BILL NUMBER: SB 1403 CHAPTERED 08/28/02 CHAPTER 301 FILED WITH SECRETARY OF STATE AUGUST 28, 2002 APPROVED BY GOVERNOR AUGUST 28, 2002 PASSED THE SENATE AUGUST 14, 2002 PASSED THE ASSEMBLY AUGUST 8, 2002 AMENDED IN ASSEMBLY JUNE 30, 2002 AMENDED IN ASSEMBLY JUNE 12, 2002 INTRODUCED BY Senator Kuehl FEBRUARY 13, 2002 An act to amend Sections 1946.1, 1947.15, and 1954 of the Civil Code, to amend Section 1179 of the Code of Civil Procedure, and to amend Section 7060.2 of the Government Code, relating to landlord-tenant. LEGISLATIVE COUNSEL'S DIGEST SB 1403, Kuehl. Landlord-tenant. (1) Existing law provides for the renewal or termination of a hiring of real property for an unspecified term, as specified. Existing law, effective until January 1, 2005, also sets forth a separate provision governing the renewal and termination of a hiring of residential real property in the Cities of Los Angeles, Santa Monica, and West Hollywood. This bill would modify the above provision to make it applicable on a statewide basis and effective until January 1, 2006, as specified. Among other things, the bill would require an owner of a residential dwelling giving notice to a tenant of his or her intent to terminate the dwelling to give at least 60 days' notice prior to termination or 30 days' notice prior to termination if the tenant has resided in the dwelling for less than one year or if other enumerated circumstances are satisfied. (2) Existing law requires any city, county, or city and county, including a chartered city, that has a system of rent control that does not include a system of vacancy decontrol, as defined, to permit reasonable expenses, fees, and other costs for professional services incurred in the course of successfully pursuing specified rights, including a fair rate of return, to be included in any calculation of net operating income and operating expenses used to determine a fair return to the owner of the property. This bill would provide that those provisions be inoperative until the Costa-Hawkins Rental Housing Act is repealed. (3) Existing law permits a landlord to enter a dwelling unit under specified circumstances. Existing law also requires reasonable notice of an intent to enter, as defined, except in an emergency, when the tenant has abandoned or surrendered the premises, or when impracticable. This bill would require that a landlord give written notice of an intent to enter and have the notice served on the tenant, as specified, except in an emergency or when the tenant has abandoned or surrendered the premises. The bill would provide that written notice mailed at least 6 days prior to entry is presumed reasonable. The bill would permit a landlord, if entry is for the purpose of exhibition to prospective or actual purchasers, to provide notice orally, as specified, 24 hours prior to entry. (4) Existing law permits the court to relieve a tenant against the forfeiture of his or her lease and restore the tenant to his or her former estate, upon an application made within 30 days after a forfeiture of a lease is declared by the court. This bill would permit the court to relieve a tenant against a forfeiture of a lease or rental agreement, as specified, upon its own motion or pursuant with an application made at any time prior to restoration of the premises to the landlord. The bill would permit oral applications by persons appearing in court without an attorney, if the plaintiff is present and has an opportunity to contest that application or has been given ex parte notice. (5) Under the Ellis Act, public entities generally are prohibited from adopting any statute, ordinance, or regulation, or taking any administrative action, to compel the owner of residential real property to offer or to continue to offer accommodations in the property for rent or lease. However, existing law authorizes any public entity that has in effect any system of rent control to regulate any accommodations withdrawn from rent or lease and that are again offered for rent or lease for residential purposes within 2 years of the date that the accommodations were withdrawn. This bill would, instead, require that tenancies commenced either during a 5-year period after the notice of intent to withdraw is filed with the public entity or the 5-year period after the accommodations are withdrawn be offered at the rent in effect at the time the notice of intent to withdraw was filed. The bill would require that accommodations first offered again during a 10-year period after the notice of intent to withdraw is filed with the public entity for the first rerental and subsequent rerentals during the following 2 years be offered at the rent in effect at the time the notice of intent to withdraw was filed. The bill would provide that those amendments apply to all new tenancies created after December 31, 2002, unless the tenancy was created prior to January 1, 2003, after a lawful withdrawal of the unit, as specified. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 1946.1 of the Civil Code is amended to read: 1946.1. (a) Notwithstanding Section 1946, a hiring of residential real property for a term not specified by the parties, is deemed to be renewed as stated in Section 1945, at the end of the term implied by law unless one of the parties gives written notice to the other of his or her intention to terminate the tenancy, as provided in this section. (b) An owner of a residential dwelling giving notice pursuant to this section shall give notice at least 60 days prior to the proposed date of termination. A tenant giving notice pursuant to this section shall give notice for a period at least as long as the term of the periodic tenancy prior to the proposed date of termination. (c) Notwithstanding subdivision (b), an owner of a residential dwelling giving notice pursuant to this section shall give notice at least 30 days prior to the proposed date of termination if the tenant has resided in the dwelling for less than one year. (d) Notwithstanding subdivision (b), an owner of a residential dwelling giving notice pursuant to this section shall give notice at least 30 days prior to the proposed date of termination if all of the following are true: (1) The dwelling or unit is alienable separate from the title to any other dwelling unit. (2) The owner has contracted to sell the dwelling or unit to a bona fide purchaser for value, and has established an escrow with a licensed escrow agent, as defined in Sections 17004 and 17200 of the Financial Code, or a licensed real estate broker, as defined in Section 10131 of the Business and Professions Code. (3) The purchaser is a natural person or persons. (4) The notice is given no more than 120 days after the escrow has been established. (5) Notice was not previously given to the tenant pursuant to this section. (6) The purchaser in good faith intends to reside in the property for at least one full year after the termination of the tenancy. (e) The notices required by this section shall be given in the manner prescribed in Section 1162 of the Code of Civil Procedure or by sending a copy by certified or registered mail. (f) This section may not be construed to affect the authority of a public entity that otherwise exists to regulate or monitor the basis for eviction. (g) This section shall remain in effect only until January 1, 2006, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2006, deletes or extends that date. SEC. 2. Section 1947.15 of the Civil Code is amended to read: 1947.15. (a) The Legislature declares the purpose of this section is to: (1) Ensure that owners of residential rental units that are subject to a system of controls on the price at which the units may be offered for rent or lease, or controls on the adjustment of the rent level, are not precluded or discouraged from obtaining a fair return on their properties as guaranteed by the United States Constitution and California Constitution because the professional expenses reasonably required in the course of the administrative proceedings, in order to obtain the rent increases necessary to provide a fair return, are not treated as a legitimate business expense. (2) Encourage agencies which administer a system of controls on the price at which residential rental units may be offered for rent or lease, or controls the adjustment of the rent level, to enact streamlined administrative procedures governing rent adjustment petitions which minimize, to the extent possible, the cost and expense of these administrative proceedings. (3) Ensure that the cost of professional services reasonably incurred and required by owners of residential rental units subject to a system of controls in the price at which the units may be offered for rent or lease, or controls on the adjustments of the rent level in the course of defending rights related to the rent control system, be treated as a legitimate business expense. (b) Any city, county, or city and county, including a charter city, which administers an ordinance, charter provision, rule, or regulation that controls or establishes a system of controls on the price at which all or any portion of the residential rental units located within the city, county, or city and county, may be offered for rent or lease, or controls the adjustment of the rent level, and which does not include a system of vacancy decontrol, as defined in subdivision (i), shall permit reasonable expenses, fees, and other costs for professional services, including, but not limited to, legal, accounting, appraisal, bookkeeping, consulting, property management, or architectural services, reasonably incurred in the course of successfully pursuing rights under or in relationship to, that ordinance, charter provision, rule, or regulation, or the right to a fair return on an owner's property as protected by the United States Constitution or California Constitution, to be included in any calculation of net operating income and operating expenses used to determine a fair return to the owner of the property. All expenses, fees, and other costs reasonably incurred by an owner of property in relation to administrative proceedings for purposes specified in this subdivision shall be included in the calculation specified in this subdivision. (c) Reasonable fees that are incurred by the owner in successfully obtaining a judicial reversal of an adverse administrative decision regarding a petition for upward adjustment of rents shall be assessed against the respondent public agency which issued the adverse administrative decision, and shall not be included in the calculations specified in subdivisions (b) and (d). (d) (1) Notwithstanding subdivision (b), the city, county, or city and county, on the basis of substantial evidence in the record that the expenses reasonably incurred in the underlying proceeding will not reoccur annually, may amortize the expenses for a period not to exceed five years, except that in extraordinary circumstances, the amortization period may be extended to a period of eight years. The extended amortization period shall not apply to vacant units and shall end if the unit becomes vacant during the period that the expense is being amortized. An amortization schedule shall include a reasonable rate of interest. (2) Any determination of the reasonableness of the expenses claimed, of an appropriate amortization period, or of the award of an upward adjustment of rents to compensate the owner for expenses and costs incurred shall be made as part of, or immediately following, the decision in the underlying administrative proceeding. (e) Any and all of the following factors shall be considered in the determination of the reasonableness of the expenses, fees, or other costs authorized by this section: (1) The rate charged for those professional services in the relevant geographic area. (2) The complexity of the matter. (3) The degree of administrative burden or judicial burden, or both, imposed upon the property owner. (4) The amount of adjustment sought or the significance of the rights defended and the results obtained. (5) The relationship of the result obtained to the expenses, fees, and other costs incurred (that is, whether professional assistance was reasonably related to the result achieved). (f) This section shall not be applicable to any ordinance, rule, regulation, or charter provision of any city, county, or city and county, including a charter city, to the extent that the ordinance, rule, or regulation, or charter provision places a limit on the amount of rent that an owner may charge a tenant of a mobilehome park. (g) For purposes of this section, the rights of a property owner shall be deemed to be successfully pursued or defended if the owner obtains an upward adjustment in rents, successfully defends his or her rights in an administrative proceeding brought by the tenant or the local rent board, or prevails in a proceeding, brought pursuant to Section 1947.8 concerning certification of maximum lawful rents. (h) (1) If it is determined that a landlord petition assisted by attorneys or consultants is wholly without merit, the tenant shall be awarded a reduction in rent to compensate for the reasonable costs of attorneys or consultants retained by the tenant to defend the petition brought by the landlord. The reasonableness of the costs of the tenant's defense of the action brought by the landlord shall be determined pursuant to the same provisions established by this section for determining the reasonableness of the landlord's costs for the professional services. The determination of the reasonableness of the expenses claimed, an appropriate amortization period, and the award of a reduction in rents to compensate the tenant for costs incurred shall be made immediately following the decision in the underlying administrative proceeding. (2) If it is determined that a landlord's appeal of an adverse administrative decision is frivolous or solely intended to cause unnecessary delay, the public agency which defended the action shall be awarded its reasonably incurred expenses, including attorney's fees, in defending the action. As used in this paragraph, "frivolous" means either (A) totally and completely without merit; or (B) for the sole purpose of harassing an opposing party. (i) For purposes of this section, the following terms shall have the following meanings: (1) "Vacancy decontrol" means a system of controls on the price at which residential rental units may be offered for rent or lease which permits the rent to be increased to its market level, without restriction, each time a vacancy occurs. "Vacancy decontrol" includes systems which reimpose controls on the price at which residential rental units may be offered for rent or lease upon rerental of the unit. (2) "Vacancy decontrol" includes circumstances where the tenant vacates the unit of his or her own volition, or where the local jurisdiction permits the rent to be raised to market rate after an eviction for cause, as specified in the ordinance, charter provision, rule, or regulation. (j) This section shall not be construed to affect in any way the ability of a local agency to set its own fair return standards or to limit other actions under its local rent control program other than those expressly set forth in this section. (k) This section is not operative unless the Costa-Hawkins Rental Housing Act (Chapter 2.7 (commencing with Section 1954.50) of Title 5 of Part 4 of Division 3) is repealed. SEC. 3. Section 1954 of the Civil Code is amended to read: 1954. A landlord may enter the dwelling unit only in the following cases: (a) In case of emergency. (b) To make necessary or agreed repairs, decorations, alterations or improvements, supply necessary or agreed services, or exhibit the dwelling unit to prospective or actual purchasers, mortgagees, tenants, workmen or contractors. (c) When the tenant has abandoned or surrendered the premises. (d) Pursuant to court order. Except in cases of emergency or when the tenant has abandoned or surrendered the premises, entry may not be made during other than normal business hours unless the tenant consents at the time of entry. The landlord shall not abuse the right of access or use it to harass the tenant. Except in cases of emergency or when the tenant has abandoned or surrendered the premises, the landlord shall give the tenant reasonable notice in writing of his or her intent to enter and enter only during normal business hours. The notice may be personally delivered to the tenant, left with someone of a suitable age and discretion at the premises, or, left on, near, or under the usual entry door of the premises in a manner in which a reasonable person would discover the notice. Twenty-four hours is presumed reasonable notice in the absence of evidence to the contrary. The notice may be mailed to the tenant. Mailing of the notice at least six days prior to an intended entry is presumed reasonable notice in the absence of evidence to the contrary. If the purpose of the entry is to exhibit the dwelling unit to prospective or actual purchasers, the notice may be given orally, in person or by telephone, if the landlord or his or her agent has notified the tenant in writing within 120 days of the oral notice that the property is for sale and that the landlord or agent may contact the tenant orally for the purpose described above. Twenty-four hours is presumed reasonable notice in the absence of evidence to the contrary. At the time of entry, the landlord or agent shall leave written evidence of the entry inside the unit. SEC. 4. Section 1179 of the Code of Civil Procedure is amended to read: 1179. The court may relieve a tenant against a forfeiture of a lease or rental agreement, whether written or oral, and whether or not the tenancy has terminated, and restore him or her to his or her former estate or tenancy, in case of hardship, as provided in Section 1174. The court has the discretion to relieve any person against forfeiture on its own motion. An application for relief against forfeiture may be made at any time prior to restoration of the premises to the landlord. The application may be made by a tenant or subtenant, or a mortgagee of the term, or any person interested in the continuance of the term. It must be made upon petition, setting forth the facts upon which the relief is sought, and be verified by the applicant. Notice of the application, with a copy of the petition, must be served at least five days prior to the hearing on the plaintiff in the judgment, who may appear and contest the application. Alternatively, a person appearing without an attorney may make the application orally, if the plaintiff either is present and has an opportunity to contest the application, or has been given ex parte notice of the hearing and the purpose of the oral application. In no case shall the application or motion be granted except on condition that full payment of rent due, or full performance of conditions or covenants stipulated, so far as the same is practicable, be made. SEC. 5. Section 7060.2 of the Government Code is amended to read: 7060.2. If a public entity, by valid exercise of its police power, has in effect any control or system of control on the price at which accommodations may be offered for rent or lease, that entity may, notwithstanding any provision of this chapter, provide by statute or ordinance, or by regulation as specified in Section 7060.5, that any accommodations which have been offered for rent or lease and which were subject to that control or system of control at the time the accommodations were withdrawn from rent or lease, shall be subject to the following: (a) (1) For all tenancies commenced during the time periods described in paragraph (2), the accommodations shall be offered and rented or leased at the lawful rent in effect at the time any notice of intent to withdraw the accommodations is filed with the public entity, plus annual adjustments available under the system of control. (2) The provisions of paragraph (1) shall apply to all tenancies commenced during either of the following time periods: (A) The five-year period after any notice of intent to withdraw the accommodations is filed with the public entity, whether or not the notice of intent is rescinded or the withdrawal of the accommodations is completed pursuant to the notice of intent. (B) The five-year period after the accommodations are withdrawn. (3) This subdivision shall prevail over any conflicting provision of law authorizing the landlord to establish the rental rate upon the initial hiring of the accommodations. (b) If the accommodations are offered again for rent or lease for residential purposes within two years of the date the accommodations were withdrawn from rent or lease, the following provisions shall govern: (1) The owner of the accommodations shall be liable to any tenant or lessee who was displaced from the property by that action for actual and exemplary damages. Any action by a tenant or lessee pursuant to this paragraph shall be brought within three years of the withdrawal of the accommodations from rent or lease. However, nothing in this paragraph precludes a tenant from pursuing any alternative remedy available under the law. (2) A public entity which has acted pursuant to this section may institute a civil proceeding against any owner who has again offered accommodations for rent or lease subject to this subdivision, for exemplary damages for displacement of tenants or lessees. Any action by a public entity pursuant to this paragraph shall be brought within three years of the withdrawal of the accommodations from rent or lease. (3) Any owner who offers accommodations again for rent or lease shall first offer the unit for rent or lease to the tenant or lessee displaced from that unit by the withdrawal pursuant to this chapter, if the tenant has advised the owner in writing within 30 days of the displacement of his or her desire to consider an offer to renew the tenancy and has furnished the owner with an address to which that offer is to be directed. That tenant, lessee, or former tenant or lessee may advise the owner at any time during the eligibility of a change of address to which an offer is to be directed. If the owner again offers the accommodations for rent or lease pursuant to this subdivision, and the tenant or lessee has advised the owner pursuant to this subdivision of a desire to consider an offer to renew the tenancy, then the owner shall offer to reinstitute a rental agreement or lease on terms permitted by law to that displaced tenant or lessee. This offer shall be deposited in the United States mail, by registered or certified mail with postage prepaid, addressed to the displaced tenant or lessee at the address furnished to the owner as provided in this subdivision, and shall describe the terms of the offer. The displaced tenant or lessee shall have 30 days from the deposit of the offer in the mail to accept the offer by personal delivery of that acceptance or by deposit of the acceptance in the United States mail by registered or certified mail with postage prepaid. (c) A public entity which has acted pursuant to this section, may require by statute or ordinance, or by regulation as specified in Section 7060.5, that an owner who offers accommodations again for rent or lease within a period not exceeding 10 years from the date on which they are withdrawn, and which are subject to this subdivision, shall first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has notified the public entity of an intention to offer the accommodations again for residential rent or lease pursuant to a requirement adopted by the public entity under subdivision (c) of Section 7060.4. The owner of the accommodations shall be liable to any tenant or lessee who was displaced by that action for failure to comply with this paragraph, for punitive damages in an amount which does not exceed the contract rent for six months. (d) If the accommodations are demolished, and new accommodations are constructed on the same property, and offered for rent or lease within five years of the date the accommodations were withdrawn from rent or lease, the newly constructed accommodations shall be subject to any system of controls on the price at which they would be offered on the basis of a fair and reasonable return on the newly constructed accommodations, notwithstanding any exemption from the system of controls for newly constructed accommodations. (e) The amendments to this section enacted by the act adding this subdivision shall apply to all new tenancies created after December 31, 2002. If a new tenancy was lawfully created prior to January 1, 2003, after a lawful withdrawal of the unit under this chapter, the amendments to this section enacted by the act adding this subdivision may not apply to new tenancies created after that date.