BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 775


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          Date of Hearing:  July 15, 2015


               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT


                                   Ed Chau, Chair


          SB  
          775 (Allen) - As Amended July 8, 2015


          SENATE VOTE:  38-0


          SUBJECT:  Tenancy: rent control: certification.


          SUMMARY:  Provides that the requirement to certify rents in  
          jurisdictions with rent control under the Petris Act does not  
          apply to tenancies beginning January 1, 1999 that are subject to  
          the Costa-Hawkins Rental Housing Act (Costa-Hawkins).    
          Specifically, this bill:  


          1)Provides that the requirement to certify rents in  
            jurisdictions with rent control under the Petris Act does not  
            apply to tenancies beginning January 1, 1999 that are subject  
            to the Costa-Hawkins Rental Housing Act (Costa-Hawkins).


          2)Provides that for a tenancy that began after January 1, 1999,  
            if the property owner provides the local agency with the  
            tenancy's initial rent in compliance with the agency's  
            registration requirements, in writing signed under penalty of  
            perjury, there will be a rebuttable presumption that the  
            statement of the initial rent is correct. 









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          EXISTING LAW:  


          1)States, under the Petris Act, 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.  Provides 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. (Civil Code Sections 1947.7 and  
            1947.8)


          2)Requires a local agency, upon the request of the landlord or  
            the tenant, to provide the landlord and the tenant with a  
            certificate or other documentation reflecting the permissible  
            rent levels of a rental unit.  Provides 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.  (Civil Code Sections 1947.7 and  
            1947.8)

          3)Requires the local agency, after the establishment and  
            certification of permissible rent levels and upon the request  
            of the landlord or the tenant,  to provide the landlord and  
            tenant with a certificate of the permissible rent levels of  
            the rental unit. Requires that the certificate shall be issued  
            within five business days from the date of request by the  
            landlord or the tenant.  (Civil Code Section 1947.8)








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          4)Allows the landlord or the tenant to appeal the determination  
            of the permissible rent levels reflected in the certificate,  
            and requires the appeal to be filed with the local agency  
            within 15 days from issuance of the certificate, except as  
            specified.  Requires the local agency to notify the landlord  
            and the tenant in writing  of its decision within 60 days  
            following the filing of the appeal.  (Civil Code Section  
            1947.8)

          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  
            lease and which requires the registration of rents, or any  
            regulation adopted pursuant thereto, will not be assessed a  
            penalty or any other sanction for noncompliance with the  
            ordinance, charter, or regulation.  (Civil Code Section  
            1947.7)

          6)Allows, under Costa-Hawkins, an owner of residential real  
            property to 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.   
            (Civil Code Section 1954.52)

          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  








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            subsequent rental rates for all new tenancies if the previous  
            tenancy was in effect on December 31, 1995, except as  
            specified.  (Civil Code Section 1954.52)
          


          FISCAL EFFECT:  None. 


          COMMENTS:  


           Background  :  In 1986, the Legislature adopted the Petris Act  
          which directs cities with rent control ordinances 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, a city must certify the  
          permissible rent for a rent controlled unit or if no  
          certification is on file, provide a certification process to  
          determine the maximum allowable rent.   A city must provide the  
          certification within 5 business days of the date of the request.  



          Nine years after the Petris Act was enacted, the Legislature  
          enacted Costa-Hawkins which preempts 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 permits a  
          vacancy decontrol-recontrol form of local rent control where an  
          owner is authorized to increase the rent without restriction to  
          a new tenant when the tenancy is 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 the tenancy.  Costa-Hawkins applied to tenancies  
          entered into after January 1, 1999 and protected the tenancy  
          rights of all occupants in place prior to January 1, 1999.










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          SB 775 would amend the Petris Act to state that its provisions  
          do not apply to tenancies commencing on or after January 1,  
          1999. For those long-term tenancies still in existence today  
          that were established prior to January 1, 1996, the Petris Act's  
          maximum rent certification process may still apply.


           Purpose of the bill  : According to the author, "the problem with  
          the current law is that it is 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.









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          "Notably, some rent control jurisdictions provide an  
          administrative hearing for ascertaining base rents, current  
          rents and overcharges.  But, unlike the certification process,  
          the administrative hearing process provides the parties with  
          adequate notice, and opportunity to present all their evidence  
          and to have the matter decided by a neutral hearing examiner,  
          along with a right of appeal.  This approach has been the  
          preferred choice for the vast majority of parties who seek an  
          accurate determination of permissible rent levels and will  
          continue to be available to any landlord or tenant in those  
          jurisdictions that offer such proceedings." 



          REGISTERED SUPPORT / OPPOSITION:




          Support


          City of West Hollywood


          Rent Stabilization Board of the City of Berkeley


          Santa Monica Rent Control Board




          Opposition


          None on file










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          Analysis Prepared by:Lisa Engel / H. & C.D. / (916)  
          319-2085