Costa-Hawkins Rental Housing Act

The Costa-Hawkins Rental Housing Act ("Costa-Hawkins") is the California state law that prohibits municipal rent increase limitations on certain kinds of exempted dwelling units, allows rent increases on subtenants following departure by tenants of rent-controlled tenancies, and prohibits "vacancy control" — the regulation of rental rates on units that have been voluntarily vacated by the previous renters at an amount other (presumably lower) than what the open market would bear.

It was codified as California Civil Code, sections 1954.50, et seq.,^[1] in 1995. The Act was amended in 2001 to close a loophole related to condominium conversion, where owners of apartment buildings obtained certificates for conversion, to avail themselves of the state law exemption for rent control, without actually selling any of the erstwhile apartments as condominiums.

Rent control in California

Rent control is a type of municipal law aimed at mitigating the disruptive effect of escalating or fluctuating rental market prices on neighborhoods and individual renters, as well as to promote the maintenance of safe and habitable dwelling units in tight markets with housing shortages. For instance, San Francisco's Residential Rent Stabilization and Arbitration Ordinance (SFRO), enacted as an emergency ordinance amending the San Francisco Administrative Code, effective June 13, 1979, acknowledged that, in the face of significant increases prior to rent control, "some tenants attempt to pay requested rent increases, but as a consequence must expend less on other necessities of life. This situation has had a detrimental effect on substantial numbers of renters in the City, especially creating hardships on senior citizens, persons on fixed incomes and low and moderate income households".^[2]

The California State Assembly noted that, prior to the adoption of Costa-Hawkins, existing California law made "no statutory provision for, but does not prohibit, the adoption of local rent control ordinances. Case law, Birkenfeld v. City of Berkeley (1976) 17 Cal. 3d 129, held that rent control is a proper exercise of a local government's police power if it is reasonably calculated to eliminate excessive rents and at the same time provide landlords with just and reasonable returns on their properties."^[3]

Rent control imposes restrictions on a landlord's ability to increase the rental rate of rental property, usually keyed to cost of living adjustments. For example, the SFRO limits annual increases to the lesser of 60% of the Consumer Price Index or 7%;^[4] the Berkeley Rent Board allows an annual increase of 65% of CPI.^[5]

"Strict" and "moderate" rent control prior to Costa-Hawkins

While most rent control ordinances limited a landlord's ability to increase rents on existing, ongoing tenancies ("moderate rent control"), some also limited the rent that a landlord could charge on the open market, even after it had become vacated. This "strict" rent control existed in the cities of Berkeley, Santa Monica, Cotati, East Palo Alto and West Hollywood, prior to the enactment of Costa-Hawkins.^[6]

Effect of Costa-Hawkins

Costa-Hawkins preempted local laws to permit landlords to "establish the initial rental rate for a dwelling or unit" following the vacating of the prior tenants (i.e., it abolished "strict" rent control). It also exempted certain kinds of dwelling units from "moderate" rent control — notably, "separately alienable" units (i.e., single family houses and condominiums) and units with a certificate of occupancy issued after February 1, 1995.^[7]

Interpretation of Costa-Hawkins

Despite nearly two decades on the books, there is relatively little case law interpreting Costa-Hawkins and its interaction with local law. For example, it was as late as 2014 when the California Court of Appeals first clarified that a rent-control exemption based on a "certificate of occupancy issued after February 1, 1995" actually means the "first" certificate of occupancy authorizing the "first" residential use.^[8] (I.e., it does not apply to a building converted from apartments with a new certificate issued for use as condominiums.) This exemption is meant to promote development, not to promote token reclassification without a positive net effect on the residential housing supply.

The "vacancy control" provisions also continue to solidify. In January 2015, the First District Court of Appeals decided that, while Costa-Hawkins allows a landlord to establish a new rental rate where the "original occupants" on the lease no longer permanently reside at the rental unit, this decontrol was not available where the minor child, who moved in with his parents at the commencement of the lease, remained there after they vacated. In Mosser Co. v. City and County of San Francisco,^[9] the court decided that Costa-Hawkins provided no mechanism for resetting the rental rate, despite the landlord's argument that this constituted an intergenerational, rent-controlled tenancy.

The Mosser rule was then expanded by the First District Court of Appeals in July 2015, in T & A Drolapas v. City and County of San Francisco (Borjas).^[10] That decision dealt with similar facts (a landlord attempting to increase the rent of the son of the original lessees, after they had moved out). The court first found that, as the family had moved in prior to the enactment of Costa-Hawkins, even if the son was merely a subtenant, he would have been grandfathered in. A "subtenant" in that circumstance could be an "original occupant". However, it went on to find that he was also an original occupant under the Mosser rule, even though, unlike in Mosser, there was no evidence that the landlord knew about the son at the commencement of the tenancy.

In the September 2015 case Mak v. City of Berkeley Rent Stabilization Board,^[11] the First District Court of Appeals interpreted Costa-Hawkins in the context of an evidentiary presumption in Berkeley's rent ordinance that assumes that, where a tenant has moved out after a termination notice, the tenant moved out because of the notice. One common way for a landlord to take possession of a rental unit is to use an "owner move-in" eviction, providing the "just cause" to terminate a rent-controlled tenancy, but requiring that the landlord thereafter move in and make the dwelling unit their residence for some minimum period (e.g., 36 continuous months). Costa-Hawkins will generally de-control a vacant unit (i.e., allow it to be rented at market rate), but creates an exception to vacancy control where the previous tenant received a notice of termination. If the tenant has received such a notice, the vacant unit is not necessarily decontrolled. The landlords in Mak served an owner move-in notice of termination, but then entered an agreement with the tenant, where the tenant recited that they were not moving out because of the notice. The Berkeley regulation in question assumed that the tenant moved out because of the owner move-in notice, and the landlords were not able to rebut this presumption when their new tenants challenged the validity of their market rate rent. The vacant unit was therefore still subject to the previous rent ceiling.

References

Bibliography

• Daniel J. Curtin; Cecily Talbert Barclay (2010). California Land-use and Planning Law. Solano Press. p. 555. 

External links

• Kcet.org
• Dailycal.org
• Dailycal.org