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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