Walk the Property Line

from SF Apartment Magazine April 2023

by sfaa1917

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written by JUSTIN A. GOODMAN

While property ownership (the “fee simple absolute”) has historically been the supreme form of property right, the leasehold has had many of its benefits. The owner’s “bundle of rights” includes the right to use, transfer, encumber, and occupy. But during the leasehold, the lessee enjoys the most important one—the right to occupy. There are barriers to entry for property ownership, but the lessee acquires this right at a much lower cost, generally just the obligation to pay a negotiated rent.

A landlord can use this rent to pay the property’s costs (like financing, taxes, insurance, and upkeep), but if a lessee stops paying rent while maintaining occupancy, the landlord has an urgent problem. In the early nineteenth century, the landlord had common law rights and remedies (like the right to enter and expel the tenant by force). That seems unthinkable today, and part of the reason is that the legislature created the fastest civil proceeding (the “unlawful detainer” action) to recover possession.

A balance was struck where the landlord could speedily recover possession, ignoring other disputes among the parties, while the lessee received due process and an undisturbed right of possession until it was awarded to the landlord.

However, in recent years, tenants have grown increasingly adept at slowing the speedy remedy to a crawl: tenants dodge service, challenge the complaint to delay their answer, and then overload their answer with meandering affirmative defenses. They bombard with discovery, demand a jury, appeal the result if they lose, and seek a stay of eviction pending appeal. Of course, any defendant is entitled to do all these things; it’s just that San Francisco tenants don’t have to weigh costs and benefits. Their attorneys are free, so the cost is zero, and the delay is a benefit in itself. Thus, even when the system functions normally, it operates to give the tenant the most significant benefit—possession—unless and until the landlord pays them to acquiesce to what should be inevitable.

Other circumstances, though they don’t involve a tenant, will still justify the streamlined unlawful detainer procedures, like when someone was merely licensed to occupy property, their occupancy had been tied to their former employment, or even where an owner was already in lawful possession, but someone broke in or used force to drive them out. This latter situation sounds a lot like a crime, and you’d think the local police would just say something folksy like, “We’ll take this rascal down to the station, y’all have a good evening” while escorting the owners back in. But the police department will usually err on the side of caution and conclude, “This is a civil matter,” meaning the “squatter with a story” now gets due process before dispossession.

As a lawyer who represents landlords, I don’t believe that possession is really nine-tenths of the law, but it’s easily ninety percent of the benefit. And if the tenant in possession has a benefit superior to the landlord, sometimes an occupant with inferior rights can muster an even more formidable claim to possession. Some particularly strained examples:

A “tenant” applies for a unit, passes the application process, and moves in. The “tenant” stops paying rent. The landlord can’t evict for non-payment (because of a COVID-19 moratorium) and looks for other options to avoid losing the property. An investigation reveals that the “tenant” is an identity thief (who is therefore undeterred even by the threat of a money judgment ruining their credit). One solution is the rescission of the lease (on the basis of fraud), and the revocation of the “license” to occupy that arose from the rescinded contract. This threads the needle on invoking the speedy unlawful detainer statutes and getting through the moratorium, though it makes for a decidedly more complicated prove-up.

Another example: Unbeknownst to the landlord, a guest stays with her tenant. Overstaying her welcome, she is permitted to sleep in a garage space. The tenant ends their tenancy, returning the unit to the landlord vacant. But the guest is later in possession of the unit (presumably having broken in), claiming to have a sublease with the departed tenant. Eviction protections extend to known sublessees (not secreted ones), and forcible detainer actions will remove someone who broke in. But the relevant facts are only known to the dishonest defendant and the now departed (and possibly complicit) former tenant, so the path forward is unclear. A solution is to plead both paths, being cautious not to plead inconsistently so that each path frustrates the other. (If they were a subtenant, they didn’t break in. If they gained access as a guest, they weren’t unknown.)

Sometimes the speedy path is the wrong choice altogether. For instance, an owner buys the property out of bankruptcy, inheriting an occupant who claims to be a tenant with a term lease. The lease is commercially unreasonable, with an absurd rent, and the property is unfit for human occupancy, making it all the more unlikely. (But a bankruptcy wants to sell assets and satisfy creditors, not solve puzzles). As you might expect, no rent is ever offered, but should any be accepted? In rare circumstances, even the rent ordinance will permit adjustment to an appropriate rate, but the conditions tee up an indomitable habitability defense to a rent demand case. The Ellis Act or a demolition eviction could theoretically be used, but all of these concede the fraudulent defense—the existence of a tenancy. The unlawful detainer statutes provide no template for this scenario.

One solution is common law ejectment, a regular civil action for recovering possession. It allows murkier theories to proceed at a slower pace but also lets in cross claims (like those against the original bankruptcy debtor), wackier theories (like a surprise, longer term lease with even more favorable terms), and guest stars (like the girlfriend who tries to litigate her rights under the lease to a rent offset for habitability defects at the Rent Board, even though she isn’t even named on the lease, no rent has ever been paid, and the Rent Board, seemingly can’t do anything for the petitioner, but can create a procedural nightmare for the owner with collateral estoppel problems). With forays back into bankruptcy court and games of “whack-a-mole” against the flurry of incessant claims, a case like this could take years, not months, to progress. And when it finally gets to trial, a property owner could be totally justified in agreeing to pay the price of a house anywhere else in the country to get all these moles to burrow somewhere else.

Of course, every one of the above cases is hypothetical, and none of the characters are real—especially the hyper-litigious moles who definitely don’t resemble anyone I’ve ever met. But if I had to write a satisfying (and completely fictitious) epilogue, it would be that, instead of leaving, the supposed “tenant” merely announced his departure, demanded the settlement payment, and then moved right back in as the “guest” of his girlfriend (who was never named a tenant in the fake lease, and was therefore never named a party in the real… err… lawsuit I just made up). She nonetheless claims that she’s a tenant on the lease as well and wants her own windfall to vacate. Unlawful detainer judgments encompass other occupants; ejectment judgments don’t.

One solution is to file an unlawful detainer against her on the basis that she’s merely the subtenant of a departed tenant. (Remember, the subtenant has to be unknown for this to work.) The girlfriend explains that, while she’s not named in the lease, she always contributed to the rent funds and should have been named, testifying that she was a tenant, not a subtenant. Years prior, the Rent Board, dismissed her petition when she couldn’t establish she was a tenant. Because she insisted she was not a subtenant, she could not later claim to be an approved one. And because the boyfriend claimed he moved out to demand the money, he couldn’t now claim to be back to stop the eviction.

The owner recovered possession in the unlawful detainer action a year after the settlement, essentially through a series of estoppel arguments. When the boyfriend moved the court to order the payment of settlement funds, it ruled that he breached the agreement by failing to deliver possession. If a hypothetical case were to conclude this way, it would be very satisfying to see a smug fraudster lose it all because he didn’t know when to stop lying.

These bizarre situations show how the unlawful detainer statutes are sometimes unrecognizable from their original purpose. Enacted to eliminate the landlord expelling by force, they confer due process when a trespasser does so. The more infirm the basis for entering property, the longer it can sometimes take for the landlord to get them out. And even a proper tenant these days has seen their basic obligation turn to suggestion.

This is a bleak era for property rights, and it’s unlikely the legislature will expand the application of speedy remedies, ease the evidentiary burden of proving them, or mitigate the procedural abuses that are now defensive mainstays. Instead, property owners and managers need to be well-informed in how they create rights of possession, and how they pick fights to get possession back. While the rare case might not have a right answer, most have an inevitable one. Cautious choices along the way should result in the recovery of possession and a good story.

Koster & Leadbetter LLP The Flood Building 870 Market Street • Suite 450 • San Francisco, CA 94102 www.kosterleadbetter.com