Watch Out for Rent Control in Pasadena and AB-1506! – by Patricia Harris

With permission from AOA (Apartment Owners Association)

Following in the footsteps of tenant groups in Glendale and Long Beach, a Pasadena group has also filed preliminary paperwork to place a rent control initiative on an upcoming ballot.

The Pasadena ballot measure would:

  • establish a city-run rental housing board
  • limit rent increases, and
  • force the city to adopt “just-cause” eviction policies — which would limit the number of reasons a landlord could evict a tenant

Glendale and Long Beach

Ballot initiative for rent control in Glendale and Long Beach were rejected in November of last year.  The petitions were deemed “deficient and invalid” for several reasons.  Submitted petitions did not include the text of the measure, several sections had pages glued and pasted on top of each other, whited out and/or violated the California Election Code. Rent control advocates in both places say they plan on refilling the paper work.

The Southern California cities that have adopted rent control ordinances are Santa Monica, West Hollywood, Los Angeles and Beverly Hills.  Over the last two years, Pasadena, Glendale, Inglewood and Long Beach have begun fighting to add their cities to that list.

AB 1506 – Costa Hawkins Repeal

The Costa-Hawkins Rental Housing Act (“Costa-Hawkins”) is a California state law, enacted in 1995, which places limits on municipal rent control ordinances. Costa-Hawkins preempts the field in two major ways:

  • First, it prohibits cities from establishing rent control over certain kinds of residential units (e.g., single family dwellings, and newly constructed units, which are both deemed exempt).
  • Second, it prohibits municipal “vacancy control”, also called “strict” rent control. In the vacancy control of an apartment, a city’s ordinance works to deny or limit an owner’s ability to increase the rental amount to new tenant(s), even in cases where the prior tenant(s) voluntarily vacated the apartment or were evicted for cause (such as failing to pay rent). In other words Costa-Hawkins, by now prohibiting vacancy control in the above circumstances, mandates that cities allow an apartment owner the right to rent it when vacant at any price (i.e., market price).

AB 156 was the biggest threat to property owners since rent control itself.  It was a proposed measure to repeal a state law that bars rent caps on units built after 1995. If it had passed, it would make it easier for these other cities to enact rent control laws.

Hopefully, they won’t continue to try and get more legal signatures.  In the meantime, tell all of your friends not to sign any of this tenant welfare nonsense when they are approached at the grocery store and other places!

Patricia Harris is Senior Editor of the Apartment Owners Association News and Buyers Guide.0

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.

Following HUD Guidelines on Criminal Background Checks Can Be Problematic – by Deborah Lopez

Reprinted with permission of  the Apartment Owners Association

Screening tenants is a vital part of the job of a landlord or property manager.  While most of the criteria – credit score, income, employment – by which prospective tenants are screened, are straightforward to evaluate, one in particular is not – criminal background.

In order to steer clear of allegations of discrimination by a rental applicant, it’s important to take due care if you use the criminal background check to eliminate a prospective renter

The U.S. Department of Housing and Urban Development (HUD) estimates that as many as 100 million adults in the United States have some sort of criminal record.  Because a disproportionate  number of minorities undergo arrest, conviction and incarceration in this country, using the existence of an arrest or conviction record as part of the tenant screening process for housing often has the effect of discriminating against those groups.  While individuals with criminal records are not a protected class, they can fall under the protections of the Fair Housing Act (FHA).

Last year, HUD released new guidelines on the use of criminal background checks in rental housing.  The guidelines are based on a legal standard upheld last by the U.S. Supreme Court, allowing plaintiffs to challenge rental housing practices that have a discriminatory effect, without having to show discriminatory intent.

In general, not renting to persons with a criminal record may be justified based on the need to protect the safety and property of other tenants.  But there must be a careful examination to prove that any decision made about a prospective tenant will actually advance that goal.  The HUD guidelines provide some dos and don’ts but leave much room for interpretation.

The HUD Guidelines

  • A housing provider cannot justify an exclusion based solely on an arrest record but no conviction.
  • A blanket ban on any applicant with a criminal record is illegal.  Landlords must take a more individualized approach to avoid violating the FHA.  A policy must show that the landlord “accurately distinguishes” between criminal conduct that poses a risk to safety and criminal conduct that does not.
  • A criminal background review must take into consideration both the severity and type of crime and the length of time since the person was convicted and must be decided on a case-by-case basis.  Every situation is unique.  A non-violent crime committed 20 years ago must be treated differently from a violent crime committed more recently.  The only exception is a conviction for drug manufacturing and distribution.  A blanket ban on applicants convicted of such crimes is legal.
  • Other factors must be considered in the evaluation to establish that the landlord is using the least discriminatory policies possible.  Besides the severity and type of crime, the person’s age when convicted, rehabilitation efforts since conviction and tenant history must also be considered.
  • Any intentional discrimination using criminal background as a pretext to deny housing is a violation of the RHA.  For example, a landlord cannot turn down a minority applicant with a criminal record while accepting a Caucasian with a similar record.

Each year, 650,000 people are released from federal and state prisons.  The reality is they all need to find housing.  As rental housing providers, it is important that we apply these HUD guidelines in our tenant screening process.  Giving people with criminal convictions a second chance without jeopardizing the safety of your other tenants is a worthy societal goal.

Deborah Lopez is a SPOSFI business 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.

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.

Legal Analysis of Quiet Title Claims for Apartment Owners and Deed of Trust Holders – By Nate Bernstein, Esq.

Often times we get calls from clients or colleagues who ask us to explain what a “quiet title” action is.  There is no need to be quiet and hush hush about quiet title actions – pun intended!   In fact a quiet title claim is very common claim and cause of action asserted under California real estate law.      This article is an overview of the quiet title claim process for property owners and real estate deed of trust lenders who may have a perceived or real problem with their right, title, and interest to real property in California. 

Everyone should get a “title check up.”  It is in the best interest of all investment property owners and deed of trust lenders to periodically obtain a copy of a preliminary title report from a reputable title company-  you may find items in the title profile for the subject property that are objectionable, fraudulent, or mistakes- these matters should be cleared up.  It is healthy to get a title check up- it leads to good title karma!!

If you are in the real estate investment ownership or real estate lending business, you know that having clear, marketable title to real property is an important component to valuable real estate ownership.   If your title is not clear, or has chain gaps- you cannot sell, refinance, or otherwise leverage your asset.

Clouds on title may impact an owner’s ability to sell or refinance property, and can impact a lender’s rights for title priority and to foreclose on real property.    Clouds on title or mistakes on title can also impact an owner’s ability to evict a tenant – the tenant may claim invalid title as an affirmative defense to an unlawful detainer lawsuit – that is the last thing you want when you are trying to evict a tenant!!

The law provides a remedy for fixing title problems.  Quiet title lawsuits are an important vehicle for deciding real estate title disputes and deed of trust priority disputes under California law.

Legal Procedures for Quiet Title Claims

When you have a dispute as to the state of the title for a residential real property or commercial real property, or an unfriendly person or entity is making a legal or equitable claim against the title, you can file a “quiet title” lawsuit in the Superior Court where the property is located to resolve the claim.   This may be done directly by the party or by the party’s title insurance carrier after a claim is made with the title insurance carrier.   Title insurance companies often times get involved in prosecuting, defending, and settling quiet title actions on behalf of property owners and lenders.   Title insurance companies sell title insurance products to purchasers and lenders.      When a title insured client makes a claim, filing a quiet title action is often times the method to fix a title problem on real property short of paying off the client’s claim or investment.  The goal is to obtain title “as insured” under the title insurance policy.

The quiet title claim can also be brought in conjunction with other claims, such as fraud, a claim for cancellation of an instrument, declaratory relief, injunctive relief, or even equitable subrogation.    Each case is fact sensitive.   In a declaratory relief action, for example, the court has the power to determine the ownership rights of the parties as to an interest in real property as of a certain date.  An opponent can also file a countersuit, also called a “cross-complaint.”   Today you are the plaintiff, but tomorrow you may be the defendant!

As another example, in a quiet title lawsuit, you can also litigate a claim relating to a fraudulently executed or fraudulently recorded deed of trust mortgage document.  That is why it is a good idea to get a title check up to see what is in your title profile.

An action to quiet title is a lawsuit filed to establish ownership of real property (land and buildings affixed to land). The plaintiff in a quiet title action seeks a court order or judgment that prevents the defendant from making any subsequent or conflicting claim to the property.    Quiet title actions are necessary because real estate may change hands often, or there may be a conveyance of a partial interest, and it is not always easy to determine who has title to the property.

In the arena of quiet title litigation, the Court will determine the state of the title as of a particular date, and has the power to “clear title,” remove “the cloud on title,” or make an equitable decision, and, hopefully, resolve the dispute.   Title disputes can be adjudicated in an orderly manner without infighting between neighbors or shouting matches.   By law, in California, juries do not decide quiet title actions- these actions are decided by judges in bench trials.   Thus, there is no right to a jury trial for a quiet title action under California law.  Do you really want 12 jurors with no legal training deciding who owns your apartment building?

Applicable Laws

Under the laws of the most states in the United States, the law of quiet title is governed by state statutes and the case law authorities that interpret the state statutes.    Generally speaking, the law of quiet title in California is governed by California Code of Civil Procedure 760.010-760.060, and the case law interpreting these sections.      Also, underlying substantive laws, may apply as well- such as fraud, or breach of contract, the laws of recording and conveyances,  or the laws of probate.

When quiet title lawsuit is filed, the plaintiff is required to record a lis pendens at the County recorder’s office.    The term “lis pendens” is a Latin term for “action pending.”  The lis pendens provides notice in the title profile of a particular property that a lawsuit is pending, and that any subsequent grantee, subsequent purchaser, assignee, or lender, takes title subject to the claim.   Generally, a lender will not make a loan secured by a title that is subject to a “lis pendens” recording.  For the basic statutory procedural requirements for handling a lis pendens, please review California Code of Civil Procedure 405-405.24.

The quiet title action is important, if an owner or secured lender wants to determine that he or she has superior rights to the title of a particular parcel of real property in comparison to other claimants or potential claimants.  Secured real estate lenders often seek to establish title profile priority for its deed of trust by filing a quiet title action and adding a claim for declaratory relief.    Establishing a clear and marketable title is also crucial for receiving future financing, or for making a marketable future transfer by deed, trust, or will.     It is also an important foundation to have clear title if you start an eviction lawsuit- also known as an unlawful detainer action.   If title is not clear, how can the person complete an eviction with confidence?     Possession follows rights to clear title!

Quiet Title Actions are “Fact Specific” –  

Most Actions Settle But Some Proceed to Trial 

In reality, most quiet title lawsuits and related claims are settled after the case is filed and prior to trial.   Cases sometimes settle in mediation, at a settlement conference, or through professional communication and compromise between the parties and their attorneys.   If quiet title cases don’t settle “out of court,” these claims are decided by judges in bench trials every day.  So you need to be prepared to try your case if the case does not settle.

Other times, when the defendant fails to defend the action, a default is filed and the plaintiff has to prove up the default with live testimony in Court.   Because of the intricacies of the court process, parties should retain experienced counsel to represent their interests in a quiet title action.

This article is a capsule overview, and each quiet title claim should be treated specifically to address the specific facts and circumstances of the situation.   Questions should be directed to Los Angeles Real Estate Law Group at (818) 383-5759.  

Nate Bernstein

Nate Bernstein, Esq., is the Managing Counsel of LA Real Estate Law Group, and a member of the State Bar of California and his practice concentrates in the areas of complex real estate litigation, commercial litigation, employment law, and bankruptcy matters.  He is a 22 year veteran Los Angeles real estate and business attorney and trial lawyer.   Mr. Bernstein also has expertise on bankruptcy law, the federal bankruptcy court system, creditor’s rights and debtor’s bankruptcy options and created www.laquiettitleattorney.com a leading educational resource on quiet title real estate litigation.   For more information, call (818) 383-5759, or email natebernstein44@gmail.com

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.

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