In the latest pitched skirmish of the residential rent wars being waged across the San Francisco Bay Area, the City of San Jose recently took action in a provocative effort to tip the scales in favor of tenants. After a seven-hour hearing on April 18, 2017 that included more than four hours of testimony, the San Jose City Council adopted two ordinances, each by a divided vote of 6-5, that create expansive new protections for renters in the city, at least on the surface.
The first ordinance, the Tenant Protection Ordinance, requires landlords to have just cause to terminate a month-to-month tenancy. Under state law, in the absence of other requirements, landlords may give month-to-month tenants 60 days’ notice to terminate the tenancy without having to state a reason. Under San Jose’s new law, landlords must demonstrate one or more of the following grounds in order to terminate a month-to-month tenancy:
- Nonpayment of rent (excluding rent withheld as permitted by law).
- Material or habitual violation of the terms of the tenancy.
- Damage to the rental unit.
- Refusal to agree to a new rental contract.
- Nuisance behavior.
- Refusing access to the rental unit.
- Unapproved subtenants holding over after the end of the term.
- Substantial rehabilitation of the rental unit, subject to certain conditions, including payment of relocation assistance and refund of security deposit
- Removal of the tenant under the Ellis Act, subject to compliance with the new relocation assistance requirements (see below).
- Owner move-in, subject to payment of relocation assistance and refund of security deposit.
- Governmental order to vacate.
- Vacating an unpermitted rental unit.
To comply with the requirements of this ordinance, a landlord must give the tenant a notice of termination in the form prescribed by the City; this notice must state one or more of the just cause grounds for termination. In addition, the landlord must mail or deliver a copy of the notice to the City within three days of service on the tenant. Further, in the event an unlawful detainer action is filed, the landlord must mail or deliver a copy of the summons and complaint served on the tenant to the City within three days of service on the tenant.
Due to these new requirements, landlords will need to be even more careful in carrying out the notice and service requirements for eviction, above and beyond the normal care required for unlawful detainer litigation, in order to comply with the just cause grounds for termination. The new ordinance makes failure to comply with these requirements an affirmative defense against an unlawful detainer action, and provides civil and criminal penalties for failure to comply. Finally, the new ordinance bars landlords from retaliating against tenants for exercising their rights under the ordinance, and creates a rebuttable presumption that any action taken by the landlord against the tenant within six months of exercising the rights granted under this ordinance is retaliatory. You can read the full text of the Just Cause ordinance here.
The second ordinance requires landlords exiting the residential rental market pursuant to the Ellis Act (a California law barring local governments from forcing property owners to rent or lease their property) to give tenants additional notice as well as relocation assistance. This new law requires San Jose landlords of rent-controlled property to give tenants at least 120 days notice (one year if there is an elderly or disabled person in the household) of their intention to take their property off the rental market in order to allow those tenants to find new housing. Further, when the tenants vacate, the landlords must give them financial assistance consisting of first and last months’ rent, a new security deposit, moving expenses, and application fees for new housing (with additional assistance required if the household contains school-age children or elderly or disabled persons). In the event the landlords bring their property back into the rental market within five years, the departed tenants must be provided with the opportunity to move back into the units that they vacated at their old rental rate, plus a maximum increase of 5% per year since the property was taken off the market. You can read the full text of the Ellis Act ordinance here.
With regard to just cause terminations, it should be noted that the ordinance specifically deals with month-to-month tenancies. Fixed-term tenancies, which terminate upon the expiration of the term, appear to be outside of the scope of this ordinance as long as they do not convert to month-to-month tenancies at the end of the term.
Until the enactment of this new just cause ordinance, San Jose was the last of the Bay Area’s three largest cities, and one of the last major cities in California, not to impose this requirement for eviction on landlords. Unlike San Jose’s existing rent control ordinance, which applies only to those 43,000 rental units built before 1979, the new “just cause” ordinance includes all San Jose rental properties having three or more units. As such, these requirements are estimated to apply to at least 100,000 rental units in San Jose, housing approximately 450,000 renters.
While the intent of these new laws was to provide San Jose residential tenants with advantages with respect to their landlords, these laws have a substantial potential for triggering unintended negative consequences for San Jose’s rental housing market. One major concern with these new laws is the chilling effect they may have on future housing development in San Jose. If developers have concerns about their return on investment for San Jose housing, they may decide to build in other places. If that occurs, the chronic shortage of housing in San Jose will not be remedied, and unless the demand for housing in the area falls, market forces will continue to drive rents up. Without increased housing supply, this vicious cycle will proceed unabated.
About Daniel S. Gonzales:
Daniel S. Gonzales is of counsel with the law firm of Ferrari Ottoboni Caputo & Wunderling LLP in San Jose. For more than 20 years, Mr. Gonzales’s focus has been on California real estate law and related business law matters, representing public agencies, private institutions, commercial enterprises, and individuals in an extensive range of commercial and residential real estate transactions.
This article was prepared by Daniel S. Gonzales in his personal capacity. The opinions expressed in this article are the author’s own and do not reflect the view of the Santa Clara County Association of REALTORS®.