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Wednesday
Apr092014

Rent Control re Former Resident Managers: Good News for Landlords

Business LitigationCommercial Real Estate Litigation Attorney

 

by Nicholas Kanter
818.907.3289

 

Many apartment building landlords utilize a resident manager to manage day-to-day operations. The resident managers are commonly provided rent-free or reduced-rent accommodations in exchange for performance managerial duties.

When the landlord decides to terminate the managerial duties and start charging rent, the question of how much rent may be charged in a rent-controlled apartment often arises. The Court of Appeal in 1300 N. Curson Investors, LLC v. Drumea recently answered this question.

Landlord LawIn Drumea, the plaintiff-landlord terminated the defendant-resident manager’s managerial duties after eight years. Prior to being a resident manager, the defendant was a tenant at the rent-controlled apartment paying $850 per month.

Concurrent with terminating the defendant’s managerial duties, the plaintiff served defendant with a rent increase notice which advised the defendant that she would have to start paying rent in the amount of $1,552.03.

The defendant refused to pay the increased rent claiming it violated the Rent Stabilization Ordinance (RSO) because:

 

  1. She was never served with annual rent increase notices during her eight years as a resident manager, and

  2. The rent increase was cumulative and retroactive in violation of the RSO.

 

Accordingly, the plaintiff filed a lawsuit seeking a declaratory judgment that the increased rent demand was lawful. While the RSO requires a landlord to serve a tenant with a notice in advance of any annual rent increase, and prohibits cumulative or retroactive rent increases, the Court found that such requirement and prohibition do not apply to a former-tenant resident manager that was paying no rent:

We conclude that a former resident manager who was already a tenant in the unit before being appointed resident manager may be charged rent upon termination of managerial services in the amount of the rent the former manager had been paying tenant, plus the annual adjustments authorized under the Ordinance, and the landlord has no obligation to serve annual registration statements or notices of rent increases during the period that the former manager occupied the unit rent-free. 

The Court reasoned that this decision was consistent with the purpose of the RSO in that it protects a former-tenant resident manager from having to pay the prevailing market rental value of the apartment, if the market rent has increased more than the increases allowed under the RSO.

California Law Commercial PropertyTwo words of caution: although the RSO mandated annual rent increase notices and annual registrations statements do not need to be served on resident managers that pay no rent, these notices must be served on a resident manager that pays partial rent.

Moreover, to avoid a wage and hour claim, a landlord employing a resident manager must also make sure he/she is paying minimum wage for all hours worked and applicable overtime. If the landlord is providing living accommodations towards minimum wage, there must be a voluntary written agreement that explicitly references that such credits are being applied toward the minimum wage obligation of the landlord-employer and the credit must not exceed the permissible caps as stated in the wage order.

Nicholas Kanter is a Real Estate Litigation Attorney and Shareholder in our Business & Civil Litigation Practice Group. Contact him via email: nkanter@lewitthackman.com.

For more information concerning proper payment and documentation of wages for a resident manager, contact Sue M. Bendavid, Chair of our Employment Practice Group via email at: sbendavid@lewitthackman.com.


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