PropertyManager.com » KTS-Law

Think Lodging Credit is Easy? Think Again

KTS-Law — Fri, 02 Dec 2011 21:05:36 +0000

There has been a recent influx in lawsuits by employees in the property management business. After much consultation and defense of employers in this industry, it has become clear that many employers fail to correctly pay taxes on lodging credit. One of the major problems employers have is grasping the understanding that lodging credit is still “compensation” for tax purposes.

Lodging credit is viewed as a benefit for employers, not only for minimum wage obligations, but also for large tax savings. However, like all California employers, the property management industry must comply with all state and federal laws, including all employer tax obligations and requirements.

Determining what constitutes gross income is the key to understanding an employer’s tax obligation. For tax purposes, gross income includes basically anything of value that a taxpayer receives. For employees, this obviously includes their monetary wages, but it also includes anything else they are given as compensation for their employment, including any “qualified lodging” provided by the employer.

In its simplest form, and for tax purposes only, “qualified lodging” includes any lodging provided by the employer that is:
1. Provided on the business premises;
2. For convenience of employer; and
3. A condition of the employee’s employment

Whether an employee’s compensation includes part lodging credit and part monetary compensation, or whether due to the employee’s limited hours and work schedule he or she receives only lodging credit as his or her sole compensation, an employer must always pay California Unemployment Insurance and State Disability Insurance. However, “qualified lodging” is not subject to Social Security and Medicare taxes.

Lodging credit is great for the employer, as long as understood in its entirety. If you are an employer in the property management industry, or some other similarly situated industry, and you currently do not pay these required tax obligations on your employees’ lodging credit, implement this policy immediately, as it has the potential to save you the expense of future tax penalties and the headache of a Franchise Tax Board audit and/or IRS audit.

You should consult with an attorney for any additional information regarding the requirements of using lodging credit as well as other tax related issues.

Written by: Michaelene H. Kapson, Esq. and Karl P. Schlecht, Esq.

Kimball, Tirey & St. John LLP provides employment law advice to its clients and only represents employers. For more information about this article, please contact partner Karl Schlecht at 800-564-6611.

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Judgment Debtor Exams and the “Secret Lien”

KTS-Law — Tue, 23 Aug 2011 23:14:53 +0000

If you were successful in obtaining a judgment against a former tenant or other third party, chances are you will not be paid voluntarily. Sometimes obtaining the judgment may prove much easier than collecting it. This article will discuss judgment debtor examinations and the “secret lien” which are little known tools that can lead to success in the collection effort.

Creditors routinely collect judgments by bank levy, wage garnishment, and payment plan. In the vast majority of cases, though, a creditor does not know where the defendant currently banks or works. A post-judgment debtor examination in court is an excellent way to find out this information and is the post-judgment equivalent of a deposition.

To initiate the process, a creditor wishing to examine a defendant may reserve a court date by submitting a Judicial Council Form entitled Application and Order for Appearance and Examination to the Clerk of the Court. Once filed, the creditor must personally serve the judgment debtor with the order to appear at least ten days prior to the court date.

Most often, the proper court for the examination proceeding is the court in which the judgment was entered. However, if the debtor resides in a different county and more than 150 miles from the courthouse where the judgment was entered, the examination must take place in a courtroom nearer the defendant. To file for an order to appear in a court other than where the judgment was entered, the creditor must file a special application and affidavit with the court along with an additional filing fee. Prior to submitting this application, the creditor must file an abstract of judgment in the court where the examination is sought.

Upon service of the order, the judgment debtor is required by law to attend. In the event that the judgment debtor fails to appear, a bench warrant may be issued by the court for the debtor’s arrest. Typically, the court sets bail in the amount of the outstanding judgment.

When appearing in court for the examination proceeding, the defendant will be sworn by the Clerk of the Court and under oath. The debtor must reveal and identify all assets at the examination hearing. The creditor may properly present questions pertaining to place of business, banking, inheritances, automobiles, personal property, and real estate, for example.

Courts allow very extensive and intrusive lines of inquiry. As one court opined, the purpose of the examination is to “leave no stone unturned in the search for assets which might be used to satisfy the judgment.” Thus, seemingly remote questions are relevant if they could lead to the existence and location of an asset. The widest scope of inquiry concerning the property and business affairs of the debtor is permissible. Interestingly, even the privilege not to testify against a spouse or registered domestic partner is unavailable to the defendant. The creditor may examine the judgment debtor’s spouse concerning any property in which the debtor has a legal or equitable interest.

One aspect of the judgment debtor examination proceeding that is often overlooked is the “secret lien” that is created upon serving the debtor with the order to appear. Once the debtor is served, a one year lien is automatically placed on all of the debtor’s non-exempt property whether or not it is in the debtor’s possession and control. In fact, the creditor need not actually examine the debtor for the lien to be effective because the service of the order to appear creates the lien.

The lien is a statutory creature that is not published or recorded. The debtor may not even know of its existence. This “secret lien” can be especially beneficial in post-judgment priority litigation or, in some circumstances, a bankruptcy proceeding.

As you might expect, most defendants loathe the courtroom experience. Unless you’re a judge, lawyer, bailiff, or court clerk, the courtroom is a foreign land to be avoided. Because the exam is open to the public, it can be an embarrassing and harrowing circumstance for the defendant. Based upon pure psychology, the service of an order to appear in court can be an outstanding negotiating tool. It literally brings your defendant to the table.

In order to maximize the mechanism, a turnover order can be obtained in conjunction with the examination proceeding. Under a turnover order, the judge can require the appearing defendant to deliver any money or property in his or her possession to the creditor or to the sheriff on the spot. For this reason, it is recommended that the attorney for the creditor apply for a writ of execution prior to the examination date. With the issued writ, the sheriff can properly confiscate monies from the defendant at the judge’s request.

The secret lien, negotiating leverage, and the ability to obtain a turnover order make the judgment debtor examination an especially effective collection tool. Is your collection partner using judgment debtor examinations and the “secret lien”?

Written by: D. Patrick O’Laughlin, Esq.

KTS’s Creditors’ Rights and Collection Practice Group utilizes all available collection tools to ensure our clients have the best opportunity in collecting all monies past due. For more information about collections, please contact us at 800-575-1770 and review our website at www.kts-law.com.

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Case Investigation: Maximizing Commercial Collection

Case Investigation: Maximizing Commercial Collection

KTS-Law — Fri, 29 Jul 2011 18:44:57 +0000

Commercial collection may be straightforward when a defaulting debtor owns significant real property, has lucrative relationships with identified third parties, or maintains significant money in readily identifiable bank accounts. Commercial collection may be more challenging if a debtor’s assets aren’t as obvious, either because the defaulting debtor has few or no assets, or its assets aren’t as readily apparent.

California has a statutory scheme that provides mechanisms for judgment creditors to recover money involuntarily from judgment debtors. However, a creditor cannot collect if the judgment debtor’s assets cannot be located.

Identifying a defaulting debtor’s assets can be helpful even if a creditor does not have a judgment. Almost all defaulting debtors claim financial distress. A creditor with good information about a debtor’s assets and financial condition will have a better idea of how hard a debtor can be pushed for payment before the debtor is forced into bankruptcy.

Locating debtors and assets is referred to in the collection industry as “skiptracing.” Skiptracing is particularly important in commercial landlord/tenant debt collection because, after an eviction, the tenant has relocated and must be found. One must have the necessary tools to locate a debtor and its assets. Effective skiptracing requires technology, creativity, and persistence.

Public records can be used to locate debtors and their assets. Property ownership records, bankruptcy records, fictitious business names, and business licensing records can be valuable resources.

Most successful collection firms have business relationships with companies who compile and sell information such as employment, location, credit and other information helpful in locating debtors and assets.

Some collection firms specializing in debt collection have invested in software to help with collection. Software may track information about the debt, the debtor, and past collection activity and schedule reminders for future action. Custom software may interface with sources of public record and business credit information to compile potential leads on debtors and their assets. Specialized software may even “scrub” data and prioritize telephone numbers, addresses, and bank information based upon the veracity of the data. While custom software packages can cost hundreds of thousands of dollars, collection firms who make the investment offer their clients a higher rate of return.

While technology is a key component of effective skiptracing, the ability to locate debtors and assets also requires a collector’s personal attention and good judgment.

Law firms that specialize in collection have additional tools available to locate debtors and assets. Additional investigational tools available to collection lawyers include subpoenas, judgment debtor examinations, and interrogatories to judgment debtors. These tools are available only to law firms; they are not available to other third-party debt collection companies.

Commercial collection success requires good tools, accurate determination of which leads to follow and the best method of pursuit, and effective implementation of the chosen course of action.

Our Creditors’ Rights Practice Group effectively utilizes all available collection tools to ensure our clients the best opportunity to collect all amounts due. For more information about collections, please contact us at 800-575-1770.

Written By: D. Patrick O’Laughlin, Esq.

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A Landlord’s Inside Track to Debt Collection: The Bank Levy

Choose Your Collection Partner Wisely

A Landlord’s Inside Track to Debt Collection: The Bank Levy

KTS-Law — Mon, 14 Mar 2011 12:00:21 +0000

Written by D. Patrick O’Laughlin, Esq.

Our property manager / owner clients have a distinct advantage over other judgment creditors, because they typically know the bank and account number where their former tenant banks. Generally, this information is on the tenant’s application. If, however, the tenant has changed bank accounts, prudent property managers will take copies of rent checks to compare with the application to determine if their tenant has changed accounts. It is not uncommon for someone struggling financially to change bank accounts.

In order to levy a bank account, the judgment creditor must first request a writ of execution from the court. For landlord-tenant cases, this is the court where the eviction took place. Once the writ of execution has been issued by the court, the creditor must utilize the sheriff (or registered process server) to personally serve a copy of the writ and a notice of levy on the bank. In order to be effective, the levy must be served upon the branch where the account is held or at a centralized location within California that has been designated by the financial institution.

At the time of levy, or shortly thereafter, the sheriff must also serve the judgment debtor with a copy of the writ, notice of levy, and list of exemptions that may be available to the judgment debtor in California.

The bank is obligated to honor the levy provided that it can effectively identify the account holder. This seems like a simple notion. However, imagine that the levy was served at a major institution on the account of “John Smith.” The bank could conceivably have reasonable difficulty identifying the proper account to levy and, therefore, the levy would be ineffective. In light of this potential obstacle, a judgment creditor should include personal identification information on the levy instructions so that the bank cannot avoid the levy. Of course, it is appropriate to provide the bank account number on the levy instructions if available to the creditor. Creditors may also include the social security number of the defendant on the levy instructions and request that the bank levy all accounts held in the name of the judgment debtor including but not limited to those identified on the levy instructions. This “broad sweep” maximizes debt collection potential.

Once the levy is served, the bank must seize all monies in the defendant’s bank accounts. The levy reaches all monies in the accounts at the instant of levy. After the levy, the bank may not honor checks or other orders for payment drawn against the defendant’s accounts because, in essence, the accounts are frozen.

In the event that the bank account is held jointly with another party, the sheriff will instruct the bank to hold the levied monies for 15 days to allow the third party to make a claim on the levied funds. If a third party claims an interest in the levied funds, a court hearing will be necessary to determine whether the third party has a superior interest to that of the judgment creditor. In these instances, an “undertaking” may be required. An undertaking can be an expensive proposition for a judgment creditor since the court can require the posting of bond.

After the levy, the judgment debtor may assert that the levied funds are exempt from execution. If this occurs, a court hearing will be set to determine whether or not the levied funds are, in fact, exempt. It is incumbent upon the judgment debtor to trace the levied funds to an exempt source. Common examples of exempt funds are social security benefits, unemployment compensation, and disability payments. If the judge determines that the levied monies are exempt, the court will order the return of the levied monies to the judgment debtor.

California statutes also allow for the levy of safe deposit boxes. After service of the writ of execution by the sheriff, the financial institution may not permit the defendant to remove the contents of the safe deposit box. A bank officer or manager places a “boot” upon the lock so that the defendant cannot gain access.

Typically, additional fees must be submitted by the judgment creditor to drill the box and the judgment creditor must retain the services of a locksmith. The bank manager, sheriff, locksmith, and the creditor then meet at the bank at an agreed upon time and the locksmith will open the box. The defendant is entitled to be present at the time of drilling. After drilling, the box is presented to the judgment creditor for inspection. Typically, the bank manager will arrange for the availability of an office in which the creditor can carefully inspect the contents of the safe deposit box. If the creditor wishes, the contents may be delivered to the sheriff for sale. The proceeds of the sale are applied to the judgment. In order to sell the contents, the judgment creditor must obtain a “turnover order” from the court prior to drilling.

Over the years, our firm has discovered some very interesting items in the safe deposit boxes of defendants. Quite often, documentation is held in the box that can lead to the discovery of other assets. For example, on behalf of our clients, we have discovered deeds, stock certificates, wills, and automobile registrations.

Recently, our firm was retained to collect a relatively large judgment following a commercial eviction. For nearly a year, the defendant remained uncooperative and evasive. The defendant had taken great pains to hide assets. When we located and seized a safe deposit box, the defendant surprisingly (and quickly) came to the bargaining table. Prior to the scheduled drilling, the defendant offered to settle the case for $75,000. Our client accepted. While there was no longer a need to pursue the drilling, our client remained somewhat curious as to the contents of the box but was delighted with the outcome of the case.

Property managers have an inside track on other creditors since, by the nature of the landlord-tenant relationship, they often know where their former tenants banks, allowing for a successful collection process. Does your collection partner conduct bank levies? If not, they are leaving money on the table.

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Choose Your Collection Partner Wisely

Choose Your Collection Partner Wisely

KTS-Law — Mon, 07 Feb 2011 19:05:40 +0000

The battle on the collection field has always been fought with the sword and the shield. It is a game of offense and defense. When choosing a law firm or collection agency to represent you, it is important to find one that maximizes recovery with the “sword” while at the same time protects you with its “shield” from unwanted liability for alleged debt collection violations.

For these reasons, many landlords are now choosing law firms over collection agencies because they are much more likely to have developed a sophisticated risk management model that will minimize risk in an area of law that is fraught with litigation. In addition, a law firm generally provides avenues for collection not available to collection agencies, such as routine bank levies and wage garnishments, liens on real and personal property, and the seizure of automobiles. In the eyes of a debtor, a law firm is more intimidating than a collection agency such that a law firm naturally produces better results for clients.

The Sword
In order to maximize recovery dollars in this economy, it is crucial to utilize formal judicial enforcement techniques. Following an eviction and after a money judgment is obtained, your former tenant can also be served with an order to appear in court for a judgment debtor examination hearing if no assets are readily available for collection. At this hearing, the defendant is required to answer questions, under penalty of perjury, concerning his or her financial status and ability to pay. Through this examination, we typically find bank accounts, places of employment, and attachable personal property. In the event that the defendant does not appear in court for an examination hearing, a bench warrant may issue for the debtor’s arrest. If your current collection company does not use judicial enforcement techniques, you are leaving money on the table.

Your former tenant is also responsible for the court costs and sheriff’s fees incurred by the plaintiff in pursuing these collection activities and, in California, your judgment accrues interest at 10% per year until paid in full. The judgment is enforceable for ten years and can be renewed prior to expiration provided that you have attempted diligently to recover your money. Be certain that your collection agency or law firm assertively pursues the interest and costs of collection to which you are entitled.

The Shield
From a risk management perspective, federal and California law are decisively slanted in favor of debtors. The restrictions placed upon collection agencies and collection law firms are extensive. It is a highly technical area of law. Recent federal legislation and case law have created a legal environment that has become even more burdensome to collection companies.

Two primary bodies of law govern collection and credit reporting issues at the federal level: The Fair Debt Collection Practices Act (FDCPA) and The Fair Credit Reporting Act (FCRA). Penalties for violation of these Acts are severe. In addition to actual damages, a plaintiff may be awarded statutory damages in the amount of $1,000 for each violation, punitive damages, court costs, and attorneys’ fees. Each state also has its own credit and collection laws (usually mirroring the FDCPA and FCRA to some degree) which can provide additional remedies for recovery. Moreover, if a collection attorney or collection agency is found to have engaged in an unfair business practice, a creditor can be ordered to disgorge profits. Awards based upon unfair business practices can be substantial.

It is important to note that, as a landlord and creditor, you may be held liable for the acts of your collection company. The nature of claims against collection agents, and ultimately against creditors, generally fall into three categories: statutory violations, claims for negligence, and intentional torts. The FDCPA contains many common sense provisions (no deception, no abuse, and no harassment). However, the FDCPA contains some counterintuitive provisions that are particularly easy to violate if you are not an expert in the field. Violations of these technical provisions are penalized to the tune of $1,000 per violation. For example, if your collection agent continues to send form letters to a debtor who has properly asserted his or her statutory right that communication be discontinued, you can be held liable for $1,000 per letter.

Almost every year, Congress makes some changes to the FDCPA or FCRA, or a court takes on a peculiar interpretation of the legislation that causes a landslide of litigation. For this reason, it is unusual for attorneys to “dabble” in collections. Collection law is a very specialized area of law that requires a firm regularly engaged in that area.

Many claims arise from more than oversight, imprecision, or failure to stay abreast of legislative changes and recent rulings. Slander, libel, conversion, fraud, and infliction of emotional distress fall within this category. These claims often arise as a result of harassing actions by the agency or firm (repeated calls after permissible hours of contact, for instance), blatant violations of FDCPA guidelines (revealing the existence of a debt to a third parties), and deceit (threatening to take action that cannot legally be taken.)

As to the likelihood of claims, there may not be an industry that lends itself more to the incidence of risk. The number of boutique firms specializing in consumer and debtor representation has risen throughout the country. These boutique firms want to sue you. Attorneys General in many states have taken more active roles in pursuing and punishing rogue collectors. The directive from Congress, state legislatures, and the courts has never been stronger: impermissible collection activities will not be tolerated.

For these reasons, it is essential that you choose your collection partner wisely.

Our Creditors’ Rights Practice Group specializes in debt collection. We have recovered over $100 milion dollars for our clients. If you would like us to begin a collection matter for you, simply call 800.575.1770 or go to www.kts-law.com and click on “start a case.”

Written by D. Patrick O’Laughlin, Partner

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Money Judgment Advantages

KTS-Law — Tue, 22 Jun 2010 14:00:35 +0000

Unless your unlawful detainer case went to trial, you have the option of obtaining a monetary judgment after your tenant vacated the property. There are several compelling reasons to continue the action to obtain a money judgment.

A money judgment can be collected even from an uncooperative former tenant.
Without a judgment, an unpaid balance can be collected from a former tenant only using the collector’s powers of persuasion and threats of reporting unpaid debt to credit reporting agencies. However, if the landlord has a money judgment, the former tenant’s cooperation is no longer necessary; with a money judgment, an arsenal of involuntary collection tools becomes available. These involuntary collection tools include wage garnishments, bank account levies, vehicle seizures, seizure of other non-exempt personal property, till taps and keepers, and judgment debtor examinations.

A money judgment extends the time period for collection.
The statute of limitations for breach of a written lease is four years. Therefore, if a landlord does not obtain a money judgment, the landlord must cease collection efforts after four years. A money judgment extends the time period for collection to 10 years or more; a money judgment is effective for 10 years and can be renewed for additional 10 year periods.

It is not uncommon for a person’s financial situation to change significantly in a 10 year period. Many landlords who have obtained money judgments have been pleasantly surprised when they are paid years after a tenant’s breach of a lease, when the tenant is required to pay off a money judgment in order to qualify for credit to purchase a home or car.

Interest accrues on a money judgment.
Simple interest, at a rate of 10%, will accrue on the judgment amount. This 10% interest rate is a better return than a landlord can earn from many other investments.

The landlord’s right to collect 10% interest on the judgment amount may encourage the former resident to pay the judgment to avoid responsibility for interest in addition to the principal amount due. The ability to assess interest at a rate of 10% also gives a landlord collection leverage; a landlord can reduce or waive interest, (and avoid discounting the principal balance); as a tool to encourage voluntary payment.

A final money judgment prevents a tenant from disputing the amount owed.
Once a money judgment is final, (after the time period to appeal has expired), a former tenant cannot successfully challenge the judgment’s validity or the amount due. A money judgment definitively establishes the amount of the debt.

A money judgment decreases a former tenant’s credit score.
This may motivate the tenant to pay amounts due. Credit reports include judgment information, and a former tenant’s credit rating will be affected by a money judgment. A former tenant may not qualify for credit (including future housing) if a money judgment is decreasing the former tenant’s credit score. This may motivate a former tenant to satisfy the money judgment to avoid being denied credit (or charged a higher interest rate because of a lower credit score).

A judgment avoids potential landlord liability for the tenant’s court costs and/or attorney’s fees.
If a landlord dismisses before entry of judgment, even if the dismissal is the result of the tenant vacating, a tenant may claim to be the prevailing party, and attempt to collect attorney’s fees and costs from the landlord.

A money judgment ensures that the landlord will be found to be the prevailing party, and eliminates the possibility that the landlord could be held responsible for the tenant’s attorney’s fees and/or costs.

A money judgment will ensure that the tenant will be financially responsible for the landlord’s court costs and attorney’s fees.
An unlawful detainer money judgment will be comprised of rent owed up to the time of possession is returned to the landlord for uncontested cases, (up to the date of trial for contested cases), and court costs. Typical court costs awarded in California can include the following:

$220.00 – Filing Fee
$45.00 – Process Service Fee (per defendant)
$25.00 – Writ Fee
$125.00 – Sheriff Fee
$415.00 – Total

An unlawful detainer money judgment will also include attorney’s fees if the lease or rental agreement has an attorney’s fee provision. Attorney’s fees are generally determined under a court schedule, based on the amount of the judgment for rent. For instance, if the amount of rent owed is $1,100.00, a typical attorney’s fee award would be $300.00. If the rent owed is $2,200.00, a typical attorney’s fees award would be $450.00. The attorney’s fee schedule may vary between courts. A money judgment can help ensure the landlord’s recovery of attorney’s fees and costs from the former tenant.

Money judgment advantages.
As explained above, there are a number of very good reasons for landlords to pursue money judgments. The cost to obtain a money judgment is very reasonable, and many landlords and property managers have found that obtaining money judgments in all of the unlawful detainer matters is a wise investment that helps them maximize their collections, improve their bottom line and keep their owners happy.

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. Before acting, be sure to receive legal advice from our office. If you have questions, please contact your local KTS office. For contact information, please visit our website: www.kts-law.com. For past Legal Alerts, Questions & Answers, and Legal Articles, please consult the resource library section of our website.

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California 2010 Legal Update: Legislation and Case Law That Will Effect Rental Property Owners and Managers

KTS-Law — Thu, 04 Mar 2010 15:00:11 +0000

As 2010 gets under way, it is important for property managers and owners to be aware of new legislation, case law and legal trends that will significantly impact our industry. Below is an overview of the most significant laws and trends for this year.

New Legislation

Lead-Based Paint Renovation Law
Effective April 22, 2010, all individuals (including your maintenance staff), who will be performing renovation work that could potentially disturb lead-based paint in homes, child care facilities or schools (pre-1978 properties), will need to take an EPA-approved training class and become certified. The new certification requirement applies to renovation, repair, or painting activities where six or more square feet of lead-based paint is disturbed inside the premises, or 20 square feet on the exterior of the premises. In addition, landlords are required to provide residents with the new EPA brochure entitled “Renovate Right” prior to commencing any such renovation or repairs. The text of the new rule, as well as links to available training and the “Renovate Right” brochure are available at http://www.epa.gov/lead/pubs/renovation.htm.

Water Conservation Bill (SB407)
Effective January 1, 2014, all pre-1994 residential, multi-family and commercial properties must replace non-compliant plumbing fixtures (including toilets, faucets, and shower heads) with water-conserving fixtures when making certain improvements or alterations to a building. Final inspection/certificates of occupancy will not be issued until these plumbing fixtures are compliant. By 2017, all single family homes must replace non-compliant plumbing fixtures, and by 2019, all multifamily and commercial buildings must have compliant water-conserving plumbing fixtures in place.

Public Swimming Pools: Anti-Entrapment Devices and Systems (AB2010)
By now, you are probably very familiar with the Federal Virginia Graeme Baker Pool and Spa Safety Act that took effect on December 19, 2008. With the passage of AB2010, California has incorporated the Federal Act into state law.

Clarify pls. If your pool is already deemed in compliance with the Act, you will also be in compliance with AB2010. The intent of AB2010 is to standardize enforcement. This law prevents local health departments from adopting new or additional safety standards relating to public swimming pools. In addition, it limits the fees that local and state agencies can charge to determine compliance with AB2010.

Meth Lab Remediation (AB1489)
In 2005, the legislature passed SB536 setting forth very stringent remediation standards that had to be met before a home previously used as a meth lab could be rented out again. AB1489 changes these existing methamphetamine remediation standards. The law raises the acceptable level of residual contamination from the previous standard of 0.1 micrograms to 1.5 micrograms per 100 square centimeters on any indoor surface area. This change is intended to make it easier (and less costly) for a property manager or owner to remediate a rental unit previously used as a meth lab.

Controlled Substances and Firearms (AB530)
In several cities, including Los Angeles, city prosecutors can file an unlawful detainer against a tenant on behalf of the owner when the tenant has committed a crime involving illegal weapons or drugs. AB530 extends this pilot program to additional cities throughout California, including San Diego, Sacramento, Long Beach and Oakland.

Utility Services at Foreclosed Properties (SB120)
If the foreclosed owner previously paid for utilities, this new law allows a tenant residing at a foreclosed property to make the utility payment in place of the new owner and deduct the amount of the payment from the rent. The tenant must provide a copy of the payment receipt when making the rent payment to prove that the utilities were paid.

60-Day Notice Requirement (SB290)
This law makes permanent the requirement that the owner serve a 60-Day Notice to terminate a month-to-month tenancy when the occupants have resided in the unit for more than one year. Whenever a new tenant (such as a new roommate) moves into the unit, the clock resets again. This means that a 30-Day Notice can be used until all occupants of the unit have lived there for one year or longer.

New Tax Withholding Requirement
Effective January 1, 2010, property management companies are required to withhold approximately 7% of gross rent receipts each month if the owner of the property is not a California resident. A corporation, LLC or LP which is registered with the California Secretary of State, or which has a permanent place of business in California is considered a resident owner. The management company must forward the funds to the Franchise Tax Board. This is a new withholding requirement, not a new tax. Property managers should keep in mind that the penalty for non-compliance becomes the obligation of the property management company, not the owner of the property. The CAA website has detailed information regarding this withholding requirement, along with forms.

Court Furlough Days
Beginning in September of 2009 and continuing through at least June of 2010, California’s courts will be closed the third Wednesday of each month. Property managers should be aware that any notices served on a resident (such as a 3-Day Notice to Pay Rent or Quit, a 3-Day Notice to Perform Covenant or Quit or a 30 or 60-Day Notice of Termination) cannot expire on a court furlough day. The resident must be given through the next business day to comply with the notice.

Screening Fee Amounts for 2010
The maximum amount landlords can charge as a screening or application fee for 2010 is down from last year to $41.72. The reason for the lower amount is that the CPI for 2009 dropped, and the increased or decreased amount is based on the CPI. More information is provided in CAA’s Issue Insight at http://www.caanet.org/AM/Template.cfm?Section=Operational_FAQ&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=20477.

Note that the $41.72 is the highest amount that can be charged. By law, landlords must be able to justify whatever amount they charge, including both hard and soft costs.

DRE License Number Disclosure
Effective July 1, 2010, California real estate agents and brokers must disclose their DRE license number on all “solicitation materials intended to be the first point of contact with consumers” and on real property purchase agreements when acting as an agent in those transactions. An article with more detailed information is available on our website www.kts-law.com.

Significant Case Law

Landlord Liability for Criminal Acts
In a case where a resident was injured during a carjacking in an open parking lot of an apartment complex, an appeals court ruled that three prior violent attacks by strangers in the common areas were sufficiently similar to the most recent carjacking to be considered foreseeable and therefore to impose a duty on the landlord to act reasonably under the circumstances. The case was remanded (returned) to the trial court to determine whether the landlord had a duty to install a security gate and fence around the open parking lot to reduce possible future criminal attacks.

Fair Housing: Accommodating Residents with Motorized Scooters
In August of 2009, the Department of Justice announced a settlement to resolve a housing discrimination lawsuit regarding motorized scooters in apartment communities. The alleged violation was that the landlord violated the Fair Housing Act by prohibiting the use of motorized wheelchairs and scooters in residents’ apartments and in the common dining area of the property. The settlement required the landlord to pay approximately $250,000 in fines and penalties. Disability continues to be the most common basis for discrimination complaints and the cases are costly, even if you win. It is crucial that every employee who works directly with residents and applicants has fair housing training. KTS now offers Fair Housing training online for your convenience. Information on our online classes can be found on our website www.kts-law.com.

Potential Landlord Liability for Second-Hand Smoke
In recent years, we have seen several lawsuits filed by residents against landlords regarding exposure to second-hand smoke on the rental property. Most of these lawsuits claim the landlord failed to abate a nuisance on the property or breached the implied warranty of habitability by allowing residents to smoke on the premises. In Birke v. Oakwood Worldwide, an apartment complex owner allowed smoking in all common areas. An appellate court ruled that a lawsuit could proceed based on nuisance claims against the owner for failing to eliminate second-hand smoke in common areas. This case involves a minor with asthma and other breathing difficulties. The child’s father claims that the property’s failure to prohibit smoking in the common areas exacerbated his child’s condition. The court has not yet ruled on ultimate liability in this case.

Section 8 Vouchers
There are two cases making their way through the courts that involve participation in the federal government’s Section 8 Housing Choice Voucher Program. In the first case, residents are arguing that if a landlord is not willing to accept vouchers, he is violating a resident’s right to be free of source of income discrimination. In the second case, a resident is claiming that the landlord must accept a voucher as a reasonable accommodation based on disability. Both cases are being litigated at the appellate level, but there is no final ruling as yet.

Trends for 2010

Local Smoking Ordinances
In addition to the lawsuits mentioned above, many cities (including Belmont, Burbank, Calabasas, Dublin, El Cajon, Glendale, Loma Linda, Novato, Pasadena, San Mateo, and Temecula) have passed anti-smoking laws. Some of these laws require the landlord to set aside a certain percentage of units as “smoke-free.” Other laws call for an outright ban on smoking anywhere on the premises (including the inside of residents’ units) or a limit on where residents and guests can smoke on the premises. A database of California smoke free laws is available at http://ccap.etr.org/index.cfm ?fuseaction=policydb.home. This website is updated monthly. Property managers should take care to monitor any local anti-smoking laws that pass in their cities as the landlord may be required to enforce them.

Medical Marijuana
Last but certainly not least, the use of “medical marijuana” by residents continues to create problems for landlords. In 1996, California voters passed the Compassionate Use Act which legalized the cultivation, possession, and use of marijuana for medicinal purposes in the state. This has lead to some residents claiming they have a right to smoke medical marijuana in their units as a “reasonable accommodation” for disability. Although “medical marijuana” is legal under California Law, it is still a violation of Federal Law. Property managers are put in a difficult situation as they try to comply with both fair housing disability laws and their duty of care to other residents who may be complaining about the use of marijuana by a neighboring resident. If your community is a project-based HUD subsidized property, you should be able to prohibit the use of marijuana on the premises, even if your resident is using it for medicinal purposes. For those communities that are not project-based HUD subsidized, the question of whether a landlord would be required to allow a resident to use medical marijuana as a reasonable accommodation under California Law is not clear. If such a request is made and the resident can provide verification that he or she needs to use marijuana because of a disability, contact our fair housing department at (800) 338-6039 for legal advice on how best to handle the situation and the potential risks involved with each potential course of action.

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. Before acting, be sure to receive legal advice from our office. If you have questions, please contact your local KTS office. For contact information, please visit our website: www.kts-law.com. For past Legal Alerts, Questions & Answers, and Legal Articles, please consult the resource library section of our website.

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Work Place Violence Restraining Orders – An Effective Tool in the Prevention of Workplace Violence

KTS-Law — Tue, 12 Jan 2010 15:00:54 +0000

Our law firm is experiencing a dramatic increase in the number of calls we receive concerning an irate tenant who is displaying signs and threats of violence. These threats are directed at on-site management, maintenance personnel or even independent contractors hired to perform work on the property. This article addresses one unique course of action that is available in these disturbing situations: The Work Place Violence Restraining Order.

Under California law, the employer can request a judge to issue an order to protect an employee from suffering violence or “credible threats of violence.” These orders are called Work Place Violence Restraining Orders (“WVROs”). This law differs from other civil harassment laws in California that permit victims to petition the Court for civil harassment orders where the victim of the harassment must file for the harassment order themselves.

Employee Requirement
WVRO’s are only appropriate if the party who is to be protected is an “employee” of the employer. However, a WVRO may also be obtained for volunteers or independent contractors who perform services for the employer at the employer’s worksite.

Scope of Protection
Once a WVRO is obtained, its protections are quite broad. The WVRO can be effective for up to three (3) years for the employee and for up to fifteen (15) days for certain family or household members.

The court can order that the restrained Defendant refrain from contacting the employee by telephone, sending correspondence or email to the employee, stalking, battering or following the employee during work hours.

In addition, the court has broad discretion to issue stay away orders and can order that a restrained Defendant must stay away from the employee’s workplace, residence, vehicle, school or place of child care of children of the employee and other locations frequented by the employee. Violation of the WVRO can result in a fine and imprisonment for up to one year.

One caveat is that the violence or threat of violence must “reasonably be construed…to have been carried out at the workplace.” However, this doesn’t mean that the threat or violence has to necessarily occur in person at the workplace. For instance, a credible threat which the employee receives on a work email may form the basis for a WVRO.

Activities Not Protected
Also, it is important to note which activities are not protected under WVRO law. While annoying and bothersome behavior can interfere with employee performance and productivity, WVRO law expressly protects against violence or credible threats of violence only. Behavior or incidents that don’t meet this litmus test should be addressed in other ways.

Steps Required to Obtain a WVRO
To obtain a WVRO, the employer must file a petition with the court that asks the court to issue the order and informs the court of the basis of the WVRO. Along with the petition, the employer can request that the court issue a temporary restraining order, which makes the WVRO effective pending a court hearing on the matter.

After the petition is filed, the court will set a hearing date for the matter within fifteen (15) days from the filing of the petition. The Defendant will have a chance to file papers contesting the WVRO and can appear at the hearing to argue against the issuance of the WVRO. The hearing itself is conducted in a manner similar to any court trial where counsel, or the parties themselves if unrepresented by counsel, are given an opportunity to testify, cross-examine witnesses and present documentary evidence. After the presentation of all evidence, the court decides whether or not the WVRO should be issued. If the court finds “by clear and convincing evidence” that the Defendant engaged in unlawful violence or made a credible threat of violence, then the court will issue the WVRO.

Records and Documentation
Documentation is especially important when attempting to obtain a WVRO. This can mean keeping a log or creating a report whenever an employee is threatened with violence. Any threatening letters, emails or other correspondence should also be retained. In this regard, it is important for the employer to have policies in place to document and retain all reports of violence or threats of violence in the workplace. These records can eventually be used as evidence at the WVRO hearing and can be used to bolster testimony and create a more convincing case.

Develop a Program to Prevent Workplace Violence
An idealistic policy statement, in isolation, is woefully inadequate to address and prevent violence in the workplace. Indeed, each employer should have a comprehensive program in place to prevent workplace violence. The components of a workplace violence prevention program can include:

A statement of the employer’s “no threats and violence” policy and complementary policies, such as those regulating harassment and drug and alcohol use;

A physical security survey and assessment of risks on the workplace premises;

In-place procedures to address threats and threatening behavior and may include policies addressing when the employer should consider obtaining a WVRO on behalf of a threatened employee;

Designation and training of an incident response team;

Crisis response measures; and

Consistent enforcement of behavioral standards, including effective disciplinary procedures.

Any workplace prevention program should also include follow-up measures to constantly integrate new employees into the program and make them aware of the contents of the program. Also, periodic or yearly assessments of the program should be conducted to promote continuous improvement. While WVRO’s are a powerful tool in the prevention of workplace violence, they are just one piece of an effective workplace violence prevention program.

Kimball, Tirey & St. John LLP specialize in representing real estate and business entities in all of their legal issues, including employment law. For more information, please contact KTS at 800-564-6611. Our website address is www.kts-law.com.

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