TENANT’S RIGHTS
This Newsletter is a summary of California residential landlord and tenant rights.
LANDLORD OBLIGATIONS.
Landlords are required to maintain residential rental properties in a manner that meets basic health, safety and structural needs. This obligation is sometimes referred to as a Warranty of Habitability (see Civil Code sections 1941.1 and 1941.2). Landlords’ obligations include the following:
– landlords must keep roof and exterior walls waterproofed (i.e. no leaks)
– landlord must keep plumbing, heating and electrical operable
– landlord must keep hot and cold water functional
– landlord must keep toilets and sinks functional
– landlord must keep the property free of roaches, vermin and filth
– landlord must assure that exterior doors can be locked.
These landlord obligations are non-delegable. This means provisions in a lease requiring tenant to waive the Warranty of Habitability are generally void. An “as is ” provision in a lease does not abrogate the landlord from keeping the property safe and habitable.
Tenants, however, are responsible for the cost to repair damage caused by tenants’ own negligence and/or willful conduct.
TENANT OBLIGATIONS.
Tenant obligations include the following:
– tenants must keep rentals reasonably clean and sanitary
– tenants must dispose of trash and rubbish in a clean and sanitary manner
– tenants must properly use all electrical, plumbing and gas fixtures
– tenants must not willfully destroy, damage or remove any part of the rental.
Tenants also have a duty to report problems with the rental to the landlord within a reasonable period of time. Tenant may be responsible to damage caused by tenants failure to promptly report problems to the landlord.
In other words, if a tenant fails to report a water leak for three months resulting in substantial additional damage and mold, the tenant will be responsible for the additional damage and mold caused by tenants failure to report the leak in a timely manner.
TENANT’S RIGHTS: REPAIR, TERMINATE, WITHHOLD RENT.
Tenants call me every month asking what they can do if the landlord fails to repair the property. Tenants have three remedies: (1) repair the damage and deduct the cost from rent; (2) terminate the lease or (3) withhold rent. Special tenant rules apply to active military and domestic violence tenants which are also summarized below.
Each remedy first requires the tenant to give the landlord written (1) notice of the defect/problem and (2) “reasonable” time to repair the defect problem. “Reasonable” time depends upon the nature of the defect/problem.
For example, “reasonable” time to fix a plumbing back-up may be 24 hours while “reasonable” notice to repair and/or replace a leaking roof may be 30 days.
1. Repair and Deduct.
The repair and deduct remedy is authorized by Civil Code sections 1941.1-1942.5. If you have already given landlord written notice of the problem, and the landlord has failed to repair the problem within a “reasonable” time, then the tenant can repair the problem him/herself and deduct the cost from rent subject to the following limitations:
a. tenant cannot deduct more than one month of rent for repairs
b. tenant cannot exercise this remedy more than twice in any 12 month period
c. the problem must be landlord’s duty to repair.
2. Terminate Lease.
A tenant may only terminate a lease early in the most serious cases where the property is either unsafe or uninhabitable. The following are examples of unsafe and uninhabitable conditions:
– no hot water
– no heat during winter
– cockroach infestation
– vermin infestation
– discovery of mold
– discovery of “exposed” asbestos
Prior to exercising termination rights, the tenant is still required to give written notice of the defect/problem to the landlord and provide a “reasonable” time to repair the condition.
If the tenant elects this remedy, then tenant will need to retain evidence to show that the defect/problem existed. The tenant must document all written demands to the landlords, all responses from the landlord, take pictures of the defect/problems, and have an expert/contractor investigate the problem and issue a report.
The tenant will need to be able to prove that conditions were unsafe and/or uninhabitable.
3. Withhold Rent.
Tenant may only withhold rent for serious repair or habitability problems. Prior to withholding rent, the tenant must give landlord “written” notice of the problem and a “reasonable” amount of time to repair the problem.
Tenant can only withhold a “reasonable” amount of rent relative to the problem. The tenant cannot stay at the property and pay no rent.
For example, if one toilet in a three bathroom house is inoperable, and landlord refuses to repair after being given a reasonable opportunity to fix, then tenant is probably justified in withholding a few hundred bucks representing the inconvenience of living with an inoperable toilet.
This is the riskiest remedy for a tenant as tenant is subject to eviction if the court determines that tenant was in bad faith and withheld an “excessive” amount of rent.
4. Domestic Violence.
In California, a tenant has a limited right to terminate a lease early if the tenant and/or a child has been the victim of domestic violence. To exercise this limited termination right, the tenant must meet certain conditions including proof that a restraining order has been issued by the court.
5. Active Military Duty.
In California, a tenant also has a limited right to terminate a lease early if the tenant is either (1) called to active duty or (2) received a change of station order. See Civil Relief Act of 1944.
It is important to note “uniformed services” that quality for this right include the following:
– Members of the Armed Forces
– Members of the National Guard
– Public Health Service commissioned Members
– Members of National Oceanic and Atmospheric Administration
Members must provide written 30 day termination notice to the landlord on the date rent is due to exercise this right.
Landlord’s Duty to Find a New Tenant.
Even when a tenant terminates a lease early without cause, the landlord always has a duty to advertise for a new tenant to mitigate his/her loss. Tenant is liable for all monthly rents until a new tenant moves into the property.
ACCESSORY DWELLING UNITS – 2020 STATEWIDE RENT CONTROL
Accessory Dwelling Units.
It is possible to accidently convert an exempt single family dwelling into a California statewide rent controlled property by constructing an Accessory Dwelling Unit.
If the owner of a single family residence constructs an Accessory Dwelling Unit on the property, then that property becomes a “duplex” for purposes of California statewide Rent Control. A duplex is generally not subject to California Rent control as long as one of the units is owner-occupied.
An often overlooked aspect of statewide Rent Control is that an owner of a single family residence will lose the exemption if he/she rents more than two bedrooms at the property. This means that you will lose your exemption if you rent more than two bedrooms from your home at the same time.
Civil Code section 1946.2(e) exempts from statewide Rent Control:
“Single Family owner-occupied residences, including a residence in which the owner-occupant rents or leases NO MORE than two units or bedrooms including, but not limited to, an Accessory Dwelling Unit or Junior Accessory Dwelling Unit.”
An Accessory Dwelling Unit is defined as a secondary unit, or self-contained apartment, cottage or small residence located on a property that is separate from the main house (“ADU”). A Junior Accessory Dwelling Unit is defined as a separate housing unit created within the walls of the original house (“JADU”). JADUs are attached to and part of the main house.
There are two ways an owner can lose the exemption with an ADU. First, if an owner constructs and rent out a two bedroom ADU for extra cash, and then rents one bedroom in the main house to a college student, both the main house and ADU are now potentially subject to Rent Control under Civil Code section 1946.2(e). Second, if the owner-occupant moves out and decides to rent the main house, now both the main house and ADU are potentially subject to Rent Control as a duplex.
There is a limited exemption for structures that are less than 15 years old. However, there is no clear rule as to whether the age of the ADU/JADUs or age of the main house controls. At this point, assume both units are subject to Rent Control as long as one of the units is at least 15 years old.
In summary, the take-home message is that construction of an ADU or JADU on your property may inadvertently trigger new statewide Rent Control. This means that both rent increases and termination rights would be limited.
Owners beware.
LANDLORD’S RIGHT OF ENTRY – RESIDENTIAL
When can an owner “lawfully” enter a rental unit without written Notice of Entry?
When is written Notice of Entry required prior to an owner “lawfully” entering a rental unit?
What constitutes proper written Notice of Entry.”
A landlord’s right to enter his/her rental property is set forth in Civil Code section 1954, and may be modified by terms of the written lease agreement.
Right of Entry – without notice.
Civil Code section 1954(e) provides that a landlord may only enter a rental unit without written Notice of Entry under the following limited circumstances:
1. To respond to an emergency (i.e. fire, flood or emergency repair);
2. Tenant is present and consents to the entry (i.e. agreement);
3. Tenant has (a) abandoned or (b) surrendered the rental unit.
4. The Landlord obtains a Court Order for possession.
Right of Entry – with written notice.
Civil Code section 1954(a) provides that 24-hour prior written Notice of Entry is required before a landlord can “lawfully” enter a rental unit for the following reasons:
1. To make necessary and/or agreed upon repairs or improvements;
2. To show the rental unit to prospective tenants
3. To show the rental to lenders, appraisers or contractors;
4. For a pre-move out walk-through to evaluate damage at tenant’s request.
Contents of “Written Notice of Entry.”
Civil Code 1954(c) requires that the landlord’s written Notice of Entry contain the following information:
1. Name of Tenant
2. Address of Rental Unit
3. Date of Proposed Entry
4. Time of Proposed Entry
5. Purchase of Proposed Entry.
The written Notice of Entry must be served to the tenant at least 24 hours prior to the Date of Proposed Entry.
Service of “Written Notice of Entry.”
The written Notice of Entry may be served in any of the following manners:
1. Personally delivered to the Tenant;
2. Personally delivered to someone over 18 years old at the Premises;
3. Left “on, near or under” the usual entry door in a manner most likely to be discovered by the tenant.
Alternatively, the landlord can mail the written notice to the tenant. If mailed, then the landlord must be able to show that he/she mailed the notice at least six (6) days prior to the Date of Proposed Entry.
California law does not presently allow for e-mail Notice of Entry. 120 Day Notice of Entry to Show Property to Prospective Purchasers.
Special notice rules apply when the landlord is selling the rental unit. Those special rules are found in Civil Code section 1954(d)(2) which states as follows:
“If the purpose of the entry is to exhibit the dwelling unit to prospective or actual purchasers, the notice may be given orally, in person or by telephone, if the landlord or his or her agent has notified the tenant in writing within 120 days … that the property is for sale and that the landlord or agent may contact the tenant orally for the purpose described above.”
In other words, landlord can send a “120 Day Notice of Entry” immediately upon listing the rental unit for sale. Landlord may then simply give the tenant 24 hours oral or written notice that the rental unit will be shown to a prospective buyer. Landlord or the agent must then leave a business card after each visit during that 120 day period.
I receive a call nearly every week asking me about statutory new home warranty rules.
Some builders provide express new home warranties to buyers that are included with the closing documents when the buyer closes on his new home.
For those buyers where the builder did not provide an express home warranty, California law implies a new home warranty. These new home warranties are found in Civil Code section 896, and are also know as the Right to Repair Act, and are summarized as follows:
ONE-YEAR WARRANTY ITEMS:
“Manufactured items” such as appliances, air conditioners, and fixtures have a one-year warranty.
“Fit and finish” items such as interior/exterior walls, paint finishes, counter tops, flooring, cabinets, mirrors and trim (i.e. baseboard and moldings) have a one-year warranty.
“Exterior” irrigation, drainage, landscaping systems have a one-year warranty.
TWO-YEAR WARRANTY ITEMS:
“Untreated Wood” posts installed in contact with soil have a two-year warranty.
“Dryer Ducts” have a two-year warranty as to material and function.
FOUR-YEAR WARRANTY ITEMS:
“Plumbing” and Sewer systems have a four-year warranty.
“Electrical” systems have a four-year warranty.
“Exterior” pathways, sidewalks, patios, hardscape, and driveways have a four-year warranty. “Untreated” steel fence and related components as to corrosion have a four-year warranty.
FIVE-YEAR WARRANTY ITEMS:
“Paint” and related staining caused by deterioration of building surfaces (deteriorating stucco, drywall, texturing) have a five-year warranty.
TEN-YEAR WARRANTY ITEMS:
“All other components not specifically referenced such as retaining walls, structural framing and foundation have a ten-year warranty.
You cannot just file a lawsuit against the builder when you discover a defect. California law requires that you submit a written claim to the builder stating the defect with reasonable specificity and provide builder a reasonable period of time to repair the defect.
The builder then has an option to (1) repair the defect at no cost to the buyer, (2) provide cash in lieu of repair to the buyer or (3) demand mediation of the dispute with the buyer. Builder is responsible for all costs of the mediation if it selects that option.
The Right to Repair Act provides narrow time frames for the builder’s response. Once a claim is sent by a buyer, the builder has 14 days to acknowledge it in writing. Then builder has 14 days to inspect the defect. Builder then has another 30 days to complete a second inspection, if desired. Builder then has 40 days after the date of the last inspection to offer a resolution.
If the builder and buyer agree to a list of repairs, then builder has 14 days to commence the repairs. The builder must then make best efforts to complete repairs within 120 days thereafter.
Buyer can proceed with a lawsuit against the builder only after (1) the matter is mediated unsuccessfully or (2) builder declines to mediate the dispute.
The Right to Repair Act also allows the builder to provide its own non-adversarial dispute resolution program as long as provide prior to or concurrent with close of escrow.
Effective January 1, 2020, California will be one of only two states to impose statewide Rent Control on its residential property owners. Oregon is the only other state that imposes statewide Rent Control.
Exemptions.
Let me start with the good news. The good news is that the new Rent Control Law exempts individual owners of single family residential properties. This means that a husband and wife who own two or three single family rentals are exempt from the new laws.
Unfortunately, the new Rent Control Law applies to every other residential property, including a duplex, triplex and apartment except the following:
1. Residential properties that are less than 15 years old;
2. Rooms rented within an owner-occupied single family residence;
3. Guest houses rented within an owner-occupied single family residence; and
4. A duplex only if the owner occupies one of the units.
Fortunately, most families purchasing single family residences as rentals will he exempt from the new Rent Control Law. I will refer to this group of properties as Exempt Properties.
Disclosures for Exempt and Non-Exempt Properties.
All Leases for Exempt Properties must include the following new disclosure:
“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Section 1947.12(d)(5) and 1946.2(e)(8) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”
All Leases for Non-Exempt Properties must include the following new disclosure:
“California law limits the amount your rent can be increased. See Section 1947.12 of the Civil Code for more information. California law also provides that after all of the tenants have continuously and lawfully occupied the property for 12 months or more or at least one of the tenants has continuously and lawfully occupied the property for 24 months or more, a landlord must provide a statement of cause in any notice to terminate a tenancy. See Section 1946 of the Civil Code for more information.”
I recommend that all residential leases commencing on or after January 1, 2020, include the appropriate new disclosure. If you have an existing lease, then I recommend supplementing it with an addendum including the appropriate new disclosure on January 1, 2020.
Remember, Exempt and Non-Exempt Properties require different disclosures. Rental Cap.
The Rent Cap only applies to Non-Exempt Properties. The new Rent Control Law prohibits all landlords of Non-Exempt Properties from raising rent more than 5% plus cost of living during any 12 month period.
Cost of living is defined as the Consumer Price Index in the County where the residential property is located. By example, if Consumer Price Index (“CPI”) for Los Angeles is 2.7%, then the landlord can raise rent by 7.7% (i.e. 5% plus 2.7% CPI).
However, under no circumstance can the landlord of a Non-Exempt Property raise rent more than 10% during any given 12 month period.
In addition, under no circumstances can a landlord of a Non-Exempt Property raise rent more than twice during any given 12 month period.
In addition, landlords of Non-Exempt Properties forfeit their right to raise the rent if they fail to do so during any given 12 month period.
The new Rent Control Law guarantees “higher” rents for all tenants as landlords who may not have otherwise raised rent on an annual basis will now do so.
Termination (Just Cause).
Without Just Cause, a landlord of a Non-Exempt Property will no longer be able to terminate a tenant, even after expiration of the lease. This restrictions applies only to tenants who have continuously occupied a Non-Exempt Property for 12 consecutive months.
If a tenant has occupied the property for 12 consecutive months, then a landlord cannot (1) refuse to renew the lease or (2) terminate the tenancy without Just Cause. The new Rent Control Law distinguishes between (1) At-Fault Just Cause and (2) No-Fault Just Cause
At-Fault Just Cause includes the following:
a. tenant’s failure to pay rent;
b. tenant’s material breach of the lease;
c. criminal or nuisance activity by the tenant;
d. assigning or subletting the property without landlord consent; or
e. tenant’s refusal to allow landlord to inspect the property;
. No-Fault Just Cause includes the following:
a. owner/spouse/children/grandchildren intent to occupy the property;
b. withdrawal of property from the rental market;
c. owner intends to “substantially remodel” the property;
The term “substantially remodel” means any structural, electrical, plumbing, or other improvements that requires a permit. This provision could be a landlord escape hatch as landlord can terminate any lease as long as permit is pulled for work.
Note that for leases entered into after July 1, 2020, a landlord wanting to move back into his own property will not be considered Just Cause unless a provision is included in the lease agreement allowing him to do so.
For all Non-Exempt Properties, termination notices must state whether termination is based upon At-Fault or No-Fault Cause or they are deemed defective and void.
Right to Cure for At-Fault Just Cause Termination.
It is important to note that any termination for At-Fault Just Cause requires landlord to first serve a 3 Day Notice that gives the tenant 3 days to cure.
Remember, effective January 1, 2019, the law was changed to provide that a 3 Day Notice no longer includes Saturday, Sunday or Holidays. This means that if you serve a 3 Day Notice on Thursday, it would not expire until midnight on the following Tuesday.
Relocation Fee for No-Fault Just Cause Termination.
Just when you thought it couldn’t get worse, it does. The new Rent Control Law requires
a landlord to pay an amount equal to one month rent to any tenant as a Relocation Fee for all terminations based upon No-Fault Just Cause.
Payment must be made within 15 days after serving tenant with the Notice of Termination based upon No-Fault Just Cause. This means that you are required to pay your tenant prior to them moving out. If they fail to move, then you still need to evict them.
City of Los Angeles Rent Control.
The new Rent Control Law does not apply to cities such as Los Angeles that already have more stringent rent control in place.
Remember, the City of Los Angeles includes several communities which you probably believe are independent cities, such as San Pedro, Van Nuys, Studio City and Porter Ranch.
The City of Los Angeles, and all of its communities, are subject to rent control, as well as the infamous 9a Disclosure Report required for all residential property sales in the City of Los Angeles.
Summary.
In summary, the new statewide Rent Control Law contains many traps for innocent landlords and must be carefully reviewed..
I receive calls every month by landlords wanting to know the risks associated with leasing to a tenant in the business of cultivation, production, and/or distribution of cannabis.
Cannabis businesses must obtain both (1) a California permit and (2) a city/county license to operate. Not all cities/counties allow cannabis business to operate in their cities/counties. In those cases, leasing to a cannabis operation would be unlawful from the start.
It is important for every landlord to understand that even if the tenant complies with all state and local laws regarding cannabis, it still violates federal law. Federal law prohibits a landlord from “knowingly leasing property for the purpose of making, distributing or using any controlling drug.” See 21 USC section 881(a)(7).
This means that landlord’s property could be seized by the federal government at any time even though the tenant’s use complies with California cannabis law. California law is in direct conflict with federal law.
Commercial Leasing.
If a landlord understands the risk that his property may be seized by the federal government, and wants to proceed to lease to a cannabis tenant anyways, then landlords should consider the following points in negotiating a cannabis lease.
1. Commencement Date. Since California will not issue a license to any cannabis tenant without a signed lease, it is important to condition any lease agreement on the tenant obtaining necessary state permits and local licenses for its cannabis business. Since this process can take several months, landlord will want to negotiate some amount of monthly rent during this contingency period. This means that the tenant will be paying rent prior to actually receiving permits and licenses required for its cannabis operation.
2. Early Termination Rights. The lease should require tenant to provide copies of valid
permits and licenses for tenant’s cannabis operation. The lease should require tenant to forward any notices, violations of cease and desist letters from any federal, state or local government affecting tenant’s cannabis operation. The lease should provide that landlord has a right to early termination if the tenant is no longer in compliance with state, local or municipal laws necessary for tenant to lawfully operate a cannabis business. This would allow landlord to terminate the lease if tenant’s cannabis operation becomes unlawful at any point during the term of the lease.
3. Operating Expenses. Cannabis operations usually result in excessive electricity and water usage, as well as increased insurance premiums for the landlord. It is critical to make tenant exclusively responsible for all utilities in addition to increased insurance premium due to tenant’s cannabis operation. If the tenant’s business is operated from a multi-tenant building, then additional risks relate to other tenants at the project.
4. Compliance with All Laws. The lease should include a provision placing the burden solely on the tenant to comply with all federal, state and local laws, including zoning and landlord use ordinances existing at the time of lease commencement or become effective thereafter. Landlord should have early termination rights if tenant breaches this provision.
These are just a few of the concerns for landlords leasing to any cannabis operator. The take home message is that landlord’s property is always at risk of seizure by the federal government when leasing to a cannabis operator, even if the operator is 100% compliant with state law.
LANDLORD TENANT LAW
The following rules apply to residential tenancies. Commercial tenancies have different rules.
30 DAY NOTICE.
A 30 Day Notice is required to terminate a tenancy when the tenant has occupied the premises for 12 months or less. See California Civil Code section 1946.
The 30 Day Notice expires 30 days after the service date. The service date does not count towards calculating 30 days and should be considered as day “zero.”
Each Tenant (a) identified in the lease and (b) each person that Landlord knows resides at the Property should be served Notice separately.
If expiration of the 30 Day Period falls on a Saturday, Sunday or legal Holiday, then Tenant is not required to be out until end of the next business day.
60 DAY NOTICE.
A 60 Day Notice is required to terminate a tenancy when the tenant has occupied the premises for more than 12 months. See California Civil Code section 1946.1.
The 60 Day Notice expires 60 days after the service date. The service date does not count towards calculating 60 days and should be considered as day “zero.”
Each Tenant (a) identified in the lease and (b) each person that Landlord knows resides at the Property should be served Notice separately.
If expiration of the 60 Day Period falls on a Saturday, Sunday or legal Holiday, then Tenant is not required to be out until end of the next business day.
NO NOTICE REQUIRES AT EXPIRATION OF WRITTEN LEASE.
There is no 30 Day or 60 Day Notice required to evict a Tenant at expiration of a written lease. If Tenant’s 12 month written lease expires on October 31, then Landlord can start an eviction on November 1″ without any Notices.
If the Landlords accepts rent after expiration of a written lease, then a new Month-to-Month tenancy is created that will require either a 30 Day or 60 Day Notice to terminate.
Rent Control Laws have special rules that override these standard rules. NEW RULES: 3 DAY NOTICE TO PAY OR QUIT.
In the past, a 3 Day Notice served on Friday would expire Monday. Saturdays, Sundays and legal Holidays counted towards calculation of 3 days. A Landlord could then start an eviction on Tuesday morning.
Effective January 1, 2019, Saturdays, Sundays and legal Holidays no longer count towards calculating 3 Day Notices.
By example, if you serve a 3 Day Notice to Pay or Quit on Friday, Saturday and Sunday no longer count, and the 3 Day Notice would not expire until the following Thursday.
PROPER SERVICE OF NOTICE.
A Judge will dismiss the eviction if service is improper or irregular. There are three options for service of 30 and 60 Day Notices, and Landlords must strictly comply:
1. Personal delivery to the Tenant; or
2. If Tenant cannot be personally served, then (a) personal service to anyone over 18 years old at the residence and (b) copy sent by standard U.S. mail to Tenant’s residence (certified mail not required); or
3. It Tenant cannot be personally served, then (a) posted in conspicuous place at the property and (b) copy sent by standard U.S. mail to Tenant’s residence (certified mail not required).
At least one case has held that service by Certified Mail is not sufficient service of either a 30 Day or 60 Day Notice. If you elect to serve a 30 or 60 Day Notice by Certified Mail, then you must also serve by standard U.S. mail. See Liebovich v. Shahrokhkhany (1997) 56 Cal.App.4th 511, 514-515.
Landlords must strictly comply with these service rules or the Judge will deny the eviction.
PAYMENT OF RENT.
Tenant must continue to pay rent after being served a 30 Day or 60 Day Notice. If Tenant stops paying rent after receiving either a 30 Day or 60 Day Notice, then Landlord can immediately serve a 3 Day Notice to Pay or Quit and evict the Tenant if Tenant fails to pay the rent during the 3 Day Notice Period.
SALE OF PROPERTY BY LANDLORD.
If the Landlord has contracted to sell the Property to someone who intends to occupy the Property for at least a year, the Landlord only needs to give Tenant a 30 Day Notice (not a 60 Day Notice) regardless of how long the Tenant has been at the Property.
In order to qualify, the Landlord must satisfy the following conditions:
1. Property must be sold using a licensed California Broker
2. Property must be in escrow at a licensed Escrow Company
3. Landlord must give Tenant a 30 Day Notice within 120 days after opening escrow.
This exception only applies when Landlord has sold the property to someone who intends to occupy it for at least a year.
PROPERTY PHOTOGRAPHS
Who owns residential real estate photograph? The general rule provides that the photographer owns the copyright to photographs absent a written agreement or provision transferring ownership to the seller or broker.
Most written agreements offered by photographers issue a revocable license for the broker to use the photographs under a “license” agreement. This means that the photographs continue to belong to the photographer, not the broker or seller who paid for them.
If you or your seller want to own the photographs, and not be restricted on future use of those photographs, then the following language should be included as an Addendum to each Real Estate Photography Agreement:
“All photos, graphics and digital images delivered to the (broker), and all rights therein, shall be the sole and exclusive property of the (seller) and (broker). The (seller) and (broker) shall have sole discretion to reproduce, publically display, and distribute the photos, and may upload any and all photos to any MLS listing service for promotional, advertising, or for any other purpose related to the sale of the Property. Terms of this Addendum shall prevail over inconsistent provisions in the Agreement.”
HOME OWNER ASSOCIATION – RULES FOR INCREASING DUES
“Regular” assessments are “monthly dues” used for day-to-day expenses and reserves for repair/replacement of major components (i.e. roof, parking lot and other common area improvements).
“Special” assessment are for one-time costs to repair/replace major components due to either an unanticipated loss (fire, flood or casualty) or underfunded reserve for a major component.
1. “Regular” Assessment Increases Exceeding 20% Require Homeowner Approval.
Monthly Dues cannot be increased without approval of the Board for the Association. See Civil Code §5605.
The Board cannot increase fees without first complying with requirements of Civil Code §5300, which are as follows:
– provide a statement showing annual estimated revenue and expenses;
– provide a summary of the reserve funding plan adopted by the board;
– provide a statement stating whether they are deferring the repair/replacement of any
major components and justification for the deferral;
– provide a statement stating whether a special assessment is anticipated to restore, replace or repair any major components;
– a general statement showing the procedure used to calculate and establish reserves for future replacement or repair of any major components.
If the Board complies with the requirements of Civil Code §5300, then they can only increase monthly dues by 20% or less. If the Board fails to provide statements and summaries as listed above, then the assessment is improper and can be challenged by the homeowner.
The Board cannot increase monthly dues by more than 20% without (1) approval of a majority of the homeowners and (2) a regular membership meeting. Civil Code §5605(b).
2. “Special” Assessment Exceeding 5% of the Annual Budget Require Homeowner Approval.
The Board can impose “small” special assessments without Homeowner Approval. The Board can impose payment schedules without Homeowner Approval. A “small” assessment is defined as an assessment less than 5% of the total annual budget for the HOA.
The Board cannot assess a special assessment of 5% or more of the total annual budget without (1) approval of a majority of the homeowners and (2) a regular membership meeting. Civil Code §5605(b).
Additionally, the Board must notify each homeowner of a new or increased special assessment (1) by certified mail at least (2) 30 days before the assessment is due.
3. Homeowners can Challenge “Regular” and “Special” Assessments.
Disputes $10,000 or Less.
Go to small claims court for any dispute in the amount of $10,000 or less. Civil Code §5658 allows a homeowner to (1) pay a disputed assessment “under protest” and (2) challenge the disputed assessment in small claims court.
This means that a homeowner can challenge any regular assessment, special assessment, fine, penalty, late fee or collection cost in small claims court. However, remember that you must first pay the disputed amount or the HOA can continue to assess fees, interest and penalties.
Disputes Over $10,000.
Do not rush to file a lawsuit against your HOA because the law allows the HOA to recover all attorney fees and costs from you if you lose. Instead follow the following three step dispute resolution procedure.
1. REQUEST FOR INTERNAL DISPUTE RESOLUTION PROCEDURES. Send a written request to HOA for a copy of the Internal Dispute Resolution (“IDR”) procedures as required by law. Give the HOA a 15 day deadline for response.
2. REQUEST FOR MEET AND CONFER. If no IDR, then send written demand for Meet & Confer to the HOA. The written demand must state the nature of your dispute in reasonable detail. HOA is required to participate in a Meet & Confer by appointing a director to meet with you personally within a “reasonable” time after demand is made. Give the HOA a 30 day deadline for response.
3. REQUEST FOR RESOLUTION. If the dispute is not resolved by Meet & Confer, then send a written Request for Resolution demanding Mediation and/or Arbitration (i.e. Alternative Dispute Resolution also known as “ADR”). HOA is required to respond in writing within 30 days. Each party to ADR is responsible for its own costs. You must have an attorney to participate in ADR.
Neither party is required to participate in ADR, but courts often deny attorney fees to the HOA if ADR is refused (see Civil Code §5960). This is a great strategy to control your potential liability for HOA attorney fees.
It has been my experience that once the HOA receives written notices for IDR, Meet and
Confer and Mediation and/or Arbitration, they are more likely to come to the table and resolve the dispute.
Keep in mind that both the CC&R’s and California law were drafted for the HOA, not the homeowner, and generally favor the HOA at every turn.
FOREIGN SELLERS – BUYERS OWE THE IRS TAX
Congress enacted the Foreign Investment in Real Property Tax Act (“FIRPTA”) in 1980.
It is a little known IRS rule that buyer’s owe the seller’s income and/or capital gain tax when purchasing California property from a “Non-Resident Alien.”
For example, assume that you are purchasing a single family residence for $1,000,000 for investment purposes from a Non-Resident Alien seller living in China. The IRS requires you, as buyer, to remit 15% of the gross sales price to IRS at close of escrow.
This means that you, as buyer, must instruct escrow to pay IRS $150,000 of seller’s proceeds (15% x $1,000,000) to the IRS. If you, as buyer, fail to instruct escrow to pay IRS $150,000 of seller’s proceeds at close, then IRS will look solely to you for payment if the seller fails to pay the tax.
Non-Resident Aliens?
Who is a “Non-Resident Alien?” A “Non-Resident Alien” is any non-citizen seller who does not pass the (1) green card test or (2) substantial presence test.
Green Card Test: If a non-citizen has a current green card, then he is not a
“Non-Resident Alien.”
Substantial Presence Test: If the non-citizen has resided in the U.S. for 183 days during the last 3 years and resided in the U.S. for at least 31 days this year, then he is not a “Non-Resident Alien.”
All other sellers are subject to mandatory IRS withholding. Surprisingly, it is the buyer’s obligation to demand withholding of seller’s proceeds at close.
If buyer fails to withholding of seller’s proceeds at close, then the IRS will look to the buyer for payment. Incredible but true.
Exemptions for Withholding?
This IRS rule requiring buyers to withhold sellers’ tax is the general rule subject to only two exemptions.
Exception #1: The transaction is exempt from IRS withholding if buyer purchases the property as his/her primary residence. The primary residence exception only applies if buyer can prove that he/she occupied the residence 50% of the time during the 24 month period immediately after close of escrow.
Exception #2: The transaction is except from IRS withholding if seller completes a 1031 exchange when both of the following conditions are met:
1. The Non-Resident Alien completes a simultaneous exchange (i.e. closes the 1031 on the same day as buyer’s purchase); and
2. The Non-Resident Alien receives no cash at close.
In all other 1031 exchanges where seller does not close simultaneously, the buyer must withhold 15% of gross proceeds from seller’s proceeds.
Recommendation.
If you represent a buyer, and the seller is a Non-Resident Alien (i.e. does not pass either the green card or substantial presence tests), then advise your buyer to consult CPA prior to close of escrow to determine the amount of tax to withhold from seller’s proceeds.
If you represent a Non-Resident Alien seller, then advise seller to consult with his CPA as he may qualify for a Withholding Certificate, which would allow him to avoid the mandatory withholding.
Sellers desiring to avoid the mandatory withholding must first complete the Application for Withholding Certificate which generally takes the IRS 90 days to either grant or deny. Your seller will certainly need a CPA for this process.
Although agents should never give legal or tax advice, it is important that agents are aware that buyers have this tax obligation.
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