Subtenants in rent-controlled apartments have no right to remain following the lessee's forfeiture, courts rule. 

In San Francisco and other rent-controlled jurisdictions, the longer the tenant resides in the unit, the cheaper the rent becomes for the tenant, Daniel Bornstein said in a previous interview. "What that means is that you don't have that fluid nature of people moving on to new housing, allowing for additional opportunities for housing to actually open up,” he said is the result of the entitlement. 

 

 
Tenants who have a rental agreement in a building subject to rent control enjoy the protections of regulated rent increases, but can this coveted status be transferred to subtenants?

This was one of the quintessential questions in Adair Lara v. Peter Menchini, SF Appellate Division, September 3, 2021.

The courts noted that "a rent-controlled apartment cannot ... be passed on freely 'from friend to friend' … Only those occupants who reside in the apartment at the start of the tenancy and do so with the landlord's express or implicit consent are protected from unregulated rent increases," was the ruling of the court.

The master tenant was responsible for paying $2,882.01 per month. When rental arrears piled up to nearly $6K, an unlawful detainer was commenced against the familiar, master tenant named in the original lease.

Yet there were other occupants residing in the unit that the landlord never met, much less entered into an agreement with. 

The subtenants were more than willing to take on the rent obligations of the master tenant, even sending checks to the landlord in order to remain implanted. 

The landlord refused to deposit the checks, asserting that there was no landlord-tenant relationship established with the unwanted occupants. 

Had the landlord accepted rent payments from the subtenants, a tenancy would have been inadvertently created, and hence, protections would have been afforded to the occupants under San Francisco’s Rent Ordinance. 

With the master tenant gone, the landlord tried to broker a deal with the four remaining occupants and made an ultimatum: pay the market rate of $7,200 and you could stay in a brand new tenancy. The occupants declined to pay this amount. 

We’ve said earlier that, amid rising crime in San Francisco, landlords do not have to tolerate criminal activity in and around their buildings, even if the criminal acts go unprosecuted. Similarly, the buck stops with the landlord as to who resides in the unit. 

The progression of the case:

With the master tenant gone, the landlord successfully prosecuted an eviction action against the remaining occupants.

Those lingering dwellers argued that a three-day notice to pay rent or quit was defective insofar as it did not allow them, as subtenants, to pay the master tenant's rent and cure the tenant's default. This argument was not persuasive. 

The Court of Appeals reasoned that even if the residents lawfully occupied the premises, the rights of subtenants end as soon as the master tenant forfeits their own rights. 

In other words, when the master tenant defaults in the performance of his or her duties and forfeits their rights to possession of the property, this severance of rights rolls downhill - the subtenants cannot claim they are entitled to possession. The landlord is not obligated to accept rent from the residual subtenants. 

 

Will the case law apply elsewhere? 

The logic that courts use in deciding cases is influenced by precedent from earlier cases, but what we have is controlling law and persuasive law, meaning courts are either bound by previous court decisions or while they can study the rationale used by other cases, are not required to follow it.

It will be interesting to see whether the thought process in Adair is exported to other locales throughout the Bay Area. 

Some of our takeaways follow.

 

Be careful whom you take rent money from

Clearly, when a landlord stumbles upon an occupant who is unknown, isn’t properly vetted, and is not named in the lease, no money should exchange hands unless the landlord wants to create a tenancy. 

It is entirely possible that the occupant is desirable and would make a good tenant. Perhaps, with the informed legal guidance of Bornstein Law, rent can be raised, or not. The main point that should sink in is this: whenever the landlord accepts money, a tenancy is created in the eyes of the law, whether the occupant is welcomed or not. 

 

It is also prudent to refuse money from any tenant who is the subject of an unlawful detainer action. 

If an unlawful detainer action is filed, it may be tempting for a cash-strapped landlord to accept payment from the tenant named in the lawsuit, especially when the landlord has received little or no rental income because of COVID-related protections. Please be careful - when payment is accepted, it re-establishes the tenancy and the landlord has forfeited the ability to evict. 

On many occasions, Bornstein Law has regretfully informed clients that because he or she took money from a tenant going through the eviction process, we have to start over because the tenancy began anew because money traded hands. 

 

A revolving door of occupants makes for a confusing situation

It has become commonplace during the pandemic for tenants, subtenants, roommates, family members, and friends to engage in a game of “musical chairs.” People leaving the Bay Area or relocating to the suburbs, subletting their former abode, or replacing roommates. Guests who over warm their welcome when asked to leave, and so forth. 

This revolving door of people coming and going has gotten to the point where many landlords do not even know who is residing in a rental unit. Indeed, many new homeowners were aghast to find that the home they just purchased was occupied by strangers and called upon our firm to legally remove those occupants who were staying on the premises against the wishes of the new owners. 

 

Parting thoughts

It may be prudent to serve notices on all occupants of the property, including any “Does”, to ensure that all of the bases are covered - please consult with our office before foolhardily serving notices on your own. 

Keep in mind, that there is case law that may allow for children to bequeath rent control protections when the minors reach adulthood, but again, this is a very complex area of law best journeyed with an attorney. 

Finally, what we are experiencing is a laboratory in the courts. Tens of thousands of pages of laws and government edicts were written throughout the long, dark winter of COVID but they have been largely untested in the courts. We are finally beginning to see the courts digest and interpret them. Of course, Bornstein Law will bring a fresh voice in advocating for the rights of property owners during this exercise. 

We've only scratched the surface here and would be remiss not to say there is still a myriad of other rules governing rent increases, including Costa-Hawkins, emergency declarations declared by the Governor that tempers the ability of landlords to raise the rent, and other considerations that cannot be properly addressed in a lone article.

Whenever a rent increase is contemplated, please contact our attorneys to wade through this swamp of laws and local regulations.