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HOME INSPECTIONS

Posted on November 13th, 2013

Businesses providing home inspections for prospective buyers ignore the law at their peril. While many state and national organizations (California Real Estate Inspection Association; The National Association of Home Inspectors etc.) provide great tools, support, and standards for home inspectors, an inspector facing the unsavory task of defending a California lawsuit for failure to discover and disclose defects, will be bound by California legal standards.

The Legal Standard

Business and Professions Code (B&P Code) Sections 7195 – 7196 provide in pertinent part that a home inspection is a noninvasive physical examination of the mechanical, electrical, or plumbing systems, or the structural and essential components of a residential dwelling designed to identify material defects in those systems, structures, and components (emphasis added).

The legal standard applies to all home inspectors, even those not licensed as general contractors, architects etc. “It is the duty of a home inspector who is not licensed as a general contractor, structural pest control operator, or architect, or registered as a professional engineer to conduct a home inspection with the degree of care that a reasonably prudent home inspector would exercise.” B&P Code Section 7196 (emphasis added). A home inspector not licensed/registered as an engineer, however, is not permitted to perform any analysis that would constitute the practice of civil, electrical, or mechanical engineering. B&P Code Section 7196.1.

In Practice

The scope of what a home inspection covers is generally defined by the inspection contract, but both words and actions may serve to alter or broaden the scope! By investigating or examining things expressly excluded by the inspection contract—i.e. foundations, engineering issues etc.—a home inspector may expand what the contract covers and open himself/herself up to liability for issues related to the additional items inspected. A seemingly harmless remark—“You’re buying a great house!”— may be used later by a disgruntled buyer to say he was misled into buying a defective home.

Final inspection reports should make it clear that the written report constitutes the final conclusions and recommendations and that the report supersedes any comments made at the inspection. In addition, the language used in the report should clearly and specifically define identified risks and any recommendation being made to address those risks. For example, a general recommendation to contact a licensed contractor to address improper drainage issues might be insufficient where a home has a specific drainage or grading problem.

Time Limits

A home inspector’s failure to meet the applicable standard of care (that of a reasonably prudent home inspector), may result in tort liability. Generally, a homeowner has four years to file a lawsuit for a breach of duty arising from a home inspection. B&P Code 7199. Many inspection contracts, however, seek to shorten the four-year window and require that a lawsuit be filed between one and three years from the date of inspection.

In the case of Moreno v. Sanchez (2003) 106 Cal.4th 1315, the California Court of Appeal explained that the clock does not start ticking from the date of inspection, but begins when the homeowner discovers or should have discovered the issue. Moreno, however, did not expressly forbid an inspection contract from shortening the statutory limit. The court held that an agreement to shorten the four-year time limit does not violate public policy as long as the agreed-upon time limit is not so unreasonable as to show imposition or undue advantage.

 


HABITABILITY AND PROPERTY STANDARDS FOR AFFORDABLE HOUSING

Posted on November 13th, 2013

Any landlord in California who does not want to become a defendant in a lawsuit needs to be aware of California’s implied warranty of habitability.  A breach of this warranty can result in a tenant properly withholding rent and costly litigation. For those landlords in the affordable housing world receiving state and/or federal subsidies, failure to provide housing in line with the subsidy program’s habitability and property standards could result in a loss of more than just rent.

Landlords who provide affordable housing commonly take advantage of subsidies provided by the Low-Income Housing Tax Credit (LIHTC) offered by the IRS and grant funds provided through the Home Investment Partnerships Program (HOME). These programs have plenty of rules and eligibility requirements, including the well-known ones dealing with rent pricing and tenant income. Landlords providing affordable housing should pay particular attention to the habitability and property standards contained in both LIHTC and HOME.

Property Standards

Generally, HOME has more program-specific rules than LIHTC and more stringent property standards. LIHTC’s rules have less to do with habitability and more to do with rent and income requirements. Any property taking advantage of both LIHTC and HOME must abide by the following:

  • State/local codes and standards or model codes (new construction and rehabilitation);
  • The International Energy Conservation Code (new construction and rehabilitation);
  • Uniform Federal Accessibility Standards (new construction and rehabilitation);
  • HUD site selection standards under 24 CFR 983.57 (new construction); and
  • If applicable, Housing Choice Voucher Program Housing Quality Standards (ongoing rental occupancy).

Property only using LIHTC must, at a minimum, meet local health, safety, and building codes, and HUD Uniform Physical Condition Standards under 24 CFR 5.703.

California statutes and case law establish the habitability and property standards for rental properties. Civil Code Section 1941.1 lists and defines what can make a dwelling uninhabitable; all landlords should be familiar with this list. Green v. Superior Court (1974) 10 Cal.3d 616 provides that under an implied warranty of habitability, landlords have a duty of repair. Under the implied warranty of habitability, “substantial compliance with those applicable building and housing code standards which materially affect health and safety” generally fulfills a landlord’s obligations. Id at 637.

A landlord is generally not obligated to address stand-alone minor housing code violations and need not repair damages caused by the tenant or the tenant’s family, guests, or pets.

Inspections

Both HOME and LIHTC require ongoing property inspections to ensure compliance with the programs’ property rules and standards. HOME property inspections are required every year for property with 1-4 units; every two years for property with 5-25 units; and every three years for property with 26 units or more. A HOME inspection will determine if all HOME units, shared common areas, and the building’s exterior meet the HOME rules and property standards.

Property in the LIHTC program must be inspected within the property’s first two years in the program, and then at least once every three years after that. During LIHTC inspections, only 20% of the units in the program must be inspected for compliance with LIHTC rules and standards.

Property in either the HOME or LIHTC program that fails to meet applicable property standards could result in the loss of tax credits and/or subsidies. If you are a landlord and have a question about subsidies for your property, Ericksen Arbuthnot can provide assistance. Feel free to contact any of our three Bay Area locations, San Francisco, San Jose or Oakland, if you have questions about your rental property.

 


Tenant Issues

Posted on November 13th, 2013

Recently, the San Francisco Chronicle reported that evictions were on the rise in San Francisco.  The paper reports that all evictions are up by 38 percent over the past three years, and a particular form of eviction-authorized under the Ellis Act is up by 170% over the same time frame.[1]  The landlords’ interest in converting apartments to condos isn’t surprising given that San Francisco has rebounded spectacularly from the recent economic crisis (if it ever even experienced a dip.)   Landlords want tenants out of their units and they want them out quickly in order to strike while the iron is hot.  With the dearth of new buildings being constructed in San Francisco, it’s likely that the market will stay hot for some time.  However, wrongfully evicting a tenant from a unit in San Francisco can expose a landlord to significant liability.

San Francisco has a rent ordinance which regulates both rent amount and imposes “just cause” for evictions.  Unlike most areas in the state, which allow eviction for any reason upon 30- to 60-days’ notice to a tenant, San Francisco limits the reasons why a landlord can evict a tenant.  Some of these reasons are self-explanatory, such as not paying rent, while others are more esoteric, like the family move-in provision.  A landlord must take great care in serving and filing an eviction to meet the requirements of the rent ordinance.   For example, the Ellis Act, the method du jour for eviction, has labyrinthine requirements to take the unit off the market by evicting all the tenants and paying for their moving expenses.  Once evicted, buildings under the Ellis Act are usually converted to condos.

A landlord found to have violated the rent ordinance while evicting a tenant is potentially liable for the difference in rent between what the plaintiff now has to pay versus what the plaintiff paid under their formally rent-controlled unit.  This can range into the hundreds of thousands of dollars for one tenant.  As you can imagine, if a property owner wrongfully evicts all his tenants under the Ellis Act to take the building off the rental market and convert it to condos, the damages could easily reach seven figures.  These are in addition to emotional distress damages and other consequential costs that may be recoverable.  Keep in mind that these considerations must be taken into account in other bay area cities like Oakland and Berkeley, both of which also have rent control and just cause ordinances.

If you’re worried about how to deal with one of your tenants or if a former tenant has contacted you about a potential violation of a rent control or just cause ordinance, our office is here to help. Feel free to contact any of our three Bay Area locations, San Francisco, San Jose or Oakland, if you have questions about your rental property.


[1] http://www.sfgate.com/bayarea/article/San-Francisco-evictions-surge-report-finds-4955020.php


Storage Wars

Posted on September 3rd, 2013

The Concordian • SEPTEMBER 2013

 
I think we all know by now that there are storage units out there that potentially contain zillions of dollars’ worth of property, and that there are people perfectly willing to be televised when bidding on the contents of those units when the owners get behind on the rent. I want to briefly talk about the actual procedures a storage unit company has to go through before calling TLC to get the cameras rolling.
Self-storage units are subject to the California Self-Service Storage Facility Act which governs what happens to your property if you fail to pay your monthly rent. (Business and Professions Code Section 21700 et seq.) The Act encompasses public storage facilities, but does not include garages, storage areas in a private residence or warehouses. So you’re free to keep that pair of rollerblades in mom’s garage forever under these statutes.

The contract a renter signs for a self-service storage unit must include the amount of any late fees and state that your property will be subject to a sale to satisfy unpaid rent after 14 consecutive days, among other provisions. If the renter falls 14 days behind in their payments, the storage-unit owner may send a Preliminary Lien Notice (“PLN”) which can terminate the right to use the storage unit. If the delinquent rent hasn’t been paid 14 days after the termination date stated in the PLN, the lien attaches to the property and the storage unit owner may deny the renter access to the unit, enter the unit and/or remove the renter’s property for safe-keeping and inform the renter that the property will be sold at auction after at least 14 days have passed.

 
When sending out the notice that the lien has attached, the owner must also provide a Declaration in Opposition to the Lien Sale which the renter can complete and return to the owner to stop the sale. If a Declaration in Opposition to the Lien Sale is returned prior to the sale date, the owner can’t sell the property and must file a lawsuit to force the sale of the property and collect on their lien. If the renter does not return the declaration and doesn’t pay the outstanding amounts, the self-storage unit can call TLC and get the cameras rolling on another pile of invaluable artifacts for Storage Wars.

 
If a lien sale occurs, the renter may claim any money from the sale in excess of the lien amount and the costs of sale at any time within one year of the sale date. If the storage facility wrongfully sells property without going through the statutory process, the renter can sue for conversion (for the value of the lost property) and possibly recover emotional distress damages.

 
There are the basic ins-and-outs of this process and this is not an exhaustive list of the laws associated with the termination of a self-storage unit lease. If you need the assistance of counsel, the attorneys at Ericksen Arbuthnot are here to help. I can be reached at 510-834-7770, or jmauck@ericksenarbuthnot.com.


Disclosures: The Basics

Posted on August 7th, 2013

The real estate market in the Bay Area is currently “on fire”.  We are now seeing houses in San Francisco sell for well over their asking price, and houses in the East Bay are being purchased by cash-buyers on the day of first offering.  If you are connected to a seller in this market, as a broker or agent, you should reacquaint yourself with the rules of disclosure considering that houses in the Bay Area are not cheap and can lead to substantial liability if something isn’t disclosed.

A seller must pass along to any prospective buyer information concerning any serious issues with a piece of property.  One California court defined the disclosure of material facts as “the affirmative duty to conduct a reasonably competent and diligent inspection of the residential property listed for sale and to disclose to prospective purchasers all facts materially affecting the value or desirability of the property that such an investigation would reveal.”  (Robinson v. Grossman (1997) 57 Cal.App.4th 634, 640 (emphasis added).)

The California Bureau of Real Estate has provided some guidance as to what facts materially affect the value or the desirability of a property.  Some examples of the facts that need to be disclosed are: 1) the presence of lead paint; 2) significant defects within the structure of the unit; 3) environmental contamination; 4) the presence of an HOA; 5) or even whether someone has died in the unit(!).  Regrettably, courts will often be the final arbiter of whether something materially affects the value or desirability of a property, and then it will likely come down to what a jury thinks should have reasonably been disclosed.

There are other ins-and-outs regarding a seller’s disclosure requirements, such as whether there is a relationship between the seller’s agent and other professionals involved with the sale of the house.  The general rule of thumb is “when in doubt, disclose.”  For reference, the Bureau of Real Estate publishes a 79-page book regarding disclosures available here: http://www.dre.ca.gov/files/pdf/re6.pdf.


Vexatious Litigants

Posted on July 3rd, 2013

A prior blog post addressed the issues involved in litigating a case with a pro per plaintiff. It is not uncommon for such suits to be completely baseless, and it may not be the first time your plaintiff has filed a pro per lawsuit that contains factual and legal shortcomings.  Often pro per litigants will file multiple lawsuits, sometimes in different venues, in an attempt to “shake down” the landlord.  Many times pro per plaintiffs obtain a fee waiver from the court, so they are not subject to the rather significant filing fee for a civil complaint.  The good news is that there is a remedy for this; the bad news is that the remedy applies in rather narrow circumstances.    

California law provides a process to have an individual deemed a “Vexatious Litigant”.  Code Civ. Proc. §391.  A Vexatious Litigant is defined as someone who either:

1) In the  immediate seven (7) year period has commenced, prosecuted, or maintained five (5) litigations, other than small claims, which have been decided against them;

2) After a litigation has been finally determined against them,  the litigant repeatedly relitigates or attempts to relitigate, in pro per, the validity of the determination against the same defendant or the cause of action which was finally determined as to the same defendant;

3) In any litigation, acting in pro per, repeatedly files unmeritorious, motions, pleadings or papers conducts unnecessary discovery  or engages in tactics that are frivolous and solely intend to cause delay; or

4) Has previously been declared to be a vexatious litigant by any state or federal court of record in any action or proceeding based upon the same or substantially similar, transaction or occurrence.

Once declared a vexatious litigant, an individual may be required to post a security bond in the case where the motion is pending or be subject to a pre-filing order preventing further pro per lawsuits without preapproval from the court.  Code Civ. Proc. §§391.1, 391.7.  The later remedy of a pre-filing order is especially useful to a landlord.  Upon entry of an order declaring the pro per plaintiff to be a vexatious litigant, the order is sent to the California Judicial Counsel, and the plaintiff is added to the vexatious litigant database.  Thereafter, the plaintiff must obtain prior approval of the presiding judge of the county before filing a pro per lawsuit in that county.  If for any reason a lawsuit is allowed to be filed without the prior approval, a motion at the pleadings stage attaching the pre-filing order should dispose of the case.

The standard for having a plaintiff declared a vexatious litigant are rather high, but can be achieved in the correct circumstance.  The attorneys at Ericksen Arbuthnot are available to discuss defending these types of actions and have had success in having plaintiffs declared vexatious litigants.


Dealing with a Pro Per Plaintiff

Posted on July 3rd, 2013

You are probably familiar with the old adage “he who represents himself has a fool for a client.”  This is often proven true, yet you will still encounter individuals who file a lawsuit without a lawyer (in legal terms the plaintiff is “in pro per”).

This is common in the landlord-tenant arena, especially in cases involving low cost housing.  The reason is obvious —the tenant does not have the resources to hire an attorney and the case does not carry enough value in the eyes of a plaintiff’s attorney to take it on a contingency basis.  This is true even though many tenant-protective statutes allow for the recovery of attorney’s fees for a successful plaintiff (i.e. Retaliatory Eviction under Civil Code §1942.5).  Therefore you may be presented with a circumstance where you are litigating a case against an unprepared and unpredictable plaintiff.

The key to successfully coping with this situation is patience.  Although in theory a pro per litigant is purportedly held to the same standard as a represented party, this is rarely the case in practice.  Many times courts will provide leniency for pro per plaintiffs in procedural matters to ensure the plaintiff is allowed his or her “day in court.”  It can be frustrating process and it will take additional time and cost to reach an eventual resolution.  For example, our firm has had to file multiple motions to compel discovery responses from pro per plaintiffs and to compel attendance at deposition.  In addition, even if the pro per plaintiff violates a court order, it can be difficult to obtain a terminating sanction from the court absent extraordinary circumstances.  Still, understanding this from the outset will help set realistic timing expectations.   

For landlords, there are procedures you can implement that will assist in handling a pro per lawsuit.  As in many cases, documents drive the defense.  Undoubtedly a pro per plaintiff will represent to the court inaccurate information or allege certain action (or inaction) of the landlord.  The more written confirmation of phone and in-person conversations you have, the better.  This also applies to any communication with tenants, not just those who may eventually file a lawsuit.  Having a clear record of what was said during conversations, when and how notices were issued, etc. makes defending  pro per lawsuits much more efficient and economical.  It is also important to avoid any attempts by a pro per plaintiff to communicate directly to the landlord.  These inquiries should be directed to the attorney so they can be properly addressed and documented.

Litigating a case with a pro per plaintiff can be an irritating process.  The attorneys at Ericksen Arbuthnot are available to discuss defending these types of actions as well as implementing polices to help avoid such suits.

 

 


TERMINATION OF TENANT SUBSIDY

Posted on July 3rd, 2013

A previous blog post touched on “good cause” evictions for section 8 recipients, similarly there are also other programs which impose eviction restrictions on landlords of government subsidized housing.   Two government agencies which provide development assistance to landlords are the California Department of Housing Community Development (“CDHCD”) and the California Tax Credit Allocation Committee (“CTCAC”).  Both of these agencies are involved with granting funds and tax credits to affordable housing providers, and both impose restrictions on eviction of tenants.

CTCAC administers a federal and state tax credit program to encourage development of affordable housing.  CDHCD’s mission is to “provide leadership, policies and programs to preserve and expand safe and affordable housing opportunities and promote strong communities for all Californians.”  Many affordable housing developers receive funds and benefits from both CTCAC and CDHCD to develop or refurbish housing units, making their eviction controls fairly ubiquitous.

Landlords for affordable housing must also keep in mind that a tax credit, or subsidized rent program, is a benefit and accordingly requires good cause for eviction.  Publicly owned housing tenants, tenants of units developed with state or federal funds or subsidized units all have good cause requirements.  However, cause can consist of actions on the premises which violate a law, such as the Anti-Drug Abuse Act, even where the tenant may not have known of such actions, as in section 8.  The failure to pay rent is always good cause.

Many of the government subsidy programs also have income restrictions on tenancies.  The amount required to trigger any tenancy changes depends on the terms of the financing.  Housing and Urban Development (HUD) and Housing and Community Development (HCD) income limits are changed on a yearly basis, and a tenant’s income needs to be recertified on a yearly basis. If the Public Housing Agency (PHA) or managing agency does not recertify on a yearly basis, regulators can rule the property out of compliance, which creates its own problems.   

If a tenant’s income exceeds the maximum amount, there are a few possible outcomes depending on the subsidy received, one of which may involve termination of the subsidized lease.  Low Income Housing Tax Credit (LIHTC) regulations require that the next available unit be made available to an income eligible household if a tenant exceeds the amounts proscribed by regulatory bodies.  Another example is if the development is receiving money from the HOME program for the unit, then the landlord may be able to raise the rent to 30% of the tenant’s income, depending.  If the unit is LIHTC controlled, the tenant is allowed to stay, but the rental amount is not subsidized, it is simply capped.

In sum, the rules governing the ability of a tenant to stay in an affordable housing unit are complicated and running afoul of them, even in earnest recertification efforts or to make room for the next needy tenant, can result in liability.  If you as a landlord have questions about what to do with the eviction of a tenant, the attorneys at Ericksen Arbuthnot are here to help.  Feel free to contact the any of the Ericksen Arbuthnot offices if you would like to speak with an attorney.


SECTION 8 GOOD CAUSE EVICTION REQUIREMENTS

Posted on July 3rd, 2013

Readers of this blog should be aware of section 8, which is a program providing subsidized rent for low income tenants in private housing.  The operative federal statute is 42 USC §1437, or Section 8 of the United States Housing Act of 1937.  Section 8 creates a program in which the government subsidizes rental payments to private landlords on behalf of low-income tenants.  Once the landlord establishes a tenancy under the section, a tenant can be difficult to remove.

Under the Federal Statute, a section 8 recipient can only be evicted for “good cause”. Good cause is limited to: 1) Serious or repeated violations of the lease terms and conditions; 2) Violation of federal, state or local law that imposes tenant obligations in connection with the occupancy or use of the premises; or 3) “Other” good cause. (42 USC § 1437f(d)(1)(B)(ii); 24 CFR § 982.310(a); see 24 CFR § 983.257(a)).  The serious violation encompasses failure to pay rent; however, strangely enough, the lack of rental payment only applies to the occupant’s share of the rent, not the public housing agency. (24 C.F.R. § 982.310.) 

The second prong encompasses violations of law by the tenant, tenant’s family or a person under the tenant’s control.  If any of those groups are found to be violating the law, e.g. drug use and possession, the landlord may be able to evict the tenant.  This rule applies whether or not the tenant knew or should have known about the commission of the crime.  “42 U.S.C. § 1437d(l )(6)unambiguously requires lease terms that vest local public housing authorities with the discretion to evict tenants for the drug-related activity of household members and guests whether or not the tenant knew, or should have known, about the activity.”  (Department of Housing and Urban Development v. Rucker (2002) 535 U.S. 125, 130.)

The third and final cause for eviction when the tenant is a section 8 voucher recipient is, “Other good cause”, which is admittedly vague.  It appears that courts have left this clause nebulous to judge what good cause is on a case by case basis. (See Mitchell v. United States Dept. of Housing & Urban Develop. (ND CA 1983) 569 F.Supp. 701, 706–707.) However, blight caused by tenants or damage to the rental unit have constituted good cause.

Landlords will not want to run afoul of these regulations.  Section 8 wait lists are very long and the wrongful removal of a tenant from a property by a landlord can expose him or her to a significant damages claim in any litigation.  There are also special notice requirements for section 8 tenants whether a landlord simply does not renew the lease, or seeks to evict the tenants with good cause.  Keep in mind that local rent control ordinances may also protect tenants, imposing even further burdens or liabilities on section 8 landlords.

If you have questions regarding eviction of a section 8 voucher recipient, or have received a complaint based on wrongful eviction our offices are here to help.


PREMISES LIABILITY FOR 3RD PARTY CRIMINAL ACTS

Posted on July 3rd, 2013

Businesses might be surprised to know that criminal acts of 3rd parties on their property can result in liability. California law provides that if a property owner has reasonable cause to anticipate wrongful acts of 3rd parties and resulting injuries, that owner has an affirmative duty to control such wrongful acts.

That may seem like a high burden to impose on a business, but it does not mean that a property owner has to intervene in the middle of a parking lot mugging in order to spare his liability insurer a hefty payout.

Reasonable Cause to Anticipate Wrongful Acts

The key concept in this analysis is foreseeability. A court determining whether a property owner is liable for the acts of a 3rd party on the property will give significant weight to the foreseeability of the risk. If the risk which resulted in harm was foreseeable, a court will likely find the property owner had a duty to control the wrongful acts of 3rd parties and impose liability for any related breach of duty.

In other words, while a property owner need not become Batman and stop crimes in action, if a 3rd party criminal act happened on the owner’s property and it was foreseeable (i.e. something similar had occurred under similar circumstances in the near past), the owner could be found liable for not taking action to control the wrongful acts.

Duty to Control

Onciano v. Golden Palace Restaurant, Inc. (1990) 219 Cal.App.3d 385 illustrates how a business can become liable for 3rd party criminal acts. In that case, a customer of a Chinese food restaurant was attacked after leaving the restaurant. The restaurant admitted it knew there was gang activity in the area. The court found that since the restaurant did not light the parking lot, put a fence around the parking lot or provide security or put video cameras in the parking lot, it ultimately could be found liable for 3rd party criminal acts.

While these cases are difficult to prove, businesses and property owners should bear in mind that they can be found liable for failure to control the wrongful acts of 3rd parties on their property. If you have a premises liability question or issue and would like to discuss it with an attorney, please contact any of Ericksen Arbuthnot’s offices.