Mosser Companies v. San Francisco Rent Stabilization & Arbitration Board ( 2015 )

Filed 1/21/15
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
MOSSER COMPANIES,
Plaintiff and Appellant, A141134
v.
SAN FRANCISCO RENT
STABILIZATION AND ARBITRATION (San Francisco City and County
BOARD, Super. Ct. No. CPF-12-512697)
Defendant and Respondent.
Mosser Companies (landlord) owns a nine-unit residential apartment building on
Fell Street in San Francisco. The apartment is subject to rent control under the San
Francisco Residential Rent Stabilization and Arbitration Ordinance (S.F. Admin. Code,
§ 37.1 et seq.; ordinance), which limits rent increases to tenants in occupancy (id., § 37.3,
subd. (a)). Under Civil Code section 1954.53, which provides that “an owner of
residential real property may establish the initial rental rate for a dwelling or unit” (subd.
(a)), local jurisdictions are authorized to impose rent control limiting rate increases until
“the original occupant or occupants who took possession of the dwelling or unit pursuant
to the rental agreement with the owner no longer permanently reside there” (subd. (d)(2)).
The question before us is whether the son of parents who years before rented a unit in
landlord’s building, and who with landlord’s consent resided with his parents when the
rental agreement was entered, is an “original occupant” within the meaning of the statute,
precluding the landlord from establishing a new unrestricted rental rate for the apartment
when the son remains in the apartment after the parents have departed. The San Francisco
Rent Stabilization and Arbitration Board (rent board) and the trial court concluded that
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the son, although a minor when the rental agreement was entered and not a signatory to
the rental agreement, is nonetheless an “original occupant” entitled to the continued
protection of the rent control provision. Although a compelling policy argument can be
made for qualifying rent control restrictions when a tenancy passes from one generation
to the next, the current statute incorporates no such qualification. We therefore conclude
that the rent board correctly prohibited landlord from increasing the rent to the son above
the rent control limit when his parents vacated the apartment, and the trial court correctly
denied landlord’s petition for a writ of mandate challenging the rent board’s action.
I. Facts and Procedural History
In November 2003, Parmanathan and Marilyn Govender moved into a Fell Street
apartment in San Francisco with their three children, Brian, Glendon and Michelle.1
Brian was then 13 years old. A written lease, signed by Parmanathan and Marilyn,
provided a term of 12 months to continue thereafter on a month-to-month basis until
terminated by written notice. Parmanathan and Marilyn are the only tenants named in the
lease. The lease provides “that the Premises is to be used exclusively as the primary and
principal residence of the named Tenant(s) who are the only ‘Original’ Tenants of the
Premises.” The children are not mentioned in the lease, but it is undisputed that the
landlord approved their occupancy. The initial monthly rent was $1,495.
The Govender family lived in the apartment for almost nine years. In August
2012, after two of their three children had left home, Parmanathan and Marilyn moved
out of the apartment. Brian, then aged 23, did not move with his parents but continued to
live in the apartment. A few days after Parmanathan and Marilyn moved out, the landlord
served notice that it was raising the monthly rent from $1,681.75 to $3,295. This amount
substantially exceeds the rental rate permitted by the ordinance so long as the original
occupants reside in the premises.
A local rent control ordinance, such as the one in San Francisco, may not limit the
amount of rent charged when “the original occupant or occupants who took possession of
1
Given a shared last name, we hereafter refer to the Govenders by their first names.
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the dwelling or unit pursuant to the rental agreement with the owner no longer
permanently reside there.” (Civ. Code, § 1954.53, subd. (d)(2).) The landlord asserted
that he was permitted to raise the rent beyond local rent control limits because
Parmanathan and Marilyn were the only original occupants under the lease and they no
longer lived in the apartment.
In September 2012, Parmanathan, Marilyn and Brian filed a tenant petition with
the rent board alleging that the proposed rent constituted an unlawful rent increase. The
Govenders acknowledged that Parmanathan and Marilyn were no longer living in the
apartment but asserted that Brian was an original occupant entitled to continued rent
control.
An evidentiary hearing was conducted before a rent board administrative law
judge in October 2012. The parties stipulated that Brian, then aged 13, moved into the
apartment with his parents with the approval of the landlord when the tenancy
commenced in November 2003 and remained in the apartment when his parents vacated
the apartment in August 2012, when Brian was 23 years old. The judge found the rent
increase unlawful because Brian “is an original occupant who took possession of the unit
pursuant to the original rental agreement with the owner and he continues to permanently
reside in the unit.” The landlord appealed the decision to the rent board, which affirmed
the decision in December 2012.
The landlord filed a petition for writ of administrative mandate to overturn the rent
board’s decision. (Code Civ. Proc., § 1094.5.) The trial court denied the writ petition and,
in doing so, adopted “the rent board’s interpretation that the minor who went to the
premises legally with his parent is [an] original occupant” entitled to continued rent
control after his parents vacated the apartment. This appeal followed.
II. Discussion
A. Rent Control Overview
Rent control attempts “to accommodate the conflicting interests of protecting
tenants from burdensome rent increases while at the same time ensuring that landlords
are guaranteed a fair return on their investment.” (Pennell v. San Jose (1988) 485 U.S. 1,
3
13.) There are three general types of rent control laws. (Friedman et al., Cal. Practice
Guide: Landlord-Tenant (The Rutter Group 2014) ¶ 2:707, p. 2D-4.) The most restrictive
type, known as vacancy control, sets the maximum rental rate for a unit and maintains
that rate when the unit is vacated and another tenant takes occupancy. 2 (Id., ¶ 2:708,
p. 2D-4.) A moderate type of rent regulation, known as vacancy decontrol-recontrol,
allows a landlord to establish the initial rental rate for a vacated unit but, after the rental
rate is fixed, limits rent increases as long as the tenant occupies the unit. (Id., ¶ 2:710,
p. 2D-5.) The least restrictive type, permanent decontrol, limits rent increases only on
presently occupied units; when vacated, the unit becomes unregulated and landlords are
free to determine the initial rental rate and any future rent increases. (Id., ¶ 2:711,
p. 2D-5.) “Most rent control measures are exhaustive in scope: Aside from capping
permissible rental rates and rent increases, they regulate landlord conduct that might have
the effect of a ‘rent increase’ (e.g., decrease in housing services); and they also impose
extensive ‘eviction controls,’ restricting the grounds upon which tenants may be evicted
at a landlord’s will . . . and imposing special eviction procedures.” (Id., ¶ 5:1, p. 5-1.)
“Presently, in California, approximately 14 jurisdictions control rents on
dwellings” and many more control rents on mobile homes. (Friedman et al., Cal. Practice
Guide: Landlord-Tenant, supra, ¶ 2:702, p. 2D-4.) Historically, several municipalities
had a vacancy control type of residential rent regulation that prohibited rent increases
when a unit is vacated. (Id., ¶ 2:708, p. 2D-4.) Vacancy control ordinances were
abolished in 1995 by the Costa-Hawkins Rental Housing Act (Civ. Code, § 1954.50 et
seq.; hereafter the Costa-Hawkins Act or Act), which provides, with limited exceptions,
that “an owner of residential real property may establish the initial rental rate for a
dwelling or unit.” (Civ. Code, § 1954.53, subd. (a).) The Costa-Hawkins Act “established
‘what is known among landlord-tenant specialists as “vacancy decontrol.” ’ ” (Action
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A modified version of this type of rent regulation, operative in the State of New York,
permits an increase upon vacancy equal to a percentage of the prior rental rate. (N.Y.
State Div. of Housing and Community Renewal, Off. of Rent Admin., Fact Sheet # 5:
Vacancy Leases in Rent Stabilized Apartments
[as of Jan. 21, 2015].)
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Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1237.) “The effect
of this provision was to permit landlords ‘to impose whatever rent they choose at the
commencement of a tenancy.’ [Citation.]” (Ibid.) San Francisco’s ordinance is consistent
with the Costa-Hawkins Act in allowing a landlord to set the initial rental rate on vacated
units. (S.F. Admin. Code, § 37.3, subd. (d)(1).)
B. The Costa-Hawkins Act’s Vacancy Decontrol Provisions
The Costa-Hawkins Act addresses changes in occupancy and the impact of those
changes on rental rates. An understanding of the Act requires a contextual reading of
these provisions. Civil Code section 1954.53, subdivision (d) provides:
“(1) Nothing in this section or any other provision of law shall be construed to
preclude express establishment in a lease or rental agreement of the rental rates to be
applicable in the event the rental unit subject thereto is sublet. Nothing in this section
shall be construed to impair the obligations of contracts entered into prior to January 1,
1996.
“(2) If the original occupant or occupants who took possession of the dwelling or
unit pursuant to the rental agreement with the owner no longer permanently reside there,
an owner may increase the rent by any amount allowed by this section to a lawful
sublessee or assignee who did not reside at the dwelling or unit prior to January 1, 1996.
“(3) This subdivision does not apply to partial changes in occupancy of a dwelling
or unit where one or more of the occupants of the premises, pursuant to the agreement
with the owner provided for above, remains an occupant in lawful possession of the
dwelling or unit, or where a lawful sublessee or assignee who resided at the dwelling or
unit prior to January 1, 1996, remains in possession of the dwelling or unit. Nothing
contained in this section shall be construed to enlarge or diminish an owner’s right to
withhold consent to a sublease or assignment.
“(4) Acceptance of rent by the owner does not operate as a waiver or otherwise
prevent enforcement of a covenant prohibiting sublease or assignment or as a waiver of
an owner’s rights to establish the initial rental rate, unless the owner has received written
notice from the tenant that is party to the agreement and thereafter accepted rent.”
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C. Rent decontrol under the Costa-Hawkins Act occurs when all lawful occupants who
took possession at the start of the tenancy vacate the dwelling.
The parties dispute the meaning of the Costa-Hawkins Act’s provision that a
landlord may set the initial rental rate for a dwelling “[i]f the original occupant or
occupants who took possession of the dwelling . . . pursuant to the rental agreement with
the owner no longer permanently reside there” (Civ. Code, § 1954.53, subd. (d)(2)) and
the related provision that a landlord’s right to set the rental rate “does not apply to partial
changes in occupancy of a dwelling . . . where one or more of the occupants of the
premises, pursuant to the agreement with the owner provided for above, remains an
occupant in lawful possession of the dwelling or unit” (§ 1954.53, subd. (d)(3)).
“When we interpret a statute, ‘[o]ur fundamental task . . . is to determine the
Legislature’s intent so as to effectuate the law’s purpose. We first examine the statutory
language, giving it a plain and commonsense meaning. We do not examine that language
in isolation, but in the context of the statutory framework as a whole in order to
determine its scope and purpose and to harmonize the various parts of the enactment. If
the language is clear, courts must generally follow its plain meaning unless a literal
interpretation would result in absurd consequences the Legislature did not intend. If the
statutory language permits more than one reasonable interpretation, courts may consider
other aids, such as the statute’s purpose, legislative history, and public policy.’
[Citation.]” (Sierra Club v. Superior Court (2013) 57 Cal.4th 157, 165-166.)
An “occupant” is commonly defined as “one who occupies a particular place;
esp[ecially]: RESIDENT.” (Merriam-Webster’s Collegiate Dict. (11th ed. 2007) p. 858,
col. 1.) The plain meaning of an “original occupant . . . who took possession of the
dwelling or unit pursuant to the rental agreement” (§ 1954.53, subd. (d)(2)) is an
individual who has resided in the dwelling from the start of the tenancy with the
landlord’s permission. The landlord argues that “taking possession is a legal term of art”
requiring the person to have acquired the legal right of possession which is acquired only
by parties to the lease.
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“Possession” is a commonly understood term normally referring to physical
possession. The landlord’s contention limiting the term to parties to a legal agreement is
inconsistent both with this common understanding and with the terms used in the statute.
The statute refers to an “occupant” rather than a “tenant,” “lessee,” or “party.” These
terms have distinct and well-established meanings, making it unlikely the Legislature
used the term “occupant” when it meant party to a rental agreement. That the
Legislature’s use of the term “occupant” was deliberate and intended to signify
something distinct from a party to the lease is confirmed when the statute is read as a
whole. “[W]e consider portions of a statute in the context of the entire statute and the
statutory scheme of which it is a part, giving significance to every word, phrase, sentence,
and part of an act in pursuance of the legislative purpose.’ [Citation.]” (Sierra Club v.
Superior Court, supra, 57 Cal.4th at p. 166.) Section 1954.53 subdivisions (d)(2) and (3)
provide for rent decontrol when “occupants” vacate the dwelling while subdivision (d)(4)
provides there is no waiver of a landlord’s sublease prohibition unless the landlord
received “written notice from the tenant that is party to the agreement and thereafter
accepted rent.” The Legislature’s use of distinct terms indicates different intended
meanings. Had the Legislature meant rent decontrol to occur when the party to the rental
agreement vacates, it could easily have used the term “party,” as it did in subdivision
(d)(4) concerning sublease prohibition waivers. “ ‘[W]hen different words are used in
contemporaneously enacted, adjoining subdivisions of a statute, the inference is
compelling that a difference in meaning was intended.’ [Citations.]” (Kleffman v.
Vonnage Holdings Corp. (2010) 49 Cal.4th 334, 343.)
The legislative history for the Costa-Hawkins Act contains no clear statement of
the intended meaning of the provisions at issue. There are several indications, however,
that the Legislature meant the term “occupant” to be understood in the normal sense of
the term, not limited to a person who is a party to the rental agreement. Legislative and
executive reports on the Act consistently state that rent decontrol applies when all
original occupants vacate the premises, not when tenants who are parties to the lease
vacate. In summarizing the provision at issue here, a Senate committee analysis states: “If
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one or more of the occupants of the premises remains an occupant in lawful possession,
the rent may not be increased.” (Sen. Rules Com., Off. of Sen. Floor Analyses, 3d
reading analysis of Assem. Bill No. 1164 (1995-1996 Reg. Sess.) as amended July 20,
1995, p. 4.) The Department of Housing and Community Development submitted an
enrolled bill report to the Governor describing the statute as one permitting a landlord to
increase rent “when the original occupant no longer permanently resides in the dwelling.”
(Dept. Housing & Community Development, Enrolled Bill Rep., Assem. Bill No. 1164
(1995-1996 Reg. Sess.) as amended July 20, 1995, p. 3.)3
Our interpretation of the Costa-Hawkins Act is also consistent with its narrow and
well-defined purpose, which is to prohibit the strictest type of rent control that sets the
maximum rental rate for a unit and maintains that rate after vacancy. (Legis. Analyst,
analysis of Assem. Bill No. 1164 (1995-1996 Reg. Sess.) p. 1.) The analysis states that
“[p]roponents view this bill as a moderate approach to overturn extreme vacancy control
ordinances” (id. at p. 6), noting that “[f]ive vacancy control cities would be affected” (id.
at p. 5). The report observes that an additional nine cities “impose rent control on
residential units” but says nothing about narrowing the scope of those ordinances on the
subject at issue here. (Ibid.)
“The Legislature is presumed to know existing law when it enacts a new statute,
including the existing state of the common law. [Citations.]” (Arthur Anderson v.
Superior Court (1998) 67 Cal.App.4th 1481, 1500-1501.) When the Costa-Hawkins Act
was adopted , the San Francisco ordinance contained the current definition of a “tenant”
entitled to rent control as “[a] person entitled by written or oral agreement, sub-tenancy
approved by the landlord, or by sufferance, to occupy a residential dwelling unit to the
exclusion of others.” (S.F. Admin. Code, § 37.2, subd. (t) [originally § 37.2, subd. (r)].)
3
The California Supreme Court has “routinely found enrolled bill reports, prepared by
a responsible agency contemporaneous with passage and before signing, instructive on
matters of legislative intent.” (Elsner v. Uveges (2004) 34 Cal.4th 915, 934, fn. 19.)
To clarify, Assembly Bill No. 1164 was last amended July 20, 1995, not July 20,
1994, as stated in the the enrolled bill report.
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Also prior to adoption of the Act, this ordinance was held to protect lawful occupants
from rent increases even if not a party to the lease. (Parkmerced Co. v. San Francisco
Rent Stabilization & Arbitration Bd. (1989) 215 Cal.App.3d 490.) In Parkmerced, a
landlord was precluded from raising the rent when the lessee vacated the apartment and
his sister, who also had occupied the residence with the landlord’s knowledge and
implicit approval, remained in occupancy. The court pointed out that the rent ordinance
“clearly focuses on occupancy as the factor which triggers rent control protection.” (Id. at
p. 493.) Further, “[t]here is absolutely no indication that this protection was intended to
be limited to those tenants who sign formal lease agreements.” (Id. at p. 495.) The
Legislature was presumably aware of San Francisco’s ordinance, and its judicial
construction, when adopting the Act, yet expressed no intention to preempt the law.
Nothing in the language, legislative history, or purpose of the Act suggests an intention to
abrogate San Francisco’s broad definition of a tenant or to otherwise prohibit cities from
extending rent control to all original lawful occupants whether or not parties to the lease.
Another division of this court has previously interpreted the reference in the
Costa-Hawkins Act to occupants “pursuant to the rental agreement” to mean lawful
occupants, whether or not parties to the rental agreement. In DeZerega v. Meggs (2000)
83 Cal.App.4th 28, a lease named one person as the tenant but expressly permitted
occupancy by “2 (two) roommates” not identified by name. Jason Meggs was one of the
roommates; he took occupancy at the start of the lease term after completing an
application to rent requested by the landlord, DeZerega.4 (Id. at pp. 31-32.) Nine months
later, the named tenant moved out and DeZerega filed an unlawful detainer action against
Meggs. (Id. at pp. 33-34.) The court held that Meggs could not be evicted because he met
the definition of a tenant under a Berkeley ordinance prohibiting tenant evictions without
cause. (Id. at pp. 38-42.) The court rejected the landlord’s argument that the Act provides
4
Landlord misreads DeZerega in stating that Meggs took occupancy years after the lease
term commenced. The mistake may derive from the fact that two leases with different
named tenants are mentioned in the opinion. (DeZerega v. Meggs, supra, 83 Cal.App.4th
at pp. 31-32.) The operative lease was executed in March 1997 with Michael Nnadi-
Nwazurumike, under which Meggs was an original occupant. (Ibid.)
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no protection to occupants who are not named tenants in the lease. (DeZerega, at pp. 40-
42.) The court stated that a person occupies the premises “pursuant to the rental
agreement with the owner” (§ 1954.53, subd. (d)(2)) if he or she does so with the owner’s
permission. (DeZerega, at p. 41.) A lawful occupancy of this nature “is treated as a
continuation of the original occupancy, even though the named ‘tenant’ under the rental
agreement may have vacated.” (Ibid.)
D. An original lawful occupant remains in possession of the apartment.
The rent board found the rent increase at issue here unlawful because Brian “is an
original occupant who took possession of the unit pursuant to the original rental
agreement with the owner and he continues to permanently reside in the unit.” The
evidence fully supports this finding. The parties stipulated that Brian, then aged 13,
moved into the apartment with his parents with the approval of the landlord when the
tenancy commenced in November 2003 and remained in the apartment when his parents
vacated the apartment in August 2012, when Brian was 23 years old. Brian’s parents
alone are parties to the lease but Brian is an original lawful occupant of the apartment
entitled to protection under the ordinance.
The landlord argues that our holding allows a minor “to inherit [his or her]
parent’s tenancy” and grants rights without obligations. The argument is mistaken. Brian
did not “inherit” his parent’s tenancy but has his own personal right of occupancy. We
also note that Brian’s rights have concomitant obligations. When Brian’s parents vacated
the apartment and Brian, as an adult, chose to remain in occupancy, he became a tenant
obligated to pay rent. Tenancies in property need not be created by written leases.
(Parkmerced Co. v. San Francisco Rent Stabilization & Arbitration Bd., supra, 215
Cal.App.3d at p. 495.) One may become a tenant by occupancy with consent. (Ibid.)
“ ‘Such tenancies carry with them the incidental obligation of rent, and the liability
therefore arises not from contract but from the relationship of landlord and tenant. The
tenant is liable by operation of law.’ [Citations.]” (Ibid.)
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E. The landlord’s public policy arguments are matters for the Legislature, not the courts.
The landlord argues it is unwise economic policy to protect occupants who begin
their residency as minors and continue in the apartment as adults after their parents
vacate. The argument raises a public policy issue that must be addressed to the
Legislature. Many permutations to rent regulation are possible. It is not, as the landlord
suggests, inherently unreasonable to apply rent control to lawful occupants who share an
apartment with tenants named in the lease. Rent control of this scope is not
unprecedented among rent control jurisdictions. We note, for example, that the State of
New York expressly protects a tenant’s family members who reside with the tenant from
rent increases upon the named tenant’s death or departure from the apartment. (N.Y.
Comp. Codes, R. & Regs., tit. 9, § 2523.5, subd. (b)(1); see N.Y. Div. of Housing &
Community Renewal, Off. of Rent Admin., Fact Sheet #30: Succession Rights
[as of Jan. 21, 2015].) The
protection encompasses minor children who reside with the named tenant. (E.g.,
Doubledown Realty Corp. v. Harris (1985) 128 Misc.2d 403 [494 N.Y.S.2d 601].)
Moreover, the protection afforded here is limited in scope to lawful and original
occupants. A rent-controlled apartment cannot, as landlord fears, be passed on freely
“from friend to friend or generation to generation.” Only those occupants who reside in
the apartment at the start of the tenancy and do so with the landlord’s express or implicit
consent are protected from unregulated rent increases. Family members and friends who
subsequently move into the apartment are not protected unless the landlord consents to
the occupancy and accepts rent from the new occupant, thus creating a new tenancy.
(Cobb v. San Francisco Residential Rent Stabilization & Arbitration Bd. (2002) 98
Cal.App.4th 345, 351-353.).
Whether the application of rent control protection to occupants who begin their
residency as minors is wise economic policy is a question for legislative, not judicial,
determination. Local and state legislators are free to make these public policy
determinations provided the rent regulation does not deprive property owners of a fair
return on their investment. (Galland v. City of Clovis (2001) 24 Cal.4th 1003, 1021.) No
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claim of a confiscatory taking is raised in this case. We must therefore apply the law as
written, and the current law does not permit vacancy decontrol until all lawful occupants
residing in a dwelling at the start of the tenancy vacate the premises. (§ 1954.53, subd.
(d)(2) & (3).)
Disposition
The order is affirmed.
_________________________
Pollak, J.
We concur:
_________________________
McGuiness, P. J.
_________________________
Siggins, J.
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A141134
Superior Court of the City and County of San Francisco, No. CPF-12-512697, Ronald E.
Quidachay, Judge.
Fried & Williams LLP, Clifford E. Fried, for Plaintiff and Appellant.
Dennis J. Herrera, City Attorney, and Wayne K. Snodgrass, Deputy City Attorney, for
Defendant and Respondent.
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