BILL ANALYSIS Ó SB 775 Page 1 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. SB 775 Page 2 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) SB 775 Page 3 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 SB 775 Page 4 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. SB 775 Page 5 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. SB 775 Page 6 "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 SB 775 Page 7 Analysis Prepared by:Lisa Engel / H. & C.D. / (916) 319-2085