BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 775|
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THIRD READING
Bill No: SB 775
Author: Allen (D)
Amended: 4/23/15
Vote: 21
SENATE JUDICIARY COMMITTEE: 7-0, 5/12/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SUBJECT: Tenancy: rent control: certification
SOURCE: Author
DIGEST: This bill amends the Petris Act to state that its rent
level certification provisions shall 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.
ANALYSIS:
Existing law, the Petris Act:
1)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
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Page 2
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).)
2)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).)
3)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).)
4)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).)
5)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
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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:
6)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 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).)
7)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 states 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.
Background
In 1986, the Legislature adopted the Petris Act (Civ. Code Secs.
1947.7,1947.8), which directs cities with rent control laws
requiring rent level registration to certify the maximum
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allowable rent for every rent controlled unit under its
jurisdiction. Upon the request of a landlord or tenant, the
Petris 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 Petris Act requires cities to
provide the permissible rent certificate to the requesting party
within five business days of the date of request, and sets
certain parameters for cities to follow in establishing their
certification processes.
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 five-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 amends 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.
Comments
According to the author:
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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
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
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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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified5/15/15)
City of West Hollywood
OPPOSITION: (Verified5/15/15)
None received
ARGUMENTS IN SUPPORT: According to the City of West
Hollywood, under state law, landlords have the right to
establish the initial rent for most new tenancies that began on
or after January 1, 1999, irrespective of local rent control
laws, and local jurisdictions cannot be certain of the rent for
those tenancies. While local rent-control jurisdictions may
require landlords to register rents for those tenancies, the
jurisdictions cannot know the truth or accuracy of the rent that
the landlord registers. Thus, the jurisdiction cannot
meaningfully certify the registered rent. Occasionally
landlords will register a rent, then immediately demand that the
local jurisdiction certify that rent, requiring the local
government to verify the truth of something that it cannot know
to be true. Tenants also use the certification process in an
attempt to obtain an inaccurate rent amount, lower than the
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actual rent, because the city's information is incomplete or
outdated. SB 775 will eliminate these abuses by clarifying that
the Petris Act does not apply to tenancies created after January
1, 1999, for which an owner can set the initial rent.
Prepared by:Tobias Halvarson / JUD. / (916) 651-4113
5/15/15 15:24:32
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