BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2015-2016 Regular Session
SB 775 (Allen)
Version: April 23, 2015
Hearing Date: May 12, 2015
Fiscal: No
Urgency: No
TH
SUBJECT
Tenancy: Rent Control: Certification
DESCRIPTION
Existing law, the Petris Act, requires jurisdictions with a
local ordinance or charter controlling residential rent prices
that requires the registration of rents to provide for the
certification of permissible rent levels according to a
specified process. This bill would amend the Petris Act to
state that its rent level certification provisions would not
apply to tenancies commencing on or after January 1, 1999, for
which the owner of the property may establish initial rent under
the Costa-Hawkins Rental Housing Act.
BACKGROUND
In 1986, the Legislature adopted the Petris Act (Act) (Civ. Code
Secs. 1947.7,1947.8), which directs cities with rent control
laws requiring rent level registration to certify the maximum
allowable rent for every rent controlled unit under its
jurisdiction. Upon the request of a landlord or tenant, the Act
requires the city to provide a certificate or other document
reflecting the permissible rent level for a rent controlled unit
to the requesting party, or, if no certificate is on file, to
provide a certification process to determine the maximum
allowable rent. The Act requires cities to provide the
permissible rent certificate to the requesting party within 5
business days of the date of request, and sets certain
parameters for cities to follow in establishing their
certification processes.
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Nine years later, the Legislature enacted the Costa-Hawkins
Rental Housing Act (Civ. Code Sec. 1954.50 et seq.). Generally
speaking, the Costa-Hawkins Rental Housing Act (Costa-Hawkins)
preempts the local adoption of "strict vacancy control" rent
control laws that do not allow a property owner or landlord to
increase the rent when a unit is vacated and a new tenancy is
created. Instead, Costa-Hawkins permitted the "vacancy
decontrol-recontrol" form of local rent control where an owner
is authorized to increase the rent without restriction to a new
tenant when a former rent-controlled tenancy was voluntarily
vacated, abandoned, or terminated by lawful eviction. The new
rent for the new tenant would then be subject to local rent
controls for the duration of that tenancy. Costa-Hawkins
specified that its provisions would come into force on January
1, 1999. Costa-Hawkins protected the tenancy rights of all
occupants "in place" prior to January 1, 1996, and provided that
the owner could increase the rent to any sublessee or assignee
where the original occupant no longer permanently resides.
According to the author, some individuals are attempting to take
advantage of the 5-day certification process in the Petris Act
to certify rent levels at higher or lower rates while either the
landlord or tenant is not available to contest the
certification. This bill would amend the Petris Act to state
that its provisions would not apply to tenancies commencing on
or after January 1, 1999 - the effective date of Costa-Hawkins.
CHANGES TO EXISTING LAW
Existing law , the Petris Act, states that if an ordinance or
charter controls or establishes a system of controls on the
price at which residential rental units may be offered for rent
or lease and requires the registration of rents, the ordinance
or charter, or any regulation adopted pursuant thereto, shall
provide for the establishment and certification of permissible
rent levels for the registered rental units, and any changes
thereafter to those rent levels, by the local agency, as
specified. Existing law states that the ordinance, charter, or
regulation shall provide a process for the establishment and
certification of permissible rent levels within one year after
it is adopted, as specified. (Civ. Code Secs. 1947.8(a),
1947.7(b).)
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Existing law states that upon the request of the landlord or the
tenant, a local agency shall provide the landlord and the tenant
with a certificate or other documentation reflecting the
permissible rent levels of a rental unit. Existing law
specifies that the landlord or tenant may appeal the
determination of the permissible rent levels reflected in the
certificate, and that the permissible rent levels reflected in
the certificate or other documentation shall, in the absence of
intentional misrepresentation or fraud, be binding and
conclusive upon the local agency unless the determination of the
permissible rent levels is being appealed. (Civ. Code Secs.
1947.8(b), 1947.8(c).)
Existing law provides that after the establishment and
certification of permissible rent levels, the local agency
shall, upon the request of the landlord or the tenant, provide
the landlord and tenant with a certificate of the permissible
rent levels of the rental unit. Existing law specifies that the
certificate shall be issued within five business days from the
date of request by the landlord or the tenant. (Civ. Code Sec.
1947.8(c).)
Existing law states that the landlord or the tenant may appeal
the determination of the permissible rent levels reflected in
the certificate, and that such an appeal shall be filed with the
local agency within 15 days from issuance of the certificate,
except as specified. Existing law provides that the local
agency shall notify, in writing, the landlord and the tenant of
its decision within 60 days following the filing of the appeal.
(Civ. Code Sec. 1947.8(c).)
Existing law provides that an owner of a residential rental unit
who is in substantial compliance with an ordinance or charter
that controls or establishes a system of controls on the price
at which residential rental units may be offered for rent or
lease and which requires the registration of rents, or any
regulation adopted pursuant thereto, shall not be assessed a
penalty or any other sanction for noncompliance with the
ordinance, charter, or regulation. (Civ. Code Sec. 1947.7(b).)
Existing law , the Costa-Hawkins Rental Housing Act, states that
notwithstanding any other provision of law, an owner of
residential real property may establish the initial and all
subsequent rental rates for a dwelling or a unit if it has a
certificate of occupancy issued after February 1, 1995, or it
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has already been exempt from the residential rent control
ordinance of a public entity on or before February 1, 1995,
pursuant to a local exemption for newly constructed units, as
specified. (Civ. Code Sec. 1954.52(a).)
Existing law provides that, for a dwelling or unit in which the
initial or subsequent rental rates are controlled by an
ordinance or charter provision in effect on January 1, 1995, the
owner of such real property may establish the initial and all
subsequent rental rates for all existing and new tenancies in
effect on or after January 1, 1999, if the tenancy in effect on
or after January 1, 1999, was created between January 1, 1996,
and December 31, 1998. Existing law specifies that commencing
on January 1, 1999, an owner of real property as described in
this paragraph may establish the initial and all subsequent
rental rates for all new tenancies if the previous tenancy was
in effect on December 31, 1995, except as specified. (Civ. Code
Sec. 1954.52(a).)
This bill would provide that the provisions of the Petris Act
governing the establishment and certification of permissible
rent levels shall not, on and after January 1, 2016, apply to
tenancies commencing on or after January 1, 1999, for which the
owner of residential property may establish the initial rent
under the Costa-Hawkins Rental Housing Act.
COMMENT
1.Stated need for the bill
According to the author:
Existing law mandates that all rent control jurisdictions that
require the registration of rents provide for the
establishment and certification of permissible rent levels for
registered rental units. At the time the law was enacted,
vacancy control was still in effect in several local
jurisdictions. The purpose at the time of enactment was to
provide landlords, in particular, with certainty as to the
maximum rent level at which they could offer a rental unit.
At that time, controlled rents were determined by a "base
rent" established through an initial, rental unit registration
process. Even when a unit was vacant, a landlord could
request a certificate of permissible rent levels prior to
renting a rental unit, since base rents were set at an
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established level that determined all subsequent rent levels.
With the full implementation of the Costa-Hawkins Rental
Housing Act (Civil Code [Secs.] 1954.50-1954.535) in 1999,
landlords were given authority to set a new, market-level base
rent at the start of the vast majority of new tenancies.
Local agencies that require registration of new tenancies
rarely have any role in the establishment of the initial,
permissible rent level for any tenancy commencing from 1999
onward. Yet, the current law regarding rent level
certification fails to account for this fact . . .
The problem with the current law is that it has created
opportunities for landlords and tenants to manipulate the
certification process to their advantage, rather than for its
intended purpose of creating certainty for the parties and the
local agency. For example, a landlord or a tenant, knowing
that a local agency does not have accurate information
regarding a current tenancy, will seek a certificate that will
be premised upon a higher or lower rent than what was
initially agreed to by the parties. Because current law
permits the initial rent to be established by the agreement of
the parties, they are in the better position to ascertain the
rent than the local agency. Not surprisingly, sophisticated
landlords and tenants, knowing that the mandate to issue a
certificate within 5 business days is still required of local
agencies, will seek the certificate solely to obtain an
advantage or create confusion in a dispute over rent levels,
overcharges and/or an unlawful detainer proceeding. Local
agency staff is then put in the difficult position of
scrambling to ascertain a correct rent level with inadequate
information, and to then issue a certificate that may impact
the outcome of ongoing litigation.
By amending existing law to remove the certification
requirement for post-January 1, 1999 rents established by the
landlord, local agencies would no longer be placed in the
impossible position of issuing binding certifications based on
incomplete or absent information. The amendment would also
protect the integrity of any contemporaneous administrative or
judicial processes for establishing rent levels or overcharges
by removing the ability to use the certification process to
obfuscate the issues in those proceedings.
2.Would not impact Petris Act tenancies
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When the Legislature passed the Costa-Hawkins Rental Housing Act
(Costa-Hawkins) in 1995, it mandated a phased-in process of
decontrolling the initial rental price of new tenancies in
rent-controlled properties. Costa-Hawkins authorized landlords
to establish initial and subsequent rental rates for tenancies
created after the act entered into force on January 1, 1996, and
left undisturbed tenancies created on or before December 31,
1995. For those tenancies still in existence today that were
established prior to January 1, 1996, the Petris Act's maximum
rent certification process may still apply. This bill would not
impact those long-term tenancies. By specifying that the Petris
Act's certification provisions shall not apply to tenancies
commenced after January 1, 1999, this bill effectively places a
terminal date on tenancies subject to the Petris Act.
Importantly, this terminal date occurs after full implementation
of the Costa-Hawkins Rental Housing Act. As a consequence, this
bill would only impact tenancies in rent-controlled properties
that are already subject to Costa-Hawkins, and would not reach
back to any tenancies still governed by the Petris Act.
Support : City of West Hollywood
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : None Known
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