New Legislation and Litigation Burdens Real Property Owners and Managers
This article is intended to inform rental property owners and managers of new legislation for 2003 that affects the way they operate their properties, as well as identify the top three litigation trends against property owners to meet your needs and interest, we would appreciate any feed back on the subject we are covering. Contact Tom Loegering, C.P.M.®
Tenants of residential real property in 2003 must be served with a sixty-day notice of termination instead of the normal thirty-day notice if the tenant has been in possession of the property for one year or longer. The new law also requires landlords give written notices to enter the premises in most cases and provides for an easier way for tenants to apply to the court for reinstatement of their lease during an unlawful detainer lawsuit.
Residential tenants are still required to serve only thirty-day notices of termination, and the new law only applies when your tenant is on a month-to-month rental agreement.
Also signed into law is AB 2330 which creates a pre-move out inspection right of residential tenants and other new procedural requirements for residential landlords regarding the disposition of the security deposit. It also takes away the ability of a landlord to charge a processing fee for new residents, just recently permitted by the California Supreme Court.
The new law requires owners or managers to notify residents within a reasonable time before their lease terminates that they have a right to an inspection of the unit within two weeks before the lease terminates to determine what items, if any, will be deducted from their security deposit. If the tenant requests the inspection and the parties agree on a date and time, the owner or manager must still serve the tenant with at least a 48-hour notice of time and date of the inspection, unless waived. If the tenant fails to request the inspection, no inspection before the move-out is required.
At the time of the inspection, the owner or manager must leave the resident(s) with a written statement itemizing the deduction that will be made if not corrected by the time of the move-out. The resident is not required to be present at the date of the inspection and, in that event, the statement must be left inside the premises. The statement must also contain specific statutory language reminding the tenant of his or her rights and obligations regarding the security deposit. The new law also clarifies what standard of cleanliness is necessary for the tenant to not be charged for cleaning: the premises must be left in the same level of cleanliness that existed at the time of the tenant’s occupancy.
The new legislation also dramatically increased penalties to landlords for wrongful withholding of the security deposit. After January 1, 2003, the new penalty will allow judges to award up to twice the amount of the security deposit. The current penalty limit is $600.00. However, it is rare for a court to award a penalty, as the tenant must prove “malice.” Malice, in this context, is the ability but refusal to return the deposit without actual or perceived legal defenses and while acting in bad faith.
The owner or manager retains the right to charge the tenants for any damage that occurred between the time of the inspection and the time of the move-out and for any damage not seen because of the presence of the tenant’s personal property inside the unit.
Senate Bill 460 also will become a new law on January 1, 2003, and although it does not require property owners to inspect for or remove lead-based paint hazard will render the property sub-standard and subject the tenant to the right to withhold rent or abandon the lease without further responsibility. The premises, however, must first be identified as containing a lead-based paint hazard by a local enforcement agency. No penalty will be assessed until the owner has had a reasonable opportunity to control the hazard.
Many residential and commercial property owners and managers are facing a wide variety of lawsuits against their properties or the way they operate in 2003. Consider the three most common types of lawsuits filed against California rental property owners and managers.
Fair Housing Violations
Fair housing liability continued to broaden in 2002, illustrated by two recent examples. First, the United States Supreme Court agreed to accept a case to decide if real estate executives could be sued individually when their staff discriminates against customers. Second, in 2002, HUD brought charges against a residential property owner for the first time for racial discrimination on behalf of a tenant’s guest, accusing him of evicting a white tenant because of African American guests.
The most common type of fair housing violations filed in 2002 in California in order were race and national origin, followed by disability, then children/familial status.
Toxic Mold
Claims for personal injury and property damage caused by mold growing inside apartments are rising dramatically and although there is a bill in Congress to study the issue, there are currently no federal or state guidelines regarding toxic mold. Therefore, a claim of simple negligence on the landlord’s part is all that is needed to file a lawsuit. Toxic mold cases have become the next big tort wave to hit the rental housing industry following lead-based paint and asbestos.
Less than on year ago, a Sacramento court awarded defendants over 2.7 million dollars for toxic mold-based injuries and property damage. The significance of this case is not just the amount of the award, but it was the first time in the nation that a verdict was awarded for the plaintiff based upon their alleged personal injury as a result of toxic mold. In 2002, a Los Angeles case settled for several million dollars involving eight families in federally subsidized housing. Some of the claimed injuries were respiratory problems, skin rashes, headaches, lung disease, cognitive memory loss and brain damage.
Generally, insurance carriers argue that if the infestation of mold was due to lack of routine maintenance, the owner is most likely not protected. Therefore, the most important issue is what caused the loss. Documentation of the cause of the mold growth is therefore extremely important in these cases.
We also recommend that you address mold in your lease. Document and clearly outline what the residents’ responsibilities are regarding maintaining the premises in a manner that will not attract mold. Also, the lease should lay out the residents’ responsibility for notification to the landlord and removal procedures.
Proposition 65 Lawsuits
Proposition 65, the law that requires all businesses that employ more than 10 persons to warn individuals before exposing them to even very small amounts of almost the thousand listed chemicals, is finding its way into the courts through private attorneys who are taking advantage of the “bounty hunter” provisions of its regulations. The chemicals listed are known to cause cancer and birth defects. Attorneys’ fees and costs, as well as a bounty fee of 25% of any assessed penalties or fines can be recovered if the suit prevails.
The Act specifically prohibits any person, in the course of doing business, from knowingly and intentionally exposing any individual to a chemical known to the State of California to cause cancer or reproductive toxicity without giving a specified warning. Substances that contain chemicals on the list include lead-based paint; second-hand smoke, barbecue smoke and automobile exhaust fumes.
The smart money spent on legal protection in 2003 will be in terms of education, training and an audit of all documents, policies and procedures to ensure compliance with today’s laws and regulations.
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