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

Can I Say No to Pot in My Apartments When it is Legal in my State? – by John Triplett

With permission from AOA (Apartment Owners Association)

California just became the world’s largest legal marijuana market. When pot is legal in a state, what issues does this present to property managers and landlords of rental properties? Property managers are often confused and seeking to better understand how to handle the issues of legal marijuana and medical marijuana when it comes to tenants and rental housing in their states.

Laws are changing all the time in many states, just as California did on January 1, 2018, as voters approve different levels of permission when it comes to marijuana. This leaves property managers trying to figure out what should be in their leases around the issue.

You may be able to ban smoking, but do you really know what your tenants are eating or growing in their apartments? Do you really want to know if they are good paying tenants?

Rental Housing Journal did a recent interview with Seattle, Washington attorney Bret Sachter, an expert in tracking the progression and transformation of marijuana laws, to discuss some common questions property managers have about marijuana and tenants.

“I’ve been asked this a lot,” Sachter said, “but it does not come up as often as you might think. The overarching issue here is that, with few exceptions, people can do what they want to protect their property, even if the prohibited behavior is not illegal. You can prohibit smoking, prohibit pets, but with marijuana it’s much easier because it is federally illegal. So you can pretty much prohibit it if you want to no matter what, even medical marijuana,” Sachter said.

4 Questions About Pot, Tenants and Apartment Leases

Sachter says in terms of Fair Housing issues, and the U.S. Department of Housing and Urban Development (HUD) it is a situation where HUD wants it in the lease that marijuana is illegal but enforcement is another issue, he said. It is not so much that HUD wants landlords to evict over marijuana, but that you have something in the lease language that allows for eviction in the instance of marijuana use on the property. “So it is pretty clear as far as HUD is concerned,” he said. Here are his answers to four questions on pot and apartments.

  1. 1.     Tenants With a Disability and Medical Marijuana

Question: If a tenant comes in and says I have a disability, here is a note from my doctor, I use medical marijuana, which is legal in this state, and I want to rent your apartment. Can a landlord prohibit that?

Answer: “A landlord can absolutely prohibit that because marijuana is illegal under federal law.” The landlord can say, “I understand our state allows medical marijuana but it is still a Schedule 1 drug and I prohibit it on my premises.”

  1. 2.     Marijuana is Legal in My State – But What Does the Lease Say?

Question: What if a tenant says marijuana is legal and they should be allowed to use it?

Answer: “If your lease prohibits smoking and prohibits use of illegal drugs, then the legality of marijuana at the state level is irrelevant because under federal law marijuana is illegal. If your lease does not have those types of clauses, you should talk to an attorney in your state or city to find the best solution for your lease.” There is no law about reasonable accommodation for marijuana users, federal laws do not require it. As far as the federal government is concerned it is not ok.

“One thing I would say, and it is important, I would encourage landlords just to make everything clear,” in the leases, he said. “Clarify in a lease that you must abide by all laws both state and federal.” That is the case in residential. He said it can be different in commercial.

“But in residential it is not as tricky, and I am speaking very generally here,” Sachter said. “The states may have their own thing going on with legal marijuana laws, but it is still federally illegal. Make it crystal clear in your leases is my best advice,” he said. “How can you attract tenants in a state where it is legal yet protect the owners of the property? You cannot have it both ways.”

“I know in Seattle there are Airbnb bed and breakfasts that specifically market themselves accordingly, as part of marijuana tourism to come and stay in our place where it is legal.” But if a property manager doesn’t want that going on, then they have to be up front in the lease.

“If your tenant is Airbnbing to a tenant who is then using marijuana – well if you can’t catch them you cannot do anything about it. You have to prove they are doing this.  They are going to be using marijuana regardless of what the lease says.”

  1. 3.     What if the Tenant Using Marijuana is a Well-Paying, Good Tenant?

“Landlords can certainly put a no-waiver clause in the lease. If I say, ‘Here is a list of prohibited things’ and if you do these prohibited things in the lease, you are subject to eviction,” he said.

“However, any time I waive any of these things does not constitute an overall waiver. It basically means you should not ever do it again,” he said. “Just because you get away with it once, does not mean you get away with it every time,” Sachter said.

  1. 4.     Can I say ‘no pot in my apartment

“Usually if you say, ‘No pot in my apartment’ and you find a tenant using marijuana and you haul them into court, more than likely the judge is going to say, ‘Have you stopped?’ to the tenant and ‘Are you going to do it again?’ and the tenant is going to say ‘No.”  And then judge will say, ‘Ok, dismissed.”

To put a more legalistic term on it, usually a court will be in favor of “allowing the tenant to cure the defect,” rather than evict for most things like that, Sachter said.

Technically, in Washington, a landlord would serve a 10-Day notice to comply or vacate with the terms of the lease.  This process, therefore, gives the tenant a chance to “cure” the violation before the landlord can evict. Check your local state laws on this.

 

What One Experienced Property Manager Says About Pot

Sam Driver, Product Director for Buildium.com, and an experienced property manager, said as far as marijuana use in apartments, due to the newness of the legislation, the federal laws that supersede state and county laws, and liability concerns, it is not a topic that comes up a lot – yet.

“Generally, the safest solution is to choose the most conservative path-impose a no-smoking policy, which can in some cased cover outside areas, and a crime provision that includes local, state and federal laws. In many states, there are setbacks from doors, and it is particularly important if the building is a place of work which a multi-unit apartment building certainly is. So your lease should contain a provision explicitly banning smoking and illegal activity. Because the feds still outlaw it, this should be sufficient,” Driver said.

“This of course only covers the smoking angle. If a resident consumes it in another way, you’d likely never know,” he said.

 

Growing Marijuana Could Put a Power Load on Your Apartments

“As for growing, that’s less clear. But in general, unless the electrical system is designed for it, the loads grow lights put on the apartment unit could be excessive. I’d consider a reasonable use clause that specifies all high load equipment, including lights, air conditioners and any kind of pump be approved by you.

“This would put you in a position to take action if they are putting too much load, without specifically calling out the use of the equipment. Pumps are a good area for monitoring, because of the intermittent load, they trip breakers, and anyone who is using a hydroponic system would need several,” Driver said.

 

What if I Want to Market My Apartment to Marijuana Users?

“If, however, you wanted to roll the dice and market to this crowd assuming your state laws allow it, remember that the federal laws would cover any bank deposits from proceeds,” Driver said.

“In this case, you’d be able to do it, assuming no federal intervention, in compliance with local laws. No insurer would provide EO&E (errors and omissions excepted) insurance to you, and you wouldn’t be able to deposit any funds into a federally-accredited bank. So you’d have to self-insure, and run an entirely cash business, but you could do it, risking only federal enforcement.

“The big question is, ‘Would the premium rents be worth the risk of forfeiture?’ If you run afoul of the federal drug laws, the asset seizure possibility is a huge risk. You could lose the building.
“If you’re managing other owners’ properties, then you’d be risking their assets even if you used different leases, unless you kept fully separate books, bank accounts, and co-mingled nothing. So I’d say it would be all-or-nothing,” he said.

“The timing is tricky, too. Leases contain a provision that stipulates that the contract is in force in a specific jurisdiction. If they change the laws rendering your lease out of compliance, what happens during the remaining time of the lease? Is it invalidated? Or does the contract remain in force until it expires? “Good questions for your lawyer,” Driver said.

Rich Triplett is a writer for the RentalHousingJournal.com which is an interactive community of multifamliy investors, independent rental home owners, residential property management professionals and other rental housing and real estate professionals. It is the most comprehensive source for news and information for the rental housing industry. Their 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.  

What Landlords Should Know About Section 8 – Myths vs. Facts – by Kristin Maithonis

With permission from the Apartment Owner’s Association (AOA)

The Housing Choice Voucher Program (commonly known as Section 8) is a federally funded program providing monthly rental assistance to very low income tenants renting units in the private market. The rental assistance is provided through a local housing authority.

Myths about the Section 8 program continue to prevent Section 8 participants from finding landlords willing to rent to them. Below is a list of common misconceptions about the program to help you make a more informed decision about whether to give a Section 8 tenant a chance.

Myth: Section 8 tenants are problem tenants.

Fact: Most Section 8 tenants live in the same place over a long period of time (7-8 years on average). You should screen a Section 8 tenant the same way you screen all other tenants. By conducting thorough and consistent screening, you are less likely to end up with a problem tenant, Section 8 or otherwise.

Myth: If you accept one Section 8 tenant, then all your units must be rented to Section 8 tenants.

Fact: If you own multiple units, you may choose to have one or more of your units occupied by Section 8 tenants. Just because you accept one Section 8 tenant does not mean that you have to rent your next available unit to a Section 8 tenant. If a Section 8 tenant moves out, you are not required to rent the vacant unit to another Section 8 tenant.

Myth: The landlord is responsible for a lot of paperwork.

Fact: Most of the paperwork the landlord is required to complete is at the beginning of a new lease. This paperwork includes the Request for Tenancy Approval form, W-9 form, Lead Warning Statement and Lease Agreement. The Housing Authority will assist with completion of these documents if needed. From time to time, the landlord will receive letters, amending the rent portions, inspection reports, newsletters, and other program materials. The landlord does not need to complete these forms.

Myth: You cannot evict a Section 8 tenant.

Fact: If a Section 8 tenant has violated your lease agreement, you may evict the tenant in accordance with State law. Please note that if you want a tenant to move after the initial term of the lease but do not want to state the cause for the termination of tenancy, then you must give the Section 8 tenant a 90-day written notice. When a notice without cause is issued, the Housing Authority will provide the tenant with a new voucher to relocate.

Myth: The Housing Authority has very tough inspection requirements.

Fact: The Housing Authority inspects the unit before a contract is signed with the landlord and annually or bi-annually thereafter. The Housing Authority checks the unit for any health and/or safety problems. The Section 8 inspection is not a code enforcement inspection. The Housing Authority checks the working order of smoke detectors and carbon monoxide detectors, water heaters, appliances, exits, window and door locks, fans, outlets, plumbing fixtures, heaters, and light fixtures.  The presence of trip and fall hazards, structural defects, rodents or roaches, peeling paint, excessive dirt or clutter, broken windows and the like are also checked. These are all items that most landlords would want to inspect themselves before renting a unit.

Myth: Evicting problem tenants on Section 8 does not accomplish anything.

Fact: The tenant may lose their Section 8 Voucher if they are evicted for lease violations. This ensures that problem tenants are not recycled to other unsuspecting landlords and acts as an incentive for participants to comply with their leases in order to continue participation in the program. Once a participant loses their Section 8 assistance, it is very difficult, if not impossible, to get back on the program.

Myth: Section 8 tenants are all on welfare and do not contribute to society.

Fact: Section 8 tenants come from all walks of life. In California, 61% of Section 8 participants are elderly or disabled, and 33% of Section 8 households are wage earners. Most housing authorities offer participants a chance to participate in the Family Self Sufficiency (FSS) Program. The goal of FSS is to assist participants with obtaining the education and skills they need to secure high wage jobs, start their own businesses, move off of assisted housing, and become homeowners.

Myth: The landlord cannot raise the rent.

Fact: Landlords may raise the rent for a Section 8 tenant after the initial lease term with proper written notice to the tenant and the housing authority. The housing authority does not have a pre-determined annual percentage rent increase. The rent increase requested must be reasonable when compared with similar units in the neighborhood. For multi-unit buildings, the rent for the Section 8 unit cannot be the highest rent in the building.

Section 8 vouchers help low-income people in your community afford a decent place to live. Without landlord participation in the program, more people would be forced to live in overcrowded and unsafe conditions or on the streets. For more information about how you can benefit from being a Section 8 landlord, please contact your local housing authority. To locate your housing authority, visit the U.S. Department of Housing and Urban Development website at https://portal.hud.gov/hudportal/HUD?src=/states/california/renting.

 

Kristin Maithonis, is Housing Manager for the City of Norwalk Housing Authority and former President of the California Association of Housing Authorities.

A Whopping 130 Housing Bills Make for a Very Busy 2017

Reprinted with permission of the Small Property Owners of San Francisco Institute.

State legislators are sponsoring a record setting 130 housing-related bills during this legislative session. Below are the most important. 

Abolishing the Costa-Hawkins Act

AB 1506 (Bloom, D-Santa Monica, Chiu (D-San Francisco) and Bonta (D-Alameda), would repeal the state Costa-Hawkins Rental Housing Act, giving all cities and counties the power to impose rent control ordinances, including vacancy control without limits. The bill’s authors decided not to move forward with the bill in 2017, but will take it up again in 2018. Position: Oppose 

Weakening the Ellis Act

AB 982 (Bloom, D-Santa Monica), would expand the number of tenants entitled to receive a year’s notice from a landlord before that owner closes a building as allowed under the Ellis Act. Under current law, tenants who have lived in the unit for at least one year and are at least 62 years of age or are disabled are entitled to a year’s notice. Other tenants are entitled to a 120-day

notice. AB 982 would extend the one-year notice requirement to all tenants, regardless of age or disability. Position: Oppose 

Undercut the Bonus Density Law

AB 915 (Ting, D-San Francisco) would allow San Francisco to count added density bonus units when calculating the total number of affordable units required for a development. The state’s density-bonus law incentivizes developers to include affordable housing in their projects. In exchange, developers get to build more market-rate units, helping their projects “pencil out.” AB 915, however, would force developers to price a portion of their density-bonus units at below market rate, thereby removing the very incentive that these bonuses are intended to create. The bill would undercut the state’s density-bonus law and make housing in San Francisco even more expensive. Position: Oppose 

Labor-Related Bill Onerous to Rental Industry

AB 1008 (McCarthy, D-Sacramento) would make it unlawful for an employer to include on an employment application any question that seeks disclosure of an applicant’s criminal history, and bars employers from asking about any convictions until the employer makes a conditional job offer. The ability to screen for past criminal activity is particularly important in the rental housing industry, as employees work around children at rental properties and are granted access to tenants’ units and personal possessions. Position: Oppose 

Curbing Ballot-Box No-Growth Measures

AB 943 (Santiago, D-Los Angeles) would require a ballot measure proposed by the voters to curb, delay, or deter growth or development to be approved by 55% of the voters instead of a simple majority. Position: Support 

Fast-Tracking Housing Construction

SB 35 (Wiener, D-San Francisco) would move housing more quickly through the building permit process when developers meet certain standards. Position: Support 

SB 540 (Roth, D-Riverside) would streamline the approval process to spur housing construction by having cities identify where housing needs to be built and adopting specific, upfront plans and conducting all necessary environmental reviews and public engagement. Position: Support 

Boosting Housing Near Public Transit

AB 73 (Chiu, D-San Francisco) would incentivize local governments to complete upfront zoning and environmental reviews, and rewards them when they permit housing on infill sites around public transportation. Position: Support 

Encouraging Affordable Housing

SB 2 (Atkins, D-San Diego) would establish a permanent funding source for affordable housing through a $75 fee on recorded documents; it exempts owner-occupied residential real-estate sales. Position: Support 

SB 3 (Beall, D-San Jose) seeks to provide $3 billion through a statewide housing bond to fund affordable housing programs in California. Position: Support 

SB 62 (Jackson, D-Santa Barbara) would create the Affordable Senior Housing Program under the Department of Housing and Community Development to guide the development of affordable senior housing dwelling units. Position: Support

AB 291 – IMMIGRANT TENANT PROTECTION ACT

California Apartment Association

Gov. Jerry Brown has signed a bill that will deter landlords from discriminating against any tenant based on their immigration status. AB 291, introduced by Assemblyman David Chiu, D-San Francisco, is set to protect tenants from unethetical landlords who seek to intimidate them by threatening to report them to immigration authorities, or those who seek to acquire possession of the premises based off a tenants’ inability to provide proof or documentation of their immigration status. [ Learn More ]

Landlord to Pay $20,000 to Settle Pet Discrimination Case – by the Editors of Rental Housing Journal

Reprinted with permission from AOA.

The owner of several Reno, Nevada apartment complexes has agreed to pay $20,000 to settle allegations of  pet discrimination and Fair Housing Act violations involving requiring pet deposits from prospective tenants who require assistance animals, according to a release.The Silver State Fair Housing Council filed four complaints against the owner and manager of Silver Lake Apartments, Vale Townhomes, Oak Manor Apartments and Angel Street Apartments with the U.S. Department of Housing and Urban Development (HUD).  These complaints allege ERGS, Inc. and Silver Lake Apartments, LLC discriminated against prospective tenants who required assistance animals by requiring applicants who required support animals to pay a pet deposit fee.

Under the conciliation agreement, ERGS, Inc. will pay Silver State Fair Housing Council $20,500.  ERGS, Inc., and Silver Lake Apartments, LLC, will also adopt written policies that are consistent with the Fair Housing Act and provide fair housing training for all employees who interact with tenants or applicants. Kate Zook, executive director of the Silver State Fair Housing Council, told Rental Housing Journal that a woman with an emotional support animal had tried to apply at the apartments and was told they do not accept pets. The Silver State Fair Housing Council did follow-up testing on emotional support animals and rentals at the apartment complexes. She said they found, “People with emotional support animals were told they do not qualify as a service animal.”

The organization then filed the complaint against the owner and managers of the apartment complexes.

“I hate filing cases,” Zook said. But she said unfortunately sometimes it takes publicity about these issues to get people’s attention. “It is too bad. Somebody has been hurt in this.”

Both Fair Housing Act and Americans with Disabilities Act can apply in these situations.

In addition to the Fair Housing Act’s protections, HUD provided guidance in April 2013 reaffirming that housing providers must provide reasonable accommodations to people with disabilities who require assistance animals.  

Pet Discrimination and Disability

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

HUD writes in the notice that, “An assistant animal is not a pet. It is an animal that works, provides assistance or performs tasks for the benefit of a person with a disability, or provides emotional support that alleviates one or more identified symptoms or effects of a person’s disability. Assistance animals perform many disability-related functions, including but not limited to, guiding individuals who are blind or have low vision, alerting individuals who are deaf or hard of hearing to sounds, providing protection or rescue assistance, pulling a wheelchair, fetching items, alerting persons to impending seizures, or providing emotional support to persons with disabilities who have a disability-related need for such support. For purposes of reasonable accommodation requests, neither the FHA nor Section 504 requires an assistance animal to be individually trained or certified.”

Housing providers are to evaluate a request for a reasonable accommodation to possess an assistance animal in a dwelling using the general principles applicable to all reasonable accommodation requests. After receiving such a request, the housing provider must consider the following:

  • Does the person seeking to use and live with the animal have a disability — i.e., a physical or

mental impairment that substantially limits one or more major life activities?

  • Does the person making the request have a disability-related need for an assistance animal?  In other words,

does the animal work, provide assistance, perform tasks or services for the benefit of a person with a disability,

  • or provide emotional support that alleviates one or more of  the identified symptoms of a person’s existing disability?

If the answer to those two questions is “yes,” then the housing provider is to modify or provide an exception to a “no pets” policy.

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.

Don’t Let Your Estate Plan Be a Hazard for Your Family! – by Kenneth Ziskin, Attorney

Reprinted with permission from AOA.

My wife, Hinda, who helps me with planning for clients, and I  have been lucky enough to meet hundreds of wonderful apartment owners though the AOA seminars we have done throughout California.  The majority of them planned ahead years ago and build living trust based estate plans to protect their families.

Unfortunately, almost all the plans we reviewed (some just a few years old, and some decades old) have now become “HAZARDOUS TO FAMILY WEALTH.”

Many of these “hazards” result from changes in the tax environment which were not anticipated when plans were originally drafted.  Others result from changes in the family.  Many others just reflect the growth in family wealth, which is a “good problem” to have.  And, a few of the “hazards” are the result of “one size fits all” drafting which, without customized planning, rarely optimizes for “your” goals and unique situation.

The vast majority of our apartment owner clients had a net worth of only a few hundred thousand dollars when they started out.  So, it was hard for them to justify the cost of doing good planning and their main goal was probate avoidance.

However, today, the vast majority have built multi-million dollar portfolios, which DO justify the cost of careful, customized planning.

Changes in the Tax Environment

Most of the old (and, sometimes, not so old) plans we review for apartment owners focused on avoiding probate and making sure that estate tax exemptions were optimized.

But, major changes in estate/death taxes, income taxes and the effect of property taxes have now made it more important for most owners to focus on the income and property tax consequences of their estate plans.

  • First, the lifetime exemption (now, an exclusion) from estate and gift taxes grew from $600,000 in 1997 to $5.49 MILLION in 2017!  That means a married couple can now pass nearly $11 million to their heirs free of estate taxes.
  • Second, the estate and gift tax rate on wealth over the exemption actually fell from 55% to 40%.
  • Third, one spouse was finally allowed to leave his or her exemption to the other spouse (we all this “Portability”).
  • Fourth, the top Federal income tax rates rose from 35% in 2003 to 43.4% in Obama’s second term (including the “Net Investment Income Tax”).
  • Fifth, adding insult to injury, California increased its top rate from 9.3% to 13.3%.
  • Sixth, while property tax exemptions under Prop 13 did not change much, massive inflation in income property values made it important to preserve and maximize your ability to prevent reassessment when you die.

Combining all of these factors meant that most apartment owners, even after inflation, no longer needed to worry about estate and gift taxes.  Those who did need to worry (we think this is about 25-30% of our owner clients) faced less estate and gift tax exposure, both due to the increased exclusion from tax, and the reduced rates. 

Changes in the Family

Many old plans were written when owners’ children were still in school, or had not yet built their own families.  So, they gave little thought to how wealth should be left to maximize benefits for adult children and for grandchildren. Rarely was any effort made to protect the inheritance for generations from creditors and predators (i.e.potential ex-spouses!).  

Changes in Wealth

Very few old estate plans anticipated leaving as much wealth as our clients now expect to have.  In many cases, the amount of wealth could now, if not properly handled, change the life of heirs in a negative way, destroying incentives and motivations for heirs.

Lack of Customized Planning

Good estate plans need to be customized to meet your goals.  That requires your estate planning lawyer to help you understand your planning options, tease out your goals and desires, help you make important planning decisions and then take the time to draft customized documents to get results you want for your family.

Very few lawyers have the experience to do this while focusing on the special needs of California apartment owners.  Furthermore, even those who have the experience often price their services at a level that discourages them from spending the time with clients that is needed to do really good planning and draft custom documents.

However, given the larger estates that apartment owners now have or expect to have at life expectancy, good planning is now much more important than ever before.  Now, larger estate sizes, the benefits of good planning more than justify the cost.

Most Common “Hazards”

While we do see some well written trusts, most of the time we see some combination of the following hazardous features (as well as others which appear less often) in trusts and related estate plans that we review.

  • Trusts for married couples that mandate funding of a credit shelter, bypass, exemption or “B” trust.  This then prevents getting a second increase in income tax basis when the surviving spouse passes, and can cost millions in unnecessary capital gains taxes for your heirs.  With “portability” of your estate tax exclusion between spouses, this “old style” planning is no longer necessary to save estate taxes for most couples.
  • Failure to properly document that jointly owned property, (even in the trust) as community property so that both halves get a new, higher income tax basis when either spouse dies.
  • Failure to structure the trust so that the property tax exemption of the first spouse to die can be passed to children after the second spouse’s death.
  • Failure to structure property ownership in the trust to avoid reassessment even when the first spouse dies.
  • Failure to protect assets left for a surviving spouse from creditors.
  • Failure to protect the surviving spouse from undue influence that can redirect property away from your natural heirs.
  • Use of LLCs or partnerships to hold buildings in ways that cause unnecessary increases in property taxes on the first or second death.
  • Failure to provide enough flexibility in your trust regarding allocations of income and principal which can, in turn, lead to higher income taxes after your demise.

Sound Estate Planning Is Also About Opportunities to Better Benefit Your Heirs

We get great pleasure when we can help clients articulate not just what they will leave to heirs, but howthey will leave it in order to enhance the lives of their heirs.

In some cases, that means combining protection from creditors and predators, with provisions that will prevent heirs from misusing their inheritance before they develop enough maturity to manage it themselves.  None of our clients want their children or grandchildren to be “spoiled” by their inheritance, or to dissipate a substantial inheritance early in life and wind up impoverished in later years.

This almost always requires a lot of discussion with property owners about their goals and family.  Then, we teach them about some of the ways they can fulfill such goals.  Finally, we spend significant time doing custom drafting to reflect the decisions the owners made.  And, we follow that up with explanations of the drafting to make sure it reflects the owners’ desires.

Sometimes this includes provisions to encourage or mandate keeping some or all of the family real estate business together, either for a period of time or permanently.

It can also include provisions that help pass values about hard work, accomplishment, thrift or even community service to your heirs.

The fact is, the opportunities to benefit your heirs, protect them and pass values are only limited by your imagination.  We get great satisfaction from educating our owner clients about strategies that have worked for other clients (or not worked) in order to help them think about their planning choices 

Opportunities to Enhance Benefits During Your Life

Although most estate planning revolves around benefits for your heirs, it also provides strategies to help you live a better life yourself. This can include strategies to enable you to sell property without paying capital gains taxes.  One of those strategies is the Capital Gains Bypass Trust (“CGBT”).  We wrote about CGBTs in the July, 2016 issue.

For most owners, with properties valued at currently low cap rates, a CGBT can avoid current taxes on the sale of appreciated buildings (some of which can otherwise face income taxes of nearly 40%).  If can also substantially INCREASE currently spendable cash flow, obtain income tax deductions that can offset gains or income from other properties and give substantial financial and non-financial benefits to your heirs.

Just as important to many clients, the CGBT can enable them to get rid of the burdens of property management.

The upcoming seminar in Torrance will explore the CGBT strategy in greater detail, and include new material on how to use it even for properties that are encumbered with debt.  The seminar will include case studies to help pique your interest and understanding.

Make Your Estate Plan Work Well for Your Family

Making your estate plan work well begins with understanding the planning you have and your planning opportunities.  Generally, this should begin with having an experienced estate planning attorney who understands, and works regularly with, the problems and opportunities of apartment owners.

But the real key is good planning.  That is why my motto is: “If you fail to plan (well), plan to fail”.

The tax environment, your wealth, and your family have probably changed a great deal since you completed your planning.  The odds are high that your existing plan does not reflect your current goals for your wealth, nor does it avoid tax risks that changes in the law and your situation have produced.

In order to prevent your estate plan from being a HAZARD to you and your family, get your estate planning reviewed now by a lawyer who will help you articulate your goals, and then put your goals first in any planning you want done.  You will get peace of mind, and your heirs will gain substantial benefits.

To learn more, register to attend Ken Ziskin’s seminar on “Estate Planning for Apartment Owners”: 

These seminars will include coverage of the Trump proposals to change income taxes on apartment owners. Ken also offers FREE CONSULTATIONS FOR AOA MEMBERS. To register for one of these seminars, call (800) 827-4262 today! 

Kenneth Ziskin, an estate planning attorney, focuses on integrated estate planning for apartment owners to save income, property, gift and estate taxes.  He holds the coveted AV Preeminent peer reviewed rating for Ethical Standards and Legal Ability from Martindale-Hubbell, a perfect 10 out of 10 rating from legal website AVVO.Com, and is multiple winner of AVVO’s Client Choice Award. .  See Ken’s website at www.ZiskinLaw.com or call (818) 988-0949.  This article is general in nature and not intended as advice for clients.  Please get advice from counsel you retain for your own planning.

The Legality of Using Criminal Background Checks in Light of HUD’s 2016 Guidance Memo – by Eviction Attorney, Michael A. Brennan

With permission from AOA

In April, 2016, HUD issued a Guidance Memo concerning the applicability of the Fair Housing Act to the use of information found in criminal background checks to deny housing to applicants with criminal histories. While some believe the Guidance Memo has raised more questions than answers, the truth is that landlords may still use criminal background checks for screening purposes and will not likely face any liability for doing so, provided they follow the requirements set forth therein.

While space limitations prevent an in-depth analysis of the topic, this article will address several key topics in connection with the use of criminal background checks during the screening process, including those criminal background policies strictly prohibited by Fair Housing, those specifically permitted, how to narrowly tailor your policies in connection with the use of criminal background checks, strategies to use when developing your screening policy, and a few mistakes to avoid to diminish the likelihood that you will be found to have discriminated when you do, in fact, deny an applicant housing due to their criminal past.

HUD’s Prohibited Practice

HUD has a single prohibited practice in connection with criminal background checks. Simply stated, landlords are strictly prohibited from using “arrests” without a corresponding conviction as a basis for denying housing to an applicant. The basis for the prohibition is that arrests are simply that; an arrest. Without a corresponding conviction, an arrest means nothing more than the applicant was suspected of committing some type of infraction or crime. The theory is that without a conviction, the individual is, theoretically, innocent.

The problem I see with that belief is that there are a multitude of reasons an individual could be arrested but not convicted when, in fact, they were guilty. For example, there are pretrial diversion programs which place otherwise guilty people on probation and, provided they don’t get in any trouble during their probation period, the case is dismissed. Additionally, it is not uncommon for someone to be arrested yet not tried in exchange for their cooperation with the prosecutor in landing a “bigger fish”. Regardless of the above situations, the use of arrests without corresponding convictions as the basis of a denial is prohibited.

HUD’s Permitted Practices

HUD’s Guidance Memo states landlords may deny housing to an applicant based on two specific convictions; the “manufacture or distribution” of a controlled substance. It is important to be aware of the fact that a conviction for anything other than the “manufacture or distribution” (e.g., the “use” of a controlled substance) does not, by itself, substantiate a denial of housing.

Developing Narrowly Tailored Policies & Criteria

Assuming an applicant’s criminal background check reveals one or more convictions for something other than “the manufacture or distribution of a controlled substance” the landlord will be required to go through an analysis of the conviction to determine whether it justifies a decision to deny the applicant.

In order to deny housing to an applicant based upon convictions revealed by a criminal background check, landlords must first develop “narrowly tailored” policies which demonstrate that the “narrowly tailored” policy “accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property, and criminal conduct that does not.” In other words, landlords must show that their policies are effective at denying housing only to those applicants with convictions for crimes that create a risk to the other tenants in the building and/or property. For example, a policy which denies housing to an applicant convicted of assault and battery, but allows an applicant with a conviction for “possession of marijuana” would likely be acceptable to HUD, since “assault and battery” can be shown to present a direct threat to the safety of the other tenants, while “possession of marijuana” poses little threat, if any.

A short list of crimes for which a denial of housing would likely be acceptable to HUD might include assault & battery, domestic violence, rape, murder, and mayhem, to name a few. Additionally, since HUD appears to recognize a need to protect the safety of both “resident[s] and/or property” arson, vandalism, and grand theft of property might likely be acceptable categories as well.

Finally, it would serve landlords well to consider their approach to white collar crimes. For example, can a landlord demonstrate that a conviction for, say, identity theft, is a direct and/or “demonstrable risk to resident safety and/or property”? While you and I can see how an individual convicted of such a crime could easily pose a risk to the security of the neighboring tenants, is that enough to use as the basis for denying that individual housing? My position is that under the normal circumstances surrounding identity theft, the answer is “yes”. Here you have an individual who is surrounded by other tenants, who all receive mail in a centralized area, share a central trash bin, and receive packages in close proximity to each other. So, for me, this would be a crime for which a conviction would disqualify an applicant.

Factors to Consider for Each Conviction

In addition to developing policies regarding which specific crimes will support a decision to deny an applicant, HUD requires that the use of criminal convictions to deny housing to an applicant must be determined on a “case by case” basis. In other words, even where an applicant has been convicted of a crime for which it can be shown that a “demonstrable risk to resident safety and/or property” exists, the landlord must go further and look at the specific facts and circumstances surrounding the conviction. In fact, criminal screening standards must take into account: 1) the “nature and severity” of the conviction; 2) The length of time between the conviction and the application; and, 3) The landlord must conduct an “individualized assessment” of each applicant, considering “relevant mitigating information” such as: a) the facts or circumstances surrounding the criminal conduct; b) the age of the individual at the time the conduct occurred; c) evidence that the individual has maintained a good tenant history before and after the conviction or conduct; and d) evidence of rehabilitation efforts.

For example, a conviction for simple battery can be either a misdemeanor or felony. When reviewing an applicant’s conviction for battery, landlords would be wise to look deeper into the situation. For example, was the conviction based on spitting on someone’s food (in California, such action can lead to a conviction for battery)? Or, on the other hand, was the conviction for beating a motorist in a fit of road rage (which would be charged as a felony)? Has the applicant just been released from incarceration? Or did the conviction take place 20 years ago when the applicant was 18 years old?

As you can see, simply having a policy which sets forth the convictions for which you intend to deny an applicant is not enough to meet HUD’s guidelines. Even where those convictions can be shown to present a “demonstrable risk to resident safety and/or property” when looked at in a vacuum, landlords are still required to analyze the various circumstances and situations surrounding the conviction before implementing a blanket policy of denying an applicant convicted of that specific crime.

Strategies to Think About

While it is clear that landlords may no longer apply blanket restrictions to deny housing to applicants with criminal backgrounds, landlord are still permitted to use criminal background checks as a screening tool. Below are some strategies that can be used to limit the risk of liability for claims of discrimination based on a denial of housing to an individual with a criminal history.

First, if you intend to conduct criminal background checks, take the time to develop very specific policies on the convictions and their connected situations and circumstances for which you will deny an applicant housing. While this may initially be time consuming, the ability to provide such policies in the event of a Fair Housing investigation will demonstrate that you have at least attempted to comply with the requirements by developing your narrowly tailored policies.

Second, implement a policy under which your non-criminal-related screening criteria are considered first, before resorting to criminal background checks in your screening process. In other words, run your standard criteria first. If the applicant doesn’t qualify under the regular screening requirements, (e.g., 2.5 times the rent in gross monthly income, a minimum FICO score, acceptable and verifiable credit and tenant histories, etc.) then there is no need to rely on the information found in a criminal background check to deny the applicant. Rather, base your denial on the inability of the applicant to comply with the standard screening criteria instead. By doing so, you would be able to prove that criminal history never even came into the picture and, therefore, no disparate impact discrimination could have occurred.

Mistakes to Avoid

When contemplating the use of criminal background checks as part of your screening process, avoid making the following mistakes:  1) denying applicants based solely on arrest records; 2) using blanket prohibitions such as denial of housing to persons with any type conviction; 3) denying housing for less serious convictions such as infractions and misdemeanors; 4) failing to review the conviction on a case by case scenario in which you consider the mitigating circumstances and factors; and, 5) keep the decision making in connection with your policies and case by case analysis to owner or upper level management rather than onsite managers. Leaving such decisions to the discretion of an onsite manager may result in disastrous results. Instead, require the onsite managers to submit the applications to the owner or supervisor to assure the acceptable policies and procedures are being implemented.

Conclusion

In conclusion, landlords are, in fact, still permitted to use criminal background checks as part of their screening process, and they are still permitted to use information discovered in those background checks to deny housing to applicants with a criminal history. However, HUD’s Guidance Memo, while not “law”, sets forth prohibitions and acceptable policies in connection with the use of criminal background checks. While landlords may not deny housing for mere arrests in an applicant’s background, they are specifically permitted to deny housing to those convicted of the “manufacture and/or distribution of a controlled substance”. Additionally, landlords may deny housing to applicants convicted of various other crimes, provided three criteria are met, namely: 1) the policies as to which crimes will be used to deny housing are “narrowly tailored” to “accurately distinguish between criminal conduct that indicates a demonstrable risk to resident safety and/or property, and criminal conduct that does not”; 2) the landlord conducts a “case by case” analysis taking into consideration  the “nature and severity” of the conviction; b) the length of time between the conviction and the application; and, 3) the landlord conducts an “individualized assessment” of each applicant, considering “relevant mitigating information”, such as the facts or circumstances surrounding the criminal conduct, the age of the individual at the time the conduct occurred, evidence that the individual has maintained a good tenant history before and after the conviction or conduct, and evidence of any rehabilitation efforts on the part of the applicant.

The foregoing information is presented and intended to address the topic(s) covered above in a general nature, and not as specific legal advice.  Specific situations and their facts should be presented to your attorney for review.  The Brennan Law Firm is one of the premier landlord-tenant law firms in Southern California, representing landlords exclusively in evictions, judgment enforcement, and other landlord-tenant matters. Mr. Brennan is a frequent speaker and contributing author for AOA, and may be reached at (626)294-0500, or toll free at (855)285-2230. Please visit our website at www.MBrennanLaw.com for more information.

AB-2330 Walk-through – the Initial Move-Out Inspection – by Grayce Long, Attorney

With permission from AOA

When was the last time you had a walk-through with your tenant prior to them vacating the unit? The law regarding having a pre-inspection with your tenant was passed in 2003 however, many of you are still not following the proper procedures. Did you know that the number one reason a landlord is sued by their tenant is because of the landlord’s retention of the tenant’s security deposit?  You need to be very vigilant in your dealings with your tenant during their tenancy so that you have no problems and you protect yourselves from future litigation.   This article will outline the procedures that you must follow in order to comply with AB-2330.

Move-in Procedure

The first thing you always need to do is to take pictures of your unit prior to renting to the tenant.  Make sure that you have these dated and keep them in your property file.  If you accept a tenant, make sure that you go through the unit with them and you do a move in/move out checklist. This form can be obtained from AOA.

Move-Out Procedure

When does the AB-2330 kick in?  Normally, it is when either the owner or the resident gives notice to terminate the tenancy or the lease is about to expire.  You must, within a reasonable amount of time after the notice is served, inform the resident of their option to request an inspection and option to be present.  You can send them AOA’s form 135 entitled “Right to Request Initial Move-Out Inspection”.

Once the tenant receives the form they either request an inspection or do not request one.  If the tenant denies the inspection then there is no further action required by landlord!  However, if the tenant requests an inspection, then you must schedule an inspection on a mutually agreeable date that needs to take place no sooner than two weeks prior to the date the tenant vacates.  You can either agree on a date for the inspection, or if you don’t agree on a date, you still must do the inspection.  It is imperative that you give that resident at least a 48 hour written notice that you are going into their unit to do the inspection.   The notice can be waived but the waiver has to be in writing so it is best just to give notice of the date.

If the tenant withdraws the inspection then you do not have to do anything further.   If the inspection goes forward, the tenant has the option of being present at the inspection or not.  Either way the landlord can proceed with the inspection.

You then need to fill out the Initial Move-out Inspection Record which is part of AOA’s Form No. 135.  The inspection record requires you to go through each and every room and item and determine the condition of the item.  Once you do the inspection, you will need to do an itemized statement specifying repairs’ or cleanings that are proposed to be the basis of any deductions from the security deposit you intend to make.  The itemized statement must include the following statement:

“State law permits former tenants to reclaim abandoned personal property left at the former address of the tenant, subject to certain conditions. You may or may not be able to reclaim property without incurring additional costs, depending on the cost of storing the property and the length of time before it is reclaimed.  In general, these costs will be lower the sooner you contact your former landlord after being notified that property belonging to you was left behind after you moved out.”

The tenant then shall have the opportunity during the period following the initial inspection until they vacate to fix any of the identified deficiencies.   This is a landlord’s nightmare giving the tenant the right to make their own repairs and fix the unit.  Be advised that if the tenants work is not acceptable by a reasonable person’s standard, you can still deduct for the cost of the repair.  You are not stuck with accepting the tenants repairs if they are inferior.  Also, you are not limited to what you do on your initial inspection.  If you find something else that you missed on the pre inspection, you can still deduct from the security deposit for repairs.  Remember to attach the receipt for the work with the name and phone number of the person who did the work or estimate.   Also, you are not required to do the work in or deduct the estimate from the security.

Make sure that you take pictures of the damage and the subsequent repairs to the unit and keep those in your file for the tenant.  If the tenant sues you in small claims court for failure to return their security deposit, you will be well armed with all evidence to support your claims!  Make sure that if you do get sued that you file a defendant’s claim for all the money the tenant owes you and also specify any damages to the property.  Further, do not stipulate to a judge pro tem always ask for a judge or commissioner.

[Editor’s Note:  AOA members may download form 135, the AB-2330 Walk-through (at http://www.aoausa.com) which includes instructions and required forms to perform the initial move-out inspection.] 

Attorney Helen Grayce Long is an attorney at Fast Eviction Service. She attended UC Berkeley and graduated with a bachelor of arts.  She then attended the University of San Francisco School of Law.  Grayce has been an attorney for 25 years and specializes in Real Estate Law.  She’s done landlord/tenant work throughout the state of California with an emphasis on Rent Control law.  For more information, call (800) 686-8686, email hglongatty@fastevict.com or visit www.fastevictionservice.com

New bed bug disclosure law goes into effect soon By Gideon Kramer, SPOSFI News Editor

With permission from the SPOSFI (Small Property Owners of San Francisco)

May 19, 2017

Effective July 1, Assembly Bill 551 will place new obligations on all California residential landlords and tenants regarding the disclosure and treatment and control of bed bugs. In brief:

  • A landlord is prohibited from showing or renting a unit if bed bugs are known to exist.
  • Tenants must cooperate in the investigation and eradication of bed bugs in their unit, surrounding units, or common areas.
  • Landlords must include a statutory bed bug notice as an addendum to the lease for all new tenants. All existing tenants needn’t be noticed until January 1, 2018. This notice must provide information regarding bed bug identification, behavior, and biology as well as the landlord’s and tenant’s obligations in the event a bed bug infestation is discovered.

Our June issue of SPOSFI News will include a more detailed discussion of the new law, and why it pays to be very vigilant when it comes to bed bugs.