A recent California case dealt with a very important issue to many San Franciscans, that of rent control. Rent control affects many residential properties in San Francisco and is governed by the San Francisco Residential Rent Stabilization and Arbitration Ordinance (“Rent Ordinance”), which establishes limitations on rent and grounds for eviction. The Rent Ordinance explicitly authorizes a Rent Board to promulgate rules and regulations to effectuate the intent of the Rent Ordinance. In Foster v. Britton, the Court of Appeal analyzed whether a specific rent control rule was preempted by conflicting state law and whether the Rent Board exceeded its authority in issuing such rule. (242 Cal.App.4th 920 (2015)).
In Foster, the new owner of a residential building sent all of the month to month tenants a notice of new “house rules” (which included sharing the backyard equally, maintaining tenant’s own garbage service and keeping personal property inside your unit). The noticed advised that the new “house rules” took effect 30 days after the notice was received by the tenant and that if the tenant disagreed with the rules, they could terminate their lease and vacate the premises. One tenant, Foster, sued the landlord, Britton, and alleged that the new “house rules” conflicted with the terms of her lease (which guaranteed garbage service and the exclusive use of garden space, among others) and were a violation of Rule 12.20 issued by the Rent Board. Rule 12.20 says in pertinent part that “notwithstanding any change in the terms of a tenancy pursuant to Civil Code section 827, a tenant may not be evicted for violation of a covenant or obligation that was not included in the tenant’s rental agreement at the inception of the tenancy, unless (1) the change in the terms is authorized by the Rent Ordinance or required by federal, state or local law; or (2) the change in the terms of the tenancy was accepted in writing by the tenant”.
Britton disagreed that Rule 12.20 applied here and relied on Section 827 of the California Civil Code which says that “a landlord may change the terms of a month to month lease after giving 30 days notice and that the new terms become part of the lease if the tenant continues to hold the premises after the notice takes effect”. Britton alleged that Section 827 as a state statute preempted the conflicting local rule.
The Court set forth the standards for state preemption of local law which include the premise that the matter must be so particularly covered by state law that it has become exclusively a matter of state concern. The Court also reviewed case-law which had upheld local rent control legislation against challenges based on state preemption. In those previous cases, as long as the procedural protections of state law on evictions were not adversely impacted (for example, notice requirements), local law could legislate further restraints on the substantive restrictions to evict for rent control purposes. Based on precedent and the fact that the Court determined that rent control laws were not exclusively a matter of state concern, the Court in Foster held that Section 827 of the California Civil Code did not preempt local Rule 12.20 because Rule 12.20 regulated substantive grounds for eviction and did not limit procedural protections guaranteed under state law.
The Court also addressed the question of whether the Rent Board had exceeded its authority in publishing Rule 12.20 itself. They analyzed whether (1) the regulation is within the scope of the authority conferred, and (2) whether the regulation is reasonably necessary to effectuate the purposes of the statute. Section 37.9(a)(2) of the Rent Ordinance allows a landlord to evict a tenant who has violated a lawful obligation of tenancy. The Court discussed that the grounds for eviction were essential to the efficacy of the Rent Ordinance, otherwise landlords would circumvent the rent limitations by evicting tenants in order to increase rents to market rate upon the next new occupant. The Court in Foster held that Rule 12.20 “fills up the details” by clarifying that a “lawful obligation of tenancy” does not include unilaterally imposed “house rules”. Therefore, the regulation is within the scope of the authority granted to the Rent Board and serves the purposes of the Rent Ordinance.
Based on the decision in Foster, it seems that state courts will give local governments broader latitude with respect to their promulgation of rent control laws as long as any conflict with state law does not limit procedural protections guaranteed by the same. Both residential landlords and tenants in rent control municipalities like San Francisco should be aware of this case and the possible implications to their leases.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.