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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


KEEPING PERSPECTIVE DURING MEDIATION: The “Insulting” Offer or Demand

Posted on November 5th, 2013

As a mediator, I have seen parties and counsel dig in their heels over many things.  It is not always about money, though that is typically what it is about.  My job is to move them out of the predicament they have put themselves in.  The long view is that the case should be settled.  There are, in my view, very few cases that cannot be settled, if the parties and counsel are realistic about the merits of their own case and their adversary’s case.

Trouble can come in many forms.  Let’s consider the following: one party refuses to respond to an offer or demand, considering it an “insult” or so unrealistic that it is “pointless” to respond.  If this happens early on, I stress to the parties and counsel in private caucus the importance of remaining engaged in the negotiating process, as the mediation session is the best chance to resolve the case before significant additional costs are incurred.  Insisting that the other side “bid against itself”, by adjusting the offer or demand before a counter will be extended, can be a short cut to a failed mediation.

In the private caucus with the recipient of an “insulting” offer or demand I will urge the party to step back from the position.  This may take some time, depending on how committed to this position the party and counsel are.  It is important that I establish and maintain rapport with this party.  I will encourage the parties to vent about their views as to the “unreasonableness” of the other side.  This alone may be enough to cause the party to soften his or her fixed position.  It also gives me, as the mediator, insight into why the party is taking this hard line position.

After exploring with the party the reasons and motivations behind their position, I suggest that some sort of monetary response is the right thing to do.  The goal is to keep the dialogue going.  As long as the parties are talking, progress toward settlement can be made.  Key to my role in the process is to have the trust of both parties.  To have this trust it is necessary to treat all parties and counsel with respect and listen actively to everything that is said.  Ultimately, the counter offer I bring to party and counsel in the other caucus room will keep the dialogue going.

Mediation is an art, not a science.


WHEN TO MEDIATE

Posted on November 5th, 2013

This question is one of the first things counsel (whether plaintiff or defendant) must consider at the beginning stage of a case.  In my 36 years of litigation practice I have faced this question thousands of times.  As a mediator for the last 17 years I have seen how important it is for counsel on both sides of litigation to effectively grapple with this issue.

There is no absolute right answer as both sides to case need sufficient information before mediation can take place.  How much information?  In a personal injury case, with clear liability and small to medium damages, early mediation is a good idea if the parties have shared documents pertaining to damages or are prepared to do so.  An experienced and skilled mediator can assist in closing the case.  This can work before suit is filed.

Where the case is more complex the parties might want to consider facilitating the other in focused discovery that addresses disputed issues.  Medical malpractice, legal malpractice, real estate, contract disputes and others with complex issues would fall into this group.  It is the wise attorney (plaintiff and defendant) who cooperates with the other side in obtaining documents and depositions so that mediation is fruitful.  Once the necessary discovery is done, then mediation can proceed.  This of course requires a level of trust between the sides.

In cases where attorney’s fees are mandated by contract or statute (employment, discrimination, etc.), an early mediation can facilitate a settlement before the attorney’s fees exceed the provable damages.  A plaintiff case that is heavily laden with costs and fees is more difficult for the plaintiff to settle than one where that is not the case.  This difficulty also burdens the defense.

Early mediation is probably not indicated in a case with huge damages or where one or both sides have genuine questions about the strengths and weaknesses of the other side’s case or are seeking to develop factual issues to improve their positions on liability, damages or credibility.  Here the parties may wish to engage in vigorous discovery to flesh out these issues before mediation.  Once the key discovery is completed and the parties have taken their measure of each other on the key issues, mediation can help.

There is another category of cases where mediation should be deferred.  There are many cases, especially the ones where damages are small to medium, in which counsel let the files drift.  Here it may take an imminent trial date or mediation deadline imposed by the court to get counsel’s attention.  Once counsel are jolted to attention, mediation can proceed after counsel have done what they need to do to inform themselves and the other side about the issues.

It is important for counsel on either side of the case to grasp when a particular file may be profitably mediated.  It is also important for counsel to determine to what extent the other side in a case is amenable to mediation.  A simple phone call to other counsel might suffice.  The more thought regarding when a file should be mediated that an attorney puts into his or her case the more likely the correct decision will be made on this topic.

Mediation is an art, not a science.