Judge: Mark A. Young, Case: 24SMCV01057, Date: 2024-07-10 Tentative Ruling

Case Number: 24SMCV01057    Hearing Date: July 10, 2024    Dept: M

City of Santa Monica v. Colonial Manor et al., 24SMCV01057

Background

On April 25, 2024, the parties stipulated in this matter and the related matter, 24SMUD00651, Colonial Manor v. Reyes, to have the Court resolve the legal issue of whether Santa Monica Rent Control Charter Amendment (SMRCC) Section 1806(c) and other ordinances permit Colonial Manor to raise the rent to the market rate under the agreed upon factual circumstances of the case.  (4/25/24 Order.)  On July 6, 2024, the parties submitted their Stipulated Facts for the July 10, 2024, Non-Jury Trial on Rent Increase Validity. 

The specific issue to be addressed is whether Colonial Manor had the right to impose an unlimited rent increase for a unit that was occupied by the spouse of the original occupant who is now deceased.  Colonial Manor contends that when the original occupant(s) vacate a unit, the landlord can raise the rent on everyone else. Colonial’s interpretation of the statute relies upon the language in Civil Code section 1954.53(d)(2) permitting an owner to increase rent “to a lawful sublessee or assignee” when the original occupant(s) are no longer permanently residing there.  If Mrs. Reyes falls within that category, then the Costa-Hawkins Rental Housing Act preempts the local Santa Monica rent control ordinance preventing Colonial from raising the rent. Therefore, the Court must interpret the terms sublessee and assignee as used in section 1954.53, as well as the term original occupant.

Does Section 1954.53(d)(2) Apply to the Facts of this Case

The effect of the Costa-Hawkins Rental Housing Act provision allowing residential landlords to “establish the initial rental rate for a dwelling or unit” is to permit landlords to impose whatever rent they choose at the commencement of a tenancy. (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232.) The term “occupant” is not limited to a party to the rental agreement, but rather applies to any individual who has resided in the dwelling from the start of a tenancy, with the landlord's permission.  (Mosser Companies v. San Francisco Rent Stabilization & Arb. Bd., (2015) 233 Cal. App. 4th 505, 512 [city rent control protections applied to tenants' son’s occupancy because he was an “original occupant” that continuously resided at the Unit pursuant to the original lease even after the son’s parents had moved out]; Cobb v. San Francisco Residential Rent Stabilization and Arbitration Bd. (2002) 98 Cal.App.4th 345 [landlord did not have authority to increase tenant's rent where tenant occupied apartment before effective day of rent increase, tenant was not assignee or sublessee of previous tenant, and landlord negotiated prior rent increase with tenant, and demanded prompt payment of rent].)

Civil Code section 1954.53(d)(2) authorizes unlimited rent increases only when the occupants that remain are “sublessee[s] or assignee[s]” of the previous tenant. The Court concludes that the terms “sublessee or assignee” was not an attempt to refer to all persons still occupying a unit after the original occupants. The use of the term “occupant” in the same subsection suggests that the legislature was intending to use the more specific meanings behind “sublessee” and “assignee,” as opposed to non-original occupants.  (See In re M.A., (2022) 83 Cal. App. 5^th 143, 150 (when different terms are used in part of same statutory scheme, they are presumed to have different meanings.)  The statute can be fairly read to narrowly permit rent increases only to a sublessee or assignee who occupied a unit after January 1, 1996, and where the original occupants have vacated.  Thus, if the individual is not a sublessee or assignee, the provisions would not apply even if the original occupants have vacated.

This conclusion is supported by the remaining sections of Civil Code section 1954.53.  Section 1954.53 subsection (d)(1)-(4) all refer to subletting. For example, subsection (d)(1) states that the Act does not preclude express agreements in leases establishing rent for sublessees. (“(d)(1) Nothing in this section or any other provision of law shall be construed to preclude express establishment in a lease or rental agreement of the rental rates to be applicable in the event the rental unit subject thereto is sublet…”) (d)(3) provides the subdivision does not “apply to partial changes in occupancy of a dwelling or unit where one or more of the occupants of the premises… remains an occupant in lawful possession of the dwelling or unit” (emphasis added). As discussed below, this case could be considered a “partial change” in occupancy referred to in (d)(3), which demonstrates a recognition of the type of situation presented here. Furthermore, subsection (d)(4) also recognizes that nothing in the section prohibits a covenant against sublease or assignment, unless the owner received written notice from the tenant and accepted rent.  Thus, the context of subsection (d)(2) supports the position that it is referring specifically to sublets or assignments, as opposed to any other kind of occupant – whether original or not. As the caselaw explains, the purpose of this subsection was to preclude “friends and family” from creating subtenancies and assignments that could avoid the Costa Hawkins Act. It would not preclude an owner establishing a new, oral lease with occupants during partial changes in occupancy.

Giving a strict interpretation of the terms, section 1954.53(d)(2) would not preempt Santa Monica’s ordinance and allow for the 400% increase in rent. The stipulated facts admit that Vilma Reyes is not an assignee or subtenant. Milton Reyes lived at the Unit as a tenant until his death on September 8, 2023. (Stipulated Fact (SF) 2.) Defendant, Mrs. Reyes, moved into the Unit in about February 2021. (SF 4, 5.) The couple got married in February 2022. (SF 3.) Mrs. Reyes never paid Milton Reyes rent. (SF 6.) Mrs. Reyes also never entered into any written, verbal, or implied agreement for Mr. Reyes to assign or transfer his tenancy rights to the Rental Unit. (SF 7.) Thus, it is undisputed that she never “paid rent” to, or entered into an assignment with, her husband. Furthermore, Mrs. Reyes persuasively argues that a marital relationship cannot create a common law subtenancy between husband and wife.  As such, the Court concludes that Vilma Reyes is neither a subtenant or assignee of Milton Reyes and Costa Hawkins does not authorize a rental increase that would violate SMRCC law. 

Alternatively, Mrs. Reyes would still be protected from the rent increase as a tenant.  A landlord and new occupant may informally create a tenancy. “It is well established that a tenancy need not be created by a lease, but may be created by occupancy by consent.”  (Miller v. Elite Ins. Co., (1980) 100 Cal. App. 3d 739, 750; see also Parkmerced Co. v. San Francisco Rent Stabilization & Arbitration Bd., (1989) 215 Cal. App. 3d 490, 494-95.) Family members and friends who subsequently move into the apartment are not protected unless the landlord consents to the occupancy and accepts rent from the new occupant, thus creating a new tenancy. Here, the evidence before the Court set forth in the stipulated facts is that Colonial Manor explicitly, implicitly, or by operation of law, created a new tenancy with Mrs. Reyes.  Once married in 2022, Mrs. Reyes can be considered to have owed and paid rent to Colonial Manor based upon her husband’s rental payments. Mrs. Reyes did not owe a duty to pay rent to her husband but did owe an obligation to Landlord to pay the rent owed to it by her husband. (Family Code § 914(a)(1).) Since Plaintiff accepted this rent from Mr. Reyes and his spouse (the new occupant), a new tenancy would have been created so long as the landlord was aware that Mrs. Reyes was occupying the unit. There is no evidence that Colonial Manor was not aware of Mrs. Reyes occupying the Unit.  In fact, the evidence points to the opposite conclusion since Colonial Manor sent her the notice of the rent increase immediately after her husband died. 

Therefore, as an alternative to concluding that section 1954.53(d)(2) is inapplicable, the Court would conclude that Colonial Manor and Mrs. Reyes created a new tenancy in 2021 or February 2022, which pursuant to the terms of the December 2022 notice, was at a rental rate of $666.00, including all surcharges.  (SF 9.)  As stated, there is no evidence that Colonial Manor did not know the Reyes were married, and that Vilma Reyes was residing with Milton Reyes at the Unit.  By accepting rent from Milton Reyes, Colonial Manor was accepting rent from husband and wife. 

Furthermore, the Court’s ruling would fulfill the purpose behind the Costa Hawkins Act.  As the legislative history makes clear, the Costa-Hawkins Act establishes vacancy decontrol for residential dwelling units where the former tenant has voluntarily vacated, abandoned or been legally evicted. (Legis. Analyst, analysis of Assem. Bill No. 1164 (1995-1996 Reg. Sess.) p. 2.)  It was not intended to be used to evict or raise rental rates on a surviving spouse, who was not part of the initial lease agreement.