January 22, 2009

1. REGISTERED SEX OFFENDERS ON RENTAL PROPERTY

Possible Issues:

A) Landlord discovers Tenant is, or has become, a sex offender
This is the situation when a tenant has a current lease, or the rental property is located in a rent control jurisdiction (i.e. tenancy cannot be terminated with 30 or 60 day notice). Unless tenant lied on the rental application regarding criminal convictions, or committed the act on the property (violation of lease provision prohibiting illegal conduct), it does not appear that there would be a grounds for eviction. Could a landlord inform the other tenants of the presence of the sex offender? Assuming the sex offender properly registers, the information contained in the sex offender database can be disclosed to protect "persons at risk". This is not a clearly defined category. Some have said a person at risk is literally only the person or persons against whom the sex offender committed the crime. Others say it is basically all persons in the category of the victim of the sex offender. For example, if the sex offender committed a crime against a child, and there are children in the complex, it would warrant a disclosure of the sex offender's status by the property manager. For reasons discussed in the next paragraph, it does appear that all children may be in the category of person at risk. While there is a risk to such disclosure, the risk for not disclosing may be greater. If sued by a family with a young girl, versus being sued by a sex offender, it is likely that a jury would be far more sympathetic to the family with the young girl. However, there is still risk. It may be wiser to just have periodic announcements to tenants regarding the availability of the database so that tenants can take on the responsibility to check the database if this is a matter of importance to them.

B) Prospective tenant is a sex offender
It is not clear whether a sex offender is a legally protected class at this time. It appears that a registered sex offender could be denied housing to protect a person at risk. “Person at risk”, as discussed above, is not a clearly defined concept at this time but could be a basis to deny a prospective tenant. Also, given Penal Code section 290.46 which prevents sex offenders from living within 2000 feet of schools or parks where children congregate, it is not much of stretch to say that a landlord who has a complex in a neighborhood with children, or a complex where children live, or indeed may live, could deny tenancy based on the fact that this California law appears to establish a policy in this state that requires extra care be taken to protect children from sex offenders. It suggests that persons at risk clearly includes all children. Also supporting not renting to sex offenders is the fact that Section 8 housing assistance is not available to registered sex offenders. Federal law even requires public housing authorities to do an extensive criminal check to confirm that applicants are not registered sex offenders. [24 CFR § 982.553(a)(2)(i)]. This federal status appears to clearly state that federal law does not to place sex offenders in a protected class. Also as a practical matter, it would be exceptionally difficult for a court today to rule that sex offenders are a protected class, given the numerous prohibitions and restrictions placed upon them by California and Federal Laws. A landlord is probably safe (probably because no specific case law on this issue exists) in denying a rental unit to a registered sex offender, especially if the unit is located in an area with children, based on the need to protect persons at risk and given the state of the restrictions placed on sex offenders by state and federal law.

2. LEAD PAINT

There is no change in existing law
If the rental property was built prior to 1978, a landlord must provide tenants with a statement providing the tenant with any information a landlord has regarding lead based paint in the unit. Also, the landlord must provide the tenant with the pamphlet “Protect Your Family from Lead in the Home”. CAR form FLD complies with the law for the landlord statement and should be provided with the booklet with the residential lease for all pre-1978 properties.

3. MEDICAL MARIJUANA
California law allows individuals with the appropriate doctor’s note to possess and cultivate certain quantities of marijuana. This is legal under California law. However, possession and cultivation remain a violation of federal law. The most serious consequence for a landlord allowing marijuana possession and/or cultivation in his or her property is that if the property is raided by the federal authorities, and they find marijuana possession/cultivation on the property, the federal government could attempt to seize the landlord’s property using asset forfeiture laws.

CAR’s lease, and indeed most leases, prohibits doing unlawful activities or using the property for unlawful purposes; not just unlawful under state law, but law generally. Therefore, marijuana possession/cultivation is a violation of federal law and could be a basis for the landlord to evict the tenant. Furthermore, a recent case in the employment arena with respect to medical marijuana suggests that the California Supreme Court is applying a narrow interpretation of the medical marijuana law, taking the stance that the California law was enacted primarily to prevent medical users and caregivers from being prosecuted criminally, rather than giving a general protection to medical marijuana users in other areas of the law. In that case, an employee who used medical marijuana outside of work was denied employment due to a negative drug test result and the court ruled in the employer’s favor using their narrow construction of the law.

Therefore, C.A.R. believes that there should be no problem disallowing the use of medical marijuana or cultivation. However, there is one area of concern: If a landlord prohibits the activity and the tenant violates the rules, as a practical matter it maybe difficult to evict the tenant. Certain unlawful detainer courts could simply take the position that they will not consider a violation of a federal law (especially one in conflict with a California law) a violation of the lease, especially in certain counties or if there is a sympathetic tenant (i.e. one with cancer who uses medical marijuana to help with appetite). Certain counties, or sympathetic tenants' courts, may apply a more liberal reading of the medical marijuana law and render eviction on such a basis difficult as a practical matter.

4. PROCESSING SECURITY DEPOSITS AND RENTS WHEN THE RENTAL PROPERTY IS IN FORECLOSURE
Under current California law there are no provisions which permit a tenant to stop paying rent to his or her landlord, even if the landlord is not paying his or her mortgage and/or a notice of default is recorded. A property manager would still need to collect the rent and give it to the landlord. If the property manager is a dual agent, he or she would need to inform the tenant that the property is in foreclosure proceedings. If he or she has knowledge of the owner’s failure to pay the mortgage, the property manager should inform the tenant of that fact, but cannot advise the tenant to stop paying rent or other options. (He or she should advise the tenant to speak to an attorney.)

If a financial institution effectuates a foreclosure of the rental property while the tenant is still on the property, the property manager would then need to stop collecting rent as of the effective date of the foreclosure, as he or she is no longer the agent for the owner of the property. If, per the property management agreement, the broker has control over the security deposit, once a foreclosure occurs the deposit needs to be returned in full to the tenant. Since the previous owner no longer owns the property, he or she cannot spend money to improve/repair/fix the property and cannot deduct funds from the deposit for such purposes. If the landlord controls the deposit, the tenant should be advised to speak to an attorney regarding his options for recovery of the deposit.

There is one big caveat, however, to the above-stated treatment of security deposits: If the owner of the property is in the first year of ownership of the property and is not making payments on the rental property mortgage, the landlord is actually engaged in what is called "rent skimming". In such a situation, the REALTOR® who is a property manager would need to stop collecting rent and also terminate his or her agency relationship with the landlord. Otherwise, it could be interpreted by a court that the property manager was participating in a conspiracy to rent skim. Rent skimming is defined as actions by an owner in the first year of rental property ownership whereby an owner rents out his or her property and does not apply the rent to the mortgage. Note: This is only for the first year of ownership.

5. ELECTRONIC PAYMENT OF SECRURITY DEPOSIT/PAYMENT AND PAYMENT DATES
The effective date of an electronic payment of rent or a security deposit, to some extent, depends on the type of electronic transfer. For certain types of electronic payment, e.g. ones using ACH, there should be an electronic funds transfer agreement between the landlord and tenant which addresses this issue. If, however, it is a simple wire transfer of funds from the tenant's bank to the landlord’s bank then payment is considered to have been made as soon as the landlord’s bank receives the money (Commercial Code section 11104). Landlords should be very wary about offering wire transfer possibilities. If, for example, the landlord serves a three day notice to pay rent or quit, and then the tenant does not pay within the three day period, normally a landlord has a strong unlawful detainer case. Landlords are usually advised not to accept rent after that three day period if they wish to pursue an unlawful detainer as that could, and usually will, be ruled to be a waiver of the three day notice. However, with a wire transfer option, the tenant can deposit the money in the landlord's account after the three days and suddenly has an argument for waiver by the landlord. Unlike, for example, if the tenant mailed a rent check after the three days which the landlord does not cash. In the case of wired funds, the landlord cannot argue that he or she did not actually receive the cash. The landlord could try to send it back, but depending on the landlord-tenant judges in the area, the receipt of funds in the landlord’s bank account could end up voiding any three-day notice.