Jasna Veledar, Hooshmand Law Group
The San Francisco rental community was shocked last week with the news of a Bernal Heights resident whose rent increased from $2,145 per month to $8,900 per month, with an additional $12,500 for a security deposit.
The resident had an 11-year tenancy in a two-bedroom apartment above a former gas station and garage. While the tenant believed she received Rent Ordinance protection living in a multi-unit building, the landlord argued that, due to the specific circumstances of her property, the notice informing her that her rent would increase fourfold was legal. As the news spread over social and local media outlets, many San Francisco residents were awestruck by the possibility that a rent increase like this could be legal in light of the San Francisco Rent Ordinance. The answer lies within the interrelationship between the Rent Ordinance and San Francisco’s long history of illegal units.
The Rent Ordinance of 1979 protects tenants of multi-unit buildings from unjust evictions and from rent increases beyond a set amount each year – a percentage tied to inflation. An illegal unit is a rental unit in a property that is not permitted for separate occupancy. Two key points of note are relevant to this case. First, with respect to the Rent Ordinance, a single-family home with an illegal unit is considered a multi-unit building. Second, illegal units are covered by Rent Ordinance rent control protections. In general, while illegal units have “just cause” eviction protection, they are not protected from large rent increases. “Just cause” eviction protection means that a tenant can only be evicted for one of the just causes outlined in the ordinance. Notwithstanding the Rent Ordinance, if a landlord legally converts a multi-unit property to a single-family home, the rent increase protections no longer apply to the newly merged unit.
Before a landlord may take a legal unit out of service by demolishing it, she is obligated to go through a discretionary review with the city’s Planning Department. But when the unit is illegal, the landlord only needs to secure building permits. With that said, failure to secure a permit to remove one of the units, results in an illegal and improper merger.
For this particular property, the downstairs unit was an illegal unit, unpermitted for occupancy. Thus, the property falls under the city’s rent control law, as it is a two-unit building built before 1979, with one legal and one illegal unit.
When the tenant who had been living in the downstairs unit for more than a decade moved out, the landlord “demolished” the downstairs unit by removing the stove, sink, and toilet and labeled the unit as “storage space.” That change converted the building into a single-family dwelling, with said storage space, effectively dissolving its protection against large rent increases. However, the Department of Building Inspection reported that the landlord in question did not secure permits for removing either the kitchen or bathroom; thus, the merging of the two units is likely illegal.
Further, some landlords have discovered a workaround in the Rent Ordinance, which they use to attempt to free themselves of tenants and any relocation payments required under the law – much like this case. In performing a constructive eviction by rent increase, the landlord raises the rent to an amount that the tenant cannot afford sustainably. The tenant is forced to relocate, without being formally evicted or collecting a relocation payment.
In this case, the landlord alleged that the rent increase is due to the fact that the tenant now has access to the lower level as personal storage space. If the tenant filed a wrongful eviction lawsuit, it would be necessary to evaluate the rent hike as a fair increase based on the new terms and added space. Therefore, the legality of the increase hinges on whether the rent increase to $8,900 is above market rate for the kind of unit and the new terms offered.
While the Bernal Heights resident that caused the social media uproar by posting her rent increase notice may, in the end, vacate her unit, landlords must be aware – such rent increases may result in legal proceedings in addition to bad press.
About the author:
Jasna Veledar is an associate at the Hooshmand Law Group, where she focuses her practice on landlord-tenant litigation and business litigation matters.