Legal Corner

WRITTEN BY MICHAEL A BRENNAN, EVICTION ATTORNEY 

Question: I just received a phone call from one of my tenants asking me whether she can pay her rent for this month in two payments. I don’t like doing it, but she has been a great tenant over many years and this is the first time she has made such a request. While I want to help her, I don’t want to create any legal problems for myself. What are your thoughts on this situation?

Answer: Generally, I’m not a fan of allowing tenants to make partial payments, as it sets up expectations that you will do so in the future. However, in your case, the tenant has been there quite a while and actually took the time to notify you in advance that she is short on rent. Based on her responsible behavior (which seems to be more and more rare these days), you might decide to allow her to pay rent in payments. Before you make that decision, be sure to check your rental agreement for a “nonwaiver” provision which states your decision to accept rent in two payments does not waive your right to insist on the entire amount on its due date in the future.

Assuming your rental agreement has such a provision (most modern agreements do), you can allow her to pay rent in payments without worrying about waiving your rights. Additionally, avoid putting anything in writing indicating the payment is for any specific period. Instead, simply provide her with a receipt (if you provide receipts) indicating the payment is a “partial payment” for the entire amount owed with a “balance due” for the unpaid amount. You can either issue a three day notice at the time she makes the partial payment, with a promise you won’t file eviction until the day after the date on which she has agreed to pay the balance (provided she fails to do so) or you can wait to serve the three-day notice until after the date on which she agreed to pay.

Either way, you are able to accept the partial payment without creating legal problems for yourself, keep control over the situation, and keep the relationship intact by accommodating her needs this month.

HUD Sues Landlords for $16,000 for Discrimination Against Veteran with Assistance Animal – by the Editors of Rental Housing Journal

Reprinted with permission of  the Apartment Owners Association

Landlords who refused to waive the pet deposit for a combat veteran with an emotional support dog have been charged with discrimination and violating the Fair Housing Act, by the U.S. Department of Housing and Urban Development (HUD), according to a release.

The veteran was renting a single-family home in Moore, Oklahoma, and asked that the $250 pet deposit be waived because his dog was an emotional support animal needed to assist him with his disability. The veteran provided landlords a letter from his doctor, according to the complaint. Under the law, assistance animals are not considered pets.

According to the charge, the combat veteran is diagnosed with service-connected Post Traumatic Stress Disorder (PTSD) and Major Depressive Disorder (MDD). These mental impairments substantially limit his personal, work, and social life. His disability symptoms include anxiety, isolation, avoidance, and a difficulty in public, as well as difficulty with interpersonal relationships and insomnia. He is an individual with a disability as defined by the Fair Housing Act.

In the letter to the landlords, the doctor stated that the veteran was diagnosed with PTSD following a combat tour of deployment and he was being treated at Oklahoma City Veterans Administration Medical Center. The letter further stated that dogs can often provide combat veterans support when PTSD symptoms escalate, and that veteran’s dog often keeps his PTSD symptoms in check.

The complaint says the dog, an emotional support animal, improves the veteran’s insomnia, gets him out of the house because he has to walk the dog, improves his mood, and provides comfort and support because he has a limited social system.

The tenant complained that AMH 2015-1 Borrower, LLC, and its management company, AH4R Management – OK, LLC, refused to waive their pet deposit fee. The leasing agent told the veteran, according to the complaint, “Unfortunately my broker said only service dogs are waived. I’m sorry I tried.”

The veteran then provided a link to websites with information on emotional support animals in rental housing units that included an example demonstrating landlords should not charge pet deposits for assistance animals and included the statement “Landlords cannot… [a]sk a tenant to pay a deposit, fee, or surcharge in exchange for having a service or emotional support animal, even if they require such a practice from owners who wish to obtain pets in their dwelling,” the complaint states.

After the company refused, the veteran paid the pet deposit and moved into the property.

The rental management told the veteran they had been advised by their attorney that the deposit had to be paid and that he “accepted their decision to not waive the pet deposit fee when he signed the lease and moved into the property,” according to the complaint.

The veteran replied that he was not OK with that decision, and he filed a complaint. The management company has since refunded his $250 deposit.

However, in the complaint HUD is asking for $16,000 in civil penalties from the management company for discrimination and violation of the Fair Housing Act “when they refused to waive the pet deposit for complainant’s emotional support animal,” according to the complaint.

Fair Housing Act and pet deposits for tenants with disabilities

The Fair Housing Act prohibits housing providers from denying or limiting housing to persons with disabilities, or from refusing to make reasonable accommodations in policies or practices for people with disabilities. This includes waiving pet fees for persons with disabilities who use assistance animals.

Disability is the most common basis of fair housing complaints filed with HUD and its partner agencies, according to the release. Last year alone, HUD and its partners considered over 4,900 disability-related complaints, or more than 58 percent of all fair housing complaints.

HUD’s charge will be heard by a United States Administrative Law Judge unless any party to the charge elects to have the case heard in federal district court. If an administrative law judge finds after a hearing that discrimination has occurred, he or she may award damages to the complainant for their loss as a result of the discrimination. The judge may also order injunctive relief and other equitable relief, as well as payment of attorney fees. In addition, the judge may impose civil penalties in order to vindicate the public interest. If the case is heard in federal court, the judge may also award punitive damages to the complainant.

Matthew Wildman from The Humane Society of the United States provided this question and answer on pets:

Question:  I am confused over the terminology of service animal, assistance animal and companion animal. Tenants use different terms such as these to refer to their pets. How do I as a landlord know which is which?

Answer: “Companion animals” or “companion pets” are interchangeable terms with the most common term, “pets.” For some reason, the term “companion animal” is perceived by many in the multifamily housing industry to mean something different than a “pet,” but there is no difference.  The terms that are of relevance to housing providers encountering requests for reasonable accommodation are “assistance animals” (also commonly referred to as “emotional support animals”) and “service animals.” An assistance animal can be any animal who is commonly referred to as a pet, but the difference is that their owner has a disability for which the animal is needed to either provide assistance in managing activities of daily living, and/or provides support that alleviates the symptoms or effects of the person’s disability. An “emotional support animal” is a type of assistance animal that provides emotional support that improves the symptoms of an individual’s disability.

According to the Department of Justice, a “service animal” may be a dog or miniature horse who has been trained to perform a specific task(s). Under the Americans with Disabilities Act, individuals living with a disability are legally entitled to bring these animals into places of public accommodation as well as their residence regardless of any pet restrictions. The most common example of a service animal is a Seeing-Eye dog, but not all disabilities requiring service animals are obvious. For example, individuals suffering from PTSD may need their dog with them at all times. This dog may be trained to sit calmly beside their owner.

It’s helpful to keep in mind that service and assistance animals are not considered pets, meaning that pet rules – such as no-pet policies, breed and size restrictions, pet deposits and fees – don’t apply to them, but owners are responsible for any damage they cause.

RentalHousingJournal.com, an interactive community of multifamliy investors, independent rental home owners, residential property management professionals and other rental housing & real estate professionals, is the most comprehensive source for news and information for the rental housing industry. This website features exclusive articles and blogs on real estate investing, apartment market trends, property management best practices, landlord tenant laws, apartment marketing, maintenance and more.  Reprinted with permission.

Los Angeles City Rent Stabilization – Reminders and Updates – by Patricia A. Harris

Hopefully, if you own apartments in the City of Los Angeles and are under the L.A. Rent Stabilization Ordinance, you have already paid your building’s registration fees of $24.51 per unit which was due by February 29, 2017.  Serving a timely notice, you may collect one half of those fees from your tenants.  Note:  You used to collect this fee in the month of June, but for 2017, it has been changed to August. 

Collect $12.25 Registration Fees in AUGUST

The Los Angeles Rent Stabilization Division allows owners to pass-through one half of these fees ($12.25) with a 30-day notice, collectible in the month of August only.  That means you MUST serve the notice of the one time annual rent increase (found on the following page) in the month of July in order to collect this annual fee from your tenants.  AOA recommends you serve the notice on July 1st to collect this fee along with the rent due on August 1st.

IMPORTANT NOTE:  The notice of the one-time annual charge must be accompanied with a copy of your Rent Stabilization registration certificate to show that you paid the fees.

Code-Enforcement Pass-Through Fees

The SCEP fee of $43.32 per unit charge for the Housing Department’s code-enforcement inspection fee may also be passed through to your tenants.  This fee, however, must be amortized over a 12 month period and is collectible at a monthly rate of $3.61.  A 30-Day Notice of Change of Terms of Tenancy must be served to each tenant after you pay your bill before you can collect this fee.  That means with proper service, you can legally raise your rents (as long as you paid your bill!), $3.61 per month. Every little bit helps!  Your tenant may elect to pay this fee all at once, however they will not be awarded a refund should they move before the end of the year.  Also, if your building IS NOT under rent control, you may request and collect the fee in its entirety after serving the 30 day notice.

Other Los Angeles Rent Stabilization Updates

  • SECURITY DEPOSIT INTEREST:  Please note that the required 2017 interest that must be paid on security deposits for units in L.A. City is 0.12 percent. A landlord may pay tenants the actual rate of interest earned if security deposits are kept in a separate account by providing a copy of the bank statement showing the actual interest rate earned for the year.
  • ALLOWABLE ANNUAL RENT INCREASE:  The Los Angeles Rent Control’s annual rent increase is currently 3% through June 30, 2017.  As of this printing, the July 2017 rental increase percent was not yet determined but we were told it will most likely remain the same.  The actual amount should be made available to us in June. 

Via https://www.aoausa.com/

Urgent Tax Alert for Apartment Owners with Larger Estates! Last Chance to Use Discounts to Save Estate and Gift Taxes? – By AOA Member and Estate Planning Attorney, Kenneth Ziskin

If you have, or expect to develop, a “taxable” estate (more than the estate and gift tax exclusion amounts which now protect nearly an $11 million estate for a married couple), newly Proposed IRS Regulations make it IMPERITIVE that you consider advanced estate tax planning NOWThe new Proposed Regulations, released in August, are designed to take away the ability to use many discount strategies that can eliminate (or substantially reduce) estate and gift taxes for those of you who would otherwise face these taxes.   

To beat the adverse effect of these regulations, you MUST complete transfers to your heirs or specialized trusts before these Regulations are finalized (probably around year-end).  The loss of these discounts could cost a family with $16 million in property that does not do proper advanced planning now as much as $2 million in unnecessary estate and/or gift taxes.  The loss would be far more costly to larger estates. 

In August, the IRS finally published the Proposed Regulations it has threatened since May, 2015.  These Proposed Regulations were designed to limit the use of discounts in family (and maybe other) transactions that sophisticated clients and estate planners had used to reduce estate and gift tax exposure.  We have helped owners do dozens of transactions to take advantage of these discounts to save millions, and expect to do many more before the Proposed Regulations limit their use.

The BAD NEWS is that these Proposed Regulations will preclude the effective use of discounting strategies that advanced estate planners have employed to help clients save billions of dollars in estate and gift taxes over the past few decades. As a result, millions of dollars of value that apartment owners want to pass to family members and other heirs will, instead, be confiscated by the estate and gift tax system.

However, the VERY GOOD NEWS (but ONLY for those who plan in time) is that the IRS proposes that these Regulations become effective 30 days AFTER Final Regulations are published in the Federal Register.

Since the Proposed Regulations contemplate allowing for a 90-day comment period and a public hearing on December 1, 2016, it is virtually impossible for them to become final before the end of this calendar year.  If Hillary Clinton is elected, the IRS may not finalize the Proposed Regulations until early in her administration.  However, if Donald Trump is the winner in November, we expect the IRS may seek to finalize the Proposed Regulations before the end of the Obama administration.

The deferred effective date gives us time to review the Proposed Regulations carefully in order to better understand the impact they will have on transactions after the effective date, and gives you a short period of time to commence planning to “beat the regs.”  I got an advanced copy of the Proposed Regulations and have already scheduled to participate in a conference call with other advanced estate planning colleagues regarding the Proposed Regulations.

The best strategies for taking advantage of discounting strategies before the Proposed Regulations become final will usually involve putting property into carefully structured LLCs or limited partnerships (or to restructure such entities to maximize tax and non-tax benefits) as soon as possible.  Then, apartment owners will want to transfer interests in these entities to Family Security Trusts, Grantor Retained Annuity Trusts, other irrevocable trusts or family members a few months later, but before year-end.  To do this in the best way, owners need to begin the process as soon as practical.

NOTE:  Some of you may have created Family Limited Partnerships or LLCs and retained most of the ownership thereof in anticipation of getting the benefit of discounts when they are transferred after your death.  Much, or all, of this benefit will be lost if you die after these Proposed Regulations become final.   

The only way to avoid the additional taxes these Proposed Regulations are intended to impose is to make completed gifts or transfers of interests in these entities BEFORE the effective date of the regulations.  When done with care by an experienced estate planning attorney specializing in advanced strategies, these gifts and other transfers can be structured to provide substantial income to the original property owners during their life, preserve parent-child property tax reassessment exemptions, retain control for such members, keep the ability to get a step-up in basis at death, and still to maximize wealth transfer to your chose heirs.  But, to maximize the ability to use the discounts, you need to start planning very soon, and then you need to complete transfers of entity interests before the Proposed Regulations are finalized.  These Proposed Regulations mean I need to adjust my Family Wealth Strategies motto to “If you fail to plan WELL and SOON, plan to FAIL!” 

Ken Ziskin is a member of AOA and focuses his practice on integrated estate planning to save income, property, gift and estate taxes for owners of apartments and other income properties.  He has served as an Adjunct Professor of Law at USC, is rated AV Preeminent by Martindale-Hubbell and a perfect 10 out of 10 on legal website www.AVVO.COM.  For more information on the impact which the Proposed Regulations would have on your estate, or to begin the planning process to “beat” the Regulations, contact Ken Ziskin at 818-988-0949, or email him at KenZiskin@Gmail.com  You can see real client reviews of Ken’s services at www.avvo.com/attorneys/91423-ca-kenneth-ziskin-151823.html or on Ken’s website at www.ZiskinLaw.com

Reprinted with permission of AOA (Apartment Owners Association, Inc.) and the author.

City is Sued for Attempting Unjustified Snooping on Rental Property – by Meriem Hubbard and Wencong Fa, Attorneys-at-Law

In a legal case that should interest rental property owners statewide, the City of Highland in San Bernardino County is being sued for trying to arm-twist landlords and tenants into allowing warrantless inspections of their homes.

In other words, the city is trying to coerce property owners and tenants into surrendering a fundamental constitutional protection: the Fourth Amendment’s guarantee that government officials cannot search private property unless they first obtain a warrant.

To be sure, the plaintiffs in this case –  property owner Karl Trautwein and the tenants in one of the homes he owns – have nothing at all to hide.  An investor with a number of homes around Southern California, Karl takes pride in maintaining all his properties to a high standard and keeping tenants satisfied.

What Karl and the tenants who are joining in the lawsuit resent is Highland’s attack on their fundamental privacy and property rights.

Indeed, in a sign of the importance of the case, they are represented by Sacramento-based Pacific Legal Foundation, the nation’s leading legal watchdog for property rights and individual liberty. Donor-supported PLF represents these plaintiffs free of charge, as with all its clients.

Karl and his tenants are victims of local government’s plan for a sweeping regime of unjustified rental-property inspections throughout the city – and its heavy-handed strategy for imposing this agenda on owners and renters.

Instead of simply responding where there have been complaints about code violations, the city adopted the goal of aggressively inspecting all 4,800 rentals within city limits, whether or not there have been complaints.

To cut corners in this overwhelming task, officials are attempting to evade the constitutional requirement to seek administrative warrants for inspections. Instead of going to a court and showing cause to receive permission to inspect inside a home, the city is attempting to bully property owners and tenants into allowing inspectors in without a warrant.

Karl and his tenants have been subjected to bullying because they would not agree to let inspectors into their home.  There have been no complaints about the property and the city has offered no evidence that it has any problems.  So Karl and his tenants object to a baseless, uncalled-for, open-ended intrusion by government bureaucrats.

City officials didn’t respond to this refusal by seeking a warrant – because there were no grounds for one.  Instead, the city resorted to threats and coercion.  Karl was charged a “re-inspection fee” and was told that his rental license would not be renewed if he continued to refuse to allow a warrantless entry.

This pressure tactic is what the law calls an “unconstitutional condition” — i.e., Karl’s rental license is being held hostage unless he agrees to the condition that he and his tenants waive their Fourth Amendment rights.  As the lawsuit points out, government cannot confront anyone with a false choice of this kind, which coerces them out of constitutional freedoms.

With its crusade to inspect all rental properties, even those like mine without any tenant complaints, the city is wasting its resources and harassing law-abiding people,” said Karl.“Ironically, this is the kind of regulatory overkill that can reduce the supply of rental housing by causing conscientious and hard-working property owners to decide it’s not worth it.”

“There is no freedom without property rights and the privacy they protect,” he noted.  “Privacy means no one can come inside your residence unless you invite them in.  Cities have no business forcing their way into people’s homes.  The Constitution provides a way for government to enter a home — by convincing a judge to issue a warrant based on probable cause.  Highland wants to avoid the inconvenience of that constitutional requirement.”

“Violating the privacy rights of my residents without probable cause is as unnecessary as it is wrong,” he continued.  “The city should not be violating their privacy for no good reason, and it can’t be permitted to go snooping without a warrant.”

Filed in U.S. District Court for the Central District of California, the case is Trautwein v. City of Highland, et al.  More information, including the complaint, an explanatory blog post, a podcast, and a video statement, is available Pacific Legal Foundation’s website:  www.pacificlegal.org

Meriem Hubbard is a Principal Attorney with Pacific Legal Foundation and Wencong Fa is a Staff Attorney with the foundation.  They represent Karl Trautwein and his tenants in challenging Highland’s attempt to coerce them out of their Fourth Amendment rights. Donor-supported Pacific Legal Foundation www.pacificlegal.org is the leading watchdog organization that litigates for limited government, property rights, individual rights, and free enterprise, in courts nationwide. PLF represents all clients free of charge.  For more information, visit http://www.pacificlegal.org.

Reprinted with permission of AOA (Apartment Owners Association, Inc.) and the author.

Service Dogs and Support Animals: Here is What You Need to Know! – By Dale Alberstone, Esq.

Reprinted with permission of AOA (Apartment Owners Association, Inc.) and the author.

Flying home on American Airlines this past July on a six hour leg from Boston to Los Angeles, the woman seated next to me placed her small Poodle on the airplane’s cabin floor just in front of her feet.  After I made a few comments to her about how cute her puppy was (although it could have used a good bath), she volunteered that “Foxy” was a “service dog.”  While the lawyer in me tended not to believe that, I refrained from inquiring, “Oh really?!  What type of service does your dog perform?”

Instead, I asked her what the airline’s policy was relative to a service dog.  She replied that that if Foxy is a service dog, he could fly for free.  I then asked if American required her to show any documentation establishing that Foxy was, indeed, a service animal.  She replied, “No,” and then presented a subtle grin.

That incident has inspired me to write this month’s column so as to brief landlords and management companies as to when they must allow a dog or other animal to reside in an apartment unit.  Stated in a slightly different manner, my discussion this month addresses the circumstances by which a housing provider may enforce a “no pets” policy in a lease so as to bar the tenant or applicant from bringing in a dog, cat, pig or other four-legged creature.

That law is complex and is separately legislated by both the State of California and the Federal government, but I will clarify it as best I can.

In general, there are three types of animals in issue, namely: service animals, support animals and pets.  True service animals and true support animals are not pets.

A service animal is a dog that is trained to perform services for a person with a disability, such as guiding a blind person, alerting a deaf person to an imminent hazard, fetching dropped items, opening doors, ringing doorbells, pulling a wheelchair, activating elevator buttons, steadying a person while walking, helping a person up after a fall, and assisting someone who is having a seizure.

As defined in the federal American with Disabilities Act (“ADA”), a service animal in the context of public accommodations is defined as “Dogs individually trained to do work or perform tasks for people with disabilities.”  Common examples are guide dogs and signal dogs, which assist with sight or hearing impairments.

Under the ADA and California law, in addition to dogs, a miniature horse (which typically weighs under 100 pounds) may also qualify as a service animal for an individual with a disability if the equine has been specifically trained to perform tasks or work for the benefit of the individual’s disability.  But AOA members typically do not encounter horses, so I will not further discuss them.

A support animal (sometimes referred to as a social animal, therapy animal, companion animal, emotional support animal, and assistant animal) is an animal used to assist with therapy goals, such as animals which help alleviate emotional or social symptoms of anxiety, depression, stress and difficulties regarding social interactions.  Support animals are not specially trained.  Their presence merely improves a tenant’s inability to otherwise live independently and fully use their living environment.

In either case, the service dog or support animal must accommodate a person with a disability.  That means that the tenant (or rental applicant) must have a physical or mental impairment that limits (or in some cases “substantially” limits) one or more major life activities, or has a record of such an impairment, or is regarded as having an impairment.

Pets are domesticated animals which are kept for pleasure rather than utility.

Notwithstanding a “no pet” provision in a lease or rental agreement, a tenant with a disability who has a physical or mental impairment that limits (or in some cases “substantially” limits) one or more major life activities or has a record of an impairment, is allowed to have a service dog or support animal live in that resident’s apartment unit.  Both Federal and State law trump and nullify any lease provision to the contrary.

  1. Is your dog a service animal?  If so, is your dog required because of a disability you have?  If so, what work or tasks has your animal been trained to perform?
  2. Is your dog (or other animal) a support animal? If so, do you have a disability that limits one or more of your major life activities?  If so, does the disability create a need for you to have your dog (or other animal) live with you?

Bear in mind, however, the housing provider may not inquire of the tenant or applicant about the nature of the disability.  The theory is that the disability is confidential and such an inquiry might impermissibly embarrass the resident.

If the tenant or applicant who does not have an obvious disability (or a disability already known to the housing provider), requests that an animal be allowed to live in the apartment unit either as a service or support animal, the lessor may require the resident to provide documentation from a physician, psychologist or other qualified health provider that he/she has a disability and that the disability creates a need for him/her to have a service dog or support animal.

Both California law and federal law independently govern the right of a tenant to have a service dog or support animal in rental housing accommodations.  While there are differing nuances between the laws of the state and federal governments, one significant difference is that California’s definition of a disability is broader than federal law because the disability in California need only “limit a major life activity.”  It need not “substantially” limit a major life activity.  A “major life activity” includes a person’s physical, mental or social activities.

On the other hand, the Federal Housing Amendments Act of 1988 requires that the disability “substantially” limit one or more major life activities.

With respect to rental housing units in California that AOA members own or manage, they should follow the more restrictive California law which prevents them, as the landlord or management company, from excluding such an animal if the tenant’s disability merely limits (without consideration of whether it “substantially” limits) one or more of the resident’s major life activities.

If the tenant or rental applicant does not have any type of disability (as I have explained it above), then a “no animal” provision in a lease would prevent the tenant or applicant from bringing his/her dog or other animal into her unit.

Similarly, if the animal is a pet (because it does not fall within the definition of either a service dog or a support animal), then the “no animal” provision in the rental agreement may be enforced.

Finally, a housing provider may prevent a service dog or support animal from living in an apartment if (1) the animal will damage the property or is a danger to other tenants, and (2) no reasonable accommodation can be made for the tenant which would avoid those problems.

Concluding Remarks

When authoring this article, I telephoned a customer service representative of American Airlines to inquire about its policy of allowing a dog to accompany a passenger during flight.

The spokeswoman advised that if the passenger notified the airline in advance of the flight that he/she would be bringing on board a service dog, American would allow it if either (1) the passenger provided American with a written note from a healthcare professional that the dog is a service dog for the individual, or (2) the dog wears a harness and the harness is appropriately marked with a tag or placard saying “Service Dog.”

On the other hand, the representative informed me that if the dog was for emotional support, the passenger would be required to provide a letter from a healthcare provider that the comfort animal was necessary for the mental or emotional stability of the passenger.

Fortunately, in the context of service dogs, landlords and management companies are not compelled to allow canines to live in a unit merely because the tenant outfits the animal with a harness and a “Service Dog” placard.

Perhaps some of the disparate treatment of service dogs versus support animals has to do with criminal penalties.  In California, it is a misdemeanor (and thereby theoretically self-policing), punishable by 6 months of incarceration or a $1,000 fine, for an owner to tag and represent that a dog is a service dog when knowing it is not.  No such similar criminal act is committed by falsely claiming an animal is a support animal.

Finally, bear in mind that only certain limited questions can be asked of the tenant, as discussed above, and a written memorandum or letter signed by an appropriate healthcare professional can be required if the person’s disability is not apparent or otherwise known to the lessor or management company.

Dale Alberstone is a prominent litigation and transactional real estate attorney who has specialized in real property law for the past 39 years.  He has been appointed to periodically serve as a judge pro tem of the Los Angeles Superior Court and is a former arbitrator for the American Arbitration Association.  He also testifies as an expert witness for and against other attorneys who have been accused of legal malpractice.

Mr. Alberstone has been awarded an AV rating from Martindale-Hubbell.  An AV rating reflects an attorney who has reached the heights of professional excellence and is recognized for the highest levels of skill and integrity. You may Google “Dale S. Alberstone” for further background.          

The foregoing article was authored on August 1, 2016.  It is intended as a general overview of the law and may not apply to the reader’s particular case.  Readers are cautioned to consult an advisor of their own selection with respect to any particular situation.

Questions of a general nature are warmly invited.  Address correspondence to Dale S. Alberstone, Esq., ALBERSTONE & ALBERSTONE, 1900 Avenue of the Stars, Suite 650, Los Angeles, California 90067.  Phone:  (310) 277-7300.

New Senate and Assembly Bills that Impact Property Owners, Housing Availability and Affordability – By Joe Washburn

Reprinted with permission of AOA (Apartment Owners Association, Inc.)

AB 2819 – Hides Tenant Defaults Indefinitely

Requires unlawful detainer proceedings to be hidden permanently unless the property owner prevails on a default judgment, summary judgment, trial, or stipulations by all parties.  Allows rent cheats to hide their bad actions and perpetrate harm on other property owners by keeping the unlawful detainer proceedings hidden from public view.

AB 2003 – Neutralizes Tenant Delay Tactics

Once an unlawful detainer has been served, this requires the venue for trial to be the court most proximal to the property involved.  Grants the landlord immediate access to the property if the tenant filed a claim of inhabitability.  AB 2003 is not positive for small property owners.

AB 2502 – Rent Controlled Inclusionary Housing

Increases the cost and reduces the supply of housing by authorizing local governments as a condition of development, to impose a costly and inflexible price-controlled inclusionary housing requirement.  In so doing, AB 2502 legislatively repeals an established court decision upholding developers’ ability to set initial rent rates for new dwelling units.  Also, it undermines existing Cost-Hawkins protections by allowing local governments to impose mandatory inclusionary zoning, (i.e. rent control) on newly constructed rental housing without any consideration for the economic viability of the project.

SB 1053 – Forces Owners to Accept Section 8 Housing Vouchers.
Legislation died in Committee on March 27th. 

SB 1150 – Increases Risk and Cost of Residential Loans

This allows a party not on the mortgage to interfere with a lawful foreclosure.  It also establishes new, lopsided, private rights of action with draconian penalties, injunctive relief and attorney’s fees only for the prevailing successor in interest.  If passed into law, SB 1150 would probably the foreclosure process by additional months, if not years, if a property is involved in probate following a borrower’s death.

Joe Washburn is a SPOSFI member.  Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org  or call (415) 647-2419.

When renting property to relatives, know the tax rules by Ray Martin

Renting a residence to someone you’re related to can take many forms. Sometimes parents with kids in college consider buying an investment property near the school so they can rent it to their student and friends. Others buy a vacation home and rent it back to their parents and siblings.

If you own a second home or a rental property, it’s tempting to rent it to a relative. After all, your relations can make great tenants because you know them, and they’re likely to take good care of the property.

However, doing so isn’t without risks, including adverse tax consequences. For example, you could wind up having to claim the rent you receive as income but not be allowed to claim deductions for the costs associated with the maintenance and care of the property.

That’s because unless you’re careful, when renting to relatives the property can be classified as a personal residence, not as a rental. If this happens, you’ll lose some valuable tax deductions. For information about these deductions and rules, see IRS Publication 527, Residential Rental Property.

To avoid this situation, here’s what you need to do:

If you rent a house or apartment to your child, parent or other relative, and they use it as their primary and personal residence, you must charge a fair-market rent. To prove the rent rate is fair, you can get information from places where similar properties are listed for rent, such as Craigslist. You can also get a rental appraisal from an independent appraiser or a realtor.

Don’t make gifts to your relatives that are designed to help them pay the rent. This can backfire because the net amount of rent charged (the rent, less the gift you make) can wind up below fair-market rent and disqualify the property as a rental.

The tax law does allow you to charge a relative a slightly lower rent based on what’s known as the good-tenant-discount. A discount of up to 20 percent has been allowed, but tax advisers generally recommend using a 10 percent discount because it’s easier to justify.

And even if you charge a fair-market rent to your relative, you can still unintentionally convert a rental property into a personal residence if your relative doesn’t use the property as their primary residence. So if you rent a condo in Arizona to your siblings who use it for only two months while they maintain their primary residence in Michigan, the condo would be classified as your second home, not a rental property.

If the home you’re renting is your second home or a vacation home, you also need to be aware of how this affects it as a rental to relatives. Regardless of what you charge for rent, their use equals your personal use. Their use goes against your 14 days of rental use, or 10 percent of rental days, when rental income is tax-free.

In short, here are the five things you need to do to make sure you can continue to claim rental property deductions:

  1. Charge and receive a fair-market rent.
  2. Have proof that the rent you charge is fair-market rent.
  3. If you rent to a relative, make sure the property is their principal residence.
  4. Avoid making gifts to help the relative avoid the fair-market rent.
  5. If you give a good-tenant-discount, use a reasonable discount such as 10 percent.

If you follow these rules, you should be in the clear about claiming valuable tax deductions for the rental property.

© 2016 CBS Interactive Inc.. All Rights Reserved.

New HUD Criteria Under the Fair Housing Act For Screening Applicants for Prior Criminal Conduct – By Judy Drickey-Prohow, Esq.

Reprinted by permission of AOA, the Apartment Owners Association of California, Inc. and the author

On November 30, 2015 the United States Department of Housing and Urban Development (HUD) issued new guidance involving the use of criminal background screening in federally assisted properties.

In honor of Fair Housing Month, HUD issued new guidance on April 4, 2016 for this topic for all communities. That guidance, which was effective immediately, requires landlords to change the way they screen applicants based upon their criminal histories.

New Standards

Specifically the guidance establishes three new standards:

  1. Properties may not exclude an applicant on the basis of an arrest that did not result in a conviction for criminal activity.
  2. Properties may screen out applicants based on evidence of criminal convictions only if the conduct reflected in those criminal convictions is closely related to important interests of the property.
  3. If an applicant is presumptively disqualified from renting at a property due to evidence of a criminal conviction, the property must give the applicant an opportunity to show mitigating measures as to why he or she should be allowed to rent there.

In order to avoid additional costs and burdens on the property that may occur because of these new standards, HUD recommends that properties not consider an applicant’s criminal history until the applicant has already passed the credit screening and screening for prior rental history. If an applicant does not qualify because of his/her credit or prior rental history, the person’s criminal history becomes irrelevant as the property can exclude the applicant based on lack of these other qualifications.

Permissible Use of Screening Materials

If an applicant passes his/her credit and rental history screening, then a property may consider the applicant’s criminal history to the extent that this history is relevant to the property’s substantial and legitimate important interests. Those interests will typically include the property’s interest in ensuring that the new tenant will not “threaten the physical safety of other tenants or property management, will not commit crimes against persons or property, and will not engage in other criminal activity which may threaten the health or safety of the rental community.”

The property may not exclude applicants for criminal convictions that do not substantially impact these or other, previously identified substantial and legitimate interests. So, for example, a property may not exclude an applicant because of any and all felonies but only for felonies that create a substantial risk to the property. In many situations this will require management to revisit its screening criteria and notify credit-screening companies of these new standards.

Properties should also carefully calibrate their screening in order to ensure that the periods of exclusion for criminal convictions are reasonably related to the likelihood that the applicant will commit a similar crime in the future; thus, permanent exclusion of all applicants who have any felony is likely to be unlawful under this guidance.

Consideration of Mitigating Measures

While the existence of a criminal conviction involving an issue that affects a property’s substantial and legitimate interests creates a presumption that the applicant will be denied the opportunity to rent, the inquiry does not stop there. Any time an applicant is being screened out due to criminal history the applicant must be given the opportunity to request reconsideration by someone at a level above the site manager. As part of that reconsideration the applicant would be entitled to provide “mitigating information” that may go to demonstrate that allowing him/her to rent at the community is not likely going to negatively affect the property’s legitimate and substantial interests. Examples of mitigating evidence can include, but should not be limited to factors such as:

  1. How long ago did the crime occur? For example, a person convicted of an assault twenty years ago who has no subsequent criminal history is less likely to engage in violence than someone who assaulted another person one year ago.
  2. How old was the person when the original criminal conduct that resulted in a conviction occurred? How old is the person now? We know, for example, that persons in their 20s (especially males) are more likely to commit violent crimes than persons who are older, so comparative age may be a mitigating factor.
  3. Was the offense an isolated incident or was it part of a pattern of criminal activity?
  4. Has the applicant lived in other apartments since the time of the criminal conviction and, if so, were there any incidents during those tenancies to suggest that the person posed a threat to any persons or property during those tenancies?
  5. Has the person maintained steady employment with the same or similar employer for an extended period of time?
  6. If the person was convicted of a drug related offense can he/she show that he/she is no longer using drugs or involved with them?

Guidance for On-Site Staff

While most of the obligations to change these criteria will fall on corporate and supervisory staff who will establish the new screening criteria and set up procedures for considering mitigating measures, on-site staff can create liability for properties by communicating the wrong information to applicants about management’s procedures. This issue has come up several times in the last couple weeks as testers have been calling and visiting different communities and asking on-site staff if they will rent to persons who have felonies or other criminal convictions.

In the event that any employee receives an inquiry about whether management screens applicants to determine whether they have criminal convictions or excludes applicants with criminal convictions, staff should be careful to communicate only the following information:

  1. All applicants are welcome to apply to rent at the community, regardless of whether they have criminal convictions or not.
  2. Staff cannot determine whether any particular person will qualify to rent there until the full background screening has been concluded.
  3. That background screening will include screening for credit, prior rental history and criminal convictions.
  4. Any person who wants management to consider special circumstances showing why he/she should be allowed to rent there (even if the person does not appear to meet the rental criteria) will have an opportunity to speak with a supervisor and discuss those special circumstances.
  5. On-site staff does not have the authority to approve or deny any applicants.

Judy Drickey-Prohow, Esq. is with the Law Firm of Scott M. Clark.  Scott Clark Law is a full service resource for Residential Multi-housing Property Management law in Arizona.  Reprinted with permission.

More Will Choose To Rent In The Future As Tax Breaks Decline

Reprinted with permission from the author, John Burns

If you rent property to tenants, the outlook for your business and future rental customers is continuing to get better and better. While your apartment and single-family home tenants know that renting has always offered more flexibility for them, the great tax benefit of homeownership is not what it once was.

Real Estate Consulting

More renters are realizing that homeownership does not provide the tax breaks it once did and that renting is a better deal for them than owning, according to a new study from John Burns Real Estate Consulting.

“We believe we have found one of the primary reasons why entry-level home buying has not recovered—and why homeownership has been plunging,” writes John Burns in his market intelligence report. “For decades, homeowners benefitted from both the financial and psychological benefits of paying less taxes. Homeownership came with income tax savings because mortgage interest plus property taxes easily exceeded the standard deduction allowed by the IRS,” Burns writes in the report.

For Many The Tax Savings Is Gone

For most American homeowners that has not been true since 2008 because:

  • Falling interest rates and home prices have reduced mortgage interest.
  • The standard marital deduction has risen from $1,300 in 1972 to $12,600 today, meaning that the first $12,600 of itemized deductions has no benefit to consumers.

“Today, a typical first-time home buyer financing 95% or less of a median-priced US home pays less than $12,000 in mortgage interest and property taxes, which is not enough to warrant itemizing. Even with other deductions that bring the taxpayer over the $12,600 limit, the tax savings are minimal,” Burns writes in the report.

Rent vs. Buy

“Years ago, we eliminated income tax savings from our calculation of the rent-versus-buy decision, and I cannot remember the last time I heard a prospective first-time home buyer (not in California or New York) mention income tax benefits as a reason for buying,” Burns says in the report.

In the graph below, “We show the change over time for a typical homeowner couple with an 80% loan-to-value mortgage and a 1.5% property tax rate on the median-priced US home. That owner paid mortgage interest and property taxes in excess of the standard deduction every year from 1972 to 2008. Today, that homeowner’s deductions fall nearly $2,500 short of the standard deduction.”

Every April 15, the most financially qualified renters in the country used to feel the pain of not owning by writing a check to the IRS.

For most, that is no longer the case. The lack of tax savings is just one of numerous reasons why homeownership is the lowest it has been in decades, and we believe homeownership is headed lower.

Homeownership Headed Lower As Renting Becomes The New Normal

“This is just one of many findings in our upcoming book, which will be published later this year, called Big Shifts Ahead: Demographic Clarity for Businesses,” Burns writes.

The Urban Institute said last year in their analysis “The homeownership rate in the U.S., which has been declining since the housing boom, will continue to decrease for at least the next 15 years. The reason is simple: in the millions of new households forming over the next 15 years, new renters will outnumber new homeowners—causing a sustained surge of rental housing demand that will significantly affect millennials, seniors, and minorities, and expose important gaps in our current housing policies.”

This article courtesy of John Burns Real Estate Consulting. If you have any questions, please contact John Burns at (949) 870-1210 or at jburns@realestateconsulting.com

About The Author

Before founding John Burns Real Estate Consulting in 2001, he worked at a national consulting firm for 4 years and for 10 years at KPMG Peat Marwick – 2 as a CPA and 8 in their Real Estate Consulting practice. John has a B.A. in Economics from Stanford University and an MBA from the University of California, Los Angeles, and works in our Irvine office. John has attended home games for all 30 major league baseball teams, seen every Academy Award-winning Best Picture, and regularly runs the hills in Southern California.