclosure sale does not need to wait for the recording of the foreclosure deed to serve a notice to quit. As long as the deed is recorded and notice to quit is served before the eviction action is filed, the order of these events does not matter.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice. 

© 2017 Ruzicka, Wallace & Coughlin, LLP.

Three Day Notice to Pay Rent or Quit Cannot Include Portion Of Rent Subsidized By Section 8

Scott v. Kaiuum, decided 1/4/17 (Fresno Superior Court Appellate Department)

In January 2015, a landlord leased a rental unit to a low-income tenant for a term of one year with rent set at the market rate of $700 per month. A portion of the rent was subsidized under the HUD Section 8 Housing Choice Voucher Program (the “Program”). Under the Program, the local public housing authority (“PHA”) agreed to pay $684 per month of the rent with the tenant paying the remaining $16 per month. 

In accordance with the Program, the landlord entered into the required housing assistance payment contract (commonly known as a “HAP contract”) with the PHA. A HAP contract expressly obligates the landlord to comply with HUD’s Housing quality standards (“HQS”). 

On October 27, 2015, the Housing Authority sent the landlord and tenant a letter stating that the rental unit had failed a recent inspection, and listing multiple violations of the federal habitability standards, all but one of which were deemed to be caused by the landlord. The letter warned that there would be another inspection on November 17, 2015, and that, if the defects were not cured by the time of that inspection, the Housing Authority would abate all further Section 8 payments effective December 1, 2015, and the HAP contract would be canceled effective December 17, 2015. 

On November 18, 2015, the PHA sent the landlord a second letter stating that the rental unit flunked the second inspection, that all further Section 8 payments would be cancelled effective December 1, 2015, and that the HAP contract would be terminated effective December 17, 2015. The letter also informed the respondent that it was “not permitted to recover monies from the resident.”

Nevertheless, when rent came due on December 1, 2015, the landlord demanded that tenant pay the entirety of the $700 rent under the rental agreement. When rent became past due on December 4, 2015, respondent served appellant with a three-day notice to pay or quit, again demanding the full $700 rental payment. When the tenant failed to cure the notice, the landlord filed an unlawful detainer action against the tenant. The eviction was filed on December 16, 2015.

The trial court found that, because the deficiencies were not cured by the deadline, the Section 8 contract had terminated and thus the tenant was required to pay the full amount of rent under the rental agreement. Therefore, the court granted the unlawful detainer judgment in favor of the landlord.

The appellate court reversed. It pointed out that the tenant is not responsible for payment of the portion of the rent covered by the PHA. Furthermore, during the term of the lease, the landlord may not terminate the tenancy due to nonpayment of the PHA housing assistance payment.  Because the landlord’s three day notice to pay rent or quit demanded a portion of the rent covered by the PHA, it overstated the amount of rent owed and hence was defective.  The Court also pointed out that, under California Civil Code section 1941.2, landlord was not entitled to demand rent until the repairs were made and the premises were habitable.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2017 Ruzicka, Wallace & Coughlin, LLP.

Leasing Unpermitted Units is Perfect Recipe for Landlords Who Like Insomnia

North 7th Street v. Guillermo Constante, L.A. Appellate Division Superior Court, 1/4/17

In this unlawful detainer case, the trial court granted tenant's summary judgment against landlord. In everyday language -- the trial judge threw the landlord's eviction action out of court! The tenancy was based on an oral agreement, but the unit was built without permits and landlord never obtained a certificate of occupancy. When the tenant stopped paying rent, the landlord served a three-day notice to pay rent or quit. 

Held: Trial court's grant of summary judgment in favor of tenant upheld.  An unlawful detainer is an expedited action (technically called a “special proceeding”) to recover possession and is a creature of statute. To invoke California's unlawful detainer law, its requirements must be strictly followed. Without permits or certificates of occupancy, the lease was void and the landlord was not entitled to collect rent. The landlord's three day notice to pay rent or quit  – which claimed about $700  – was defective and could not support an unlawful detainer action in the first place.

The appellate department dismissed landlord’s reliance on Gruzen v. Henry (1978) 84 Cal.App.3d 515 (Gruzen), which posed basically the same issue, but with a different result. In Gruzen, the Court of Appeal upheld the trial court's judgment in favor of landlord for possession, but reversed the award of damages for unpaid rent. It is difficult to square these two cases. The Gruzen court basically acknowledged that a lease for a unit without an occupancy permit is void.  But it proceeded to uphold the judgment for possession because the notice to pay rent or quit was only $18 more than the amount due under the (admittedly void) lease. A missing step in the logic tree. In North 7th Street, the court used a different reference point – The amount of rent due was $0 and any amount over that can’t be justified. Gruzen didn't consider or discuss that issue, and as North 7th Street points out, cases are not authority for propositions they don't consider.

The tenant is probably thinking about seeking restitution of past rent that was paid for the unpermitted unit over the life of the "lease."   

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2017 Ruzicka, Wallace & Coughlin, LLP.

Borrowers Lack Standing To Challenge Securitization Of Real Property Loans

In Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4^th 919 (Yvanova), the California Supreme Court issued a narrow ruling on a borrower’s standing the challenge the validity of the chain of assignments involved in the securitization of real property loans. The court held that a borrower has standing to allege that an assignment of the promissory note and deed of trust to the foreclosing party was void, but the borrower does not have standing if the transfer was merely voidable. The Supreme Court did not decide whether a post-closing date transfer into a New York securitized trust is void or voidable.

On December 13, 2016, in Mednoza v. JPMorgan Chase Bank, N.A., the California Court of Appeal held that a post-closing date transfer into a New York securitized trust is merely voidable. Accordingly, the borrower/plaintiff, Maria Mendoza, did not have standing to challenge alleged irregularities in the securitization of her loan.

The Court of Appeal explained that where assignment is void, meaning of no legal force or effect whatsoever, the foreclosing entity has acted without legal authority by pursuing a foreclosure sale.  Because the assignment is without any effect, it can never be ratified or validated by the parties to it.

By contrast, a voidable contract or assignment is one that the parties to it may ratify and thereby give it legal force and effect or extinguish at their election. Only the parties to the contract or assignment have the power to ratify or extinguish; consequently, allowing a borrower to challenge an assignment based on a defect that only renders it voidable would allow the borrower to exercise rights belonging exclusively to the parties to the assignment.

Mendoza cited Glaski v. Bank of America (2013) 218 Cal.App.4^th 1079 (Glaski) for the proposition that post-closing date transfers to a New York securitized trust were void. The Court of Appeal declined to follow the holding in Glaski noting an “avalanche of criticism of Glaski’s interpretation of New York law followed.” The Court of Appeal stated that it would defer to New York courts on questions of New York state law. The New York courts have rejected the holding in Glaski.

The California Court of Appeal went on to state “The principle that a trustee’s unauthorized acts may be ratified by the beneficiaries is harmonious with the overall principal that only trust beneficiaries have standing to claim a breach of the trust. If a stranger to the trust also has such standing, the stranger would have the power to interfere with the beneficiaries right of ratification.”

The Court of Appeal concluded that assignments that violate a Pooling and Servicing Agreement (PSA) or applicable law are voidable and, as a result, borrowers do not have standing to challenge late transfers or other defects in the securitization process.

Because defects in the securitization process may be ratified, the result is that borrowers in California do not have standing to challenge securitization of their real property loans.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2016 Ruzicka, Wallace & Coughlin, LLP.

City of Los Angeles Enacts Tenant Buyout Notification Ordinance

On December 15, 2016, Mayor Eric Garcetti signed a Tenant Buyout Notification Ordinance. The purpose of the ordinance is to regulate and monitor voluntary vacancies of rental units subject to the City of Los Angeles Rent Stabilization Ordinance (RSO) pursuant to Buyout Agreements.

By way of background, the RSO contains both rent controls and eviction controls. The rent control provisions limit the amount of rent that a landlord may charge. The eviction control provisions limit the grounds for eviction. Under the RSO, a landlord is required to have good cause, as defined by the RSO, to terminate the tenancy. The net result is that as long as a tenant timely pays rent and complies with the terms and conditions of his or her tenancy, the tenant is entitled to continue renting the premises for as long as the tenant desires, subject to certain limited exceptions. When an exception applies, such as to allow the landlord, a family member or property manager to reside in the rental unit or to allow the landlord to demolish or permanently remove the rental unit from the market, the landlord is generally required to pay relocation assistance to the tenant. Currently, relocation assistance amounts range from $7,900 to $19,400 per rental unit depending on various factors such as the length of the tenancy (more or less than 3 years), whether any of the tenants are disabled, elderly or children, and household income. Tenants are not entitled to relocation assistance if they are evicted for a breach of a lease or rental agreement.

When tenants voluntarily vacate a rental unit, the landlord is entitled to increase the rent to market rates. This is known as vacancy decontrol. This creates an incentive for landlords to offer “cash for keys” to residents paying artificially low rents under the RSO.

The potential problem is that some tenants may not know their rights under the RSO. So, if the landlord offers a tenant a few thousand dollars to vacate, the tenant may believe that the tenant is getting a good deal when, in fact, the cost of moving and paying higher rent somewhere else may quickly deplete any money received by the tenant.  In such cases, the tenant may have been better off declining the landlord’s buyout offer.

The new ordinance seeks to address this issue by providing the following rules and regulations:

1.  RSO Disclosure Notice. Before making a Buyout Offer (defined below), the landlord is required to provide the tenant(s) with an RSO Disclosure Notice of tenant rights on a form authorized by the rent stabilization board, which must be dated and signed by the landlord and the tenant(s).

2. .Written Buyout Agreement. Every Buyout Agreement (defined below) is required to be written in the primary language of the tenant and state in a minimum of 12-point bold type above the tenant signature line as follows:

“You, (tenant name), may cancel this Buyout Agreement any time up to 30 days after all parties have signed this Agreement without any obligation or penalty.”

Additionally, every Buyout Agreement must be signed and dated by the landlord and tenant, and a copy of the fully executed Buyout Agreement must be given to the tenant.

3.   Cancellation of Buyout Agreement. A tenant has the right to cancel a Buyout Agreement for any reason for up to 30 days after execution by the landlord and the tenant without any financial obligation or penalty. Additionally, whenever an RSO Disclosure Notice and/or Buyout Agreement does not conform to the requirements of this the new law or applicable regulations, the tenant has the right to cancel the Buyout Agreement through the applicable statute of limitations period.

4.  Filing Executed RSO Disclosure Notice and Buyout Agreement. Within 60 days of execution of a Buyout Agreement, the landlord is required to file copies of the Buyout Agreement and RSO Disclosure Notice signed by the tenant and the landlord, with the rent stabilization board.

5.  Affirmative Defense. A violation of this the ordinance may be asserted as an affirmative defense in an unlawful detainer action.

6.   Private Right of Action. Additionally, a tenant may bring a private right of action against a landlord who violates a provision of the ordinance and recover damages and a penalty of $500.

The ordinance defines a “Buyout Offer” as an offer, written or oral, by a landlord to a tenant to pay money or other consideration to vacate an RSO unit. A “Buyout Agreement” is defined as a written agreement where a landlord pays a tenant money or offers other consideration to voluntarily vacate an RSO rental unit.

Further information regarding the Tenant Buyout Notification Ordinance is available from the Los Angeles Housing and Community Investment Department (HCIDLA), website http://hcidla.lacity.org/, or by contacting Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice. 

Risks Associated with Proceeding with Eviction While Appeal is Pending

When a landlord who has secured a writ of possession evicts a tenant before the appellate rights of the tenant have been exhausted, the landlord assumes the risk it will be subject to a full accounting and restitution if the judgment granting the writ of possession is reversed on appeal. That principal was again highlighted in the recent case of Beach Break Equities v. Martin Lowell (decided December 14, 2016).

This case concerned a single family home that had been leased to a tenant, Lowell, under a five year lease with multiple five-year options. The owner of the property defaulted on the loan and the lender foreclosed.  Beach Break acquired the property at the trustee's sale and then filed an eviction action against Lowell.  The trial court granted Beach Break's motion for summary judgment. While Lowell appealed the judgment, Beach Break obtained a writ and proceeded with the eviction.  After it evicted Lowell, Beach Break sold the property to a third party.

In a major development, the appellate court reversed Beach Break’s victory on summary judgment, and also ordered the trial court to grant Lowell a hearing for potential restitution. However, in later proceedings, the trial court refused to grant Lowell a restitution hearing because Lowell had not sought such relief in his answer or by a separate Cross-Complaint. The trial court then allowed Beach Break to dismiss the action.  The case looked over again; but again Lowell appealed.  The appellate court reversed and held that Lowell was entitled to a restitution hearing, including because the prior appellate court had ordered it.  The court explained that receiving such a hearing is an equitable right that exists independently of whether the party had actually requested restitution in its pleadings.  Moreover, Beach Break was not allowed to avoid the potential of a restitutionary remedy by dismissing the case. In reversing the dismissal, the appellate court noted that it was not holding that Lowell was entitled to restitution, only that he was entitled to a hearing on the issue.  The actual right to restitution following reversal on appeal is left to the trial court's judicial discretion.

For further information, please contact Ruzicka, Wallace & Coughlin, LLP at (949) 748-3600; website: www.rwclegal.com.

The law firm of Ruzicka, Wallace & Coughlin, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.

© 2016 Ruzicka, Wallace & Coughlin, LLP.