Renting Bedrooms May Cause a Dwelling to Fall Within Los Angeles Rent Control Ordinance

In the recent case of Chun v. Del Cid, the Court of Appeal reviewed the nature of a residential building that was subdivided so Tenants could rent separate bedrooms.  Salaverria rented one bedroom, and the Del Cids together rented one or more separate bedrooms. Landlord brought an unlawful detainer action against the Tenants. 

The sole issue was whether the Property fell within the single–family dwelling exemption to the Rent Stabilization Ordinance of the City of Los Angeles (Ordinance). (§ 151.00 et seq.)  If the Property fell within the exemption, the Ordinance did not control the landlord-tenant relationship.   

The exemption applies to a “detached dwelling containing only one dwelling unit,” a “dwelling unit” being defined as “two or more rooms, one of which is a kitchen, designed for occupancy by one family for living and sleeping purposes.” 

A “family” means “one or more persons living together in a dwelling unit, with common access to, and common use of all living, kitchen, and eating areas within the dwelling unit.” 

The Property was originally constructed in 1908 as a single–family dwelling. However, in 1946, the Property was expanded to accommodate 7 households in 10 rooms. 

Currently the Property has 9 bedrooms, at least two bathrooms, and one kitchen. Four of the bedrooms are being separately rented to four separate households. The tenants share access to the bathrooms and kitchen, but they do not have access to each other’s rooms. Rather, each tenant has exclusive use of his or her own bedroom, which is equipped with a lock to exclude others. 

On these facts, the trial court ruled that the Property does not meet the definition criteria of the single–family dwelling exemption. On the Landlord’s appeal, the Appellate Division of the Superior Court reversed. 

The Court of Appeal held that regardless of the original design and use of the Property, its current configuration (nine bedrooms, two bathrooms, and one kitchen) and current use for occupancy (four individual bedrooms rented to separate households who share the kitchen and bathrooms, but who alone have exclusive access to and use of their rooms) does not qualify for the single–family dwelling exemption from the Ordinance, because it is not a “detached dwelling containing only one dwelling unit” within the meaning of the Ordinance.  

Therefore, the dwelling was subject to the Ordinance which was enacted to protect individuals in landlord– tenant relationships: it protects tenants from excessive rent increases and provides a defense to eviction, while at the same time providing landlords with a fair and reasonable return on their investments.

The Ordinance applies to any rental unit in a building for which a certificate of occupancy was issued before October 1978, unless it falls within an enumerated exemption. Landlords are prohibited from evicting tenants except for specific reasons stated in the Ordinance.  To assure compliance, violations of the Ordinance may be raised as an affirmative defense in an unlawful detainer action. 

The Ordinance provides that, since July 1979, no landlord may demand or accept rent for a rental unit without first procuring and serving on the tenant or displaying in a conspicuous place a valid written registration statement from the Housing Department or its designee.

Since April 30, 1983, the Ordinance has also provided that landlords may not demand or accept rent for a rental unit without first serving a copy of a valid registration or annual renewal statement on the tenant of that rental unit.  

Landlord argued, and the appellate division appeared to agree, that in determining whether a structure qualifies for the single–family dwelling exemption, the original design of the structure controls–once a single–family dwelling, always a single–family dwelling–regardless of changes to configuration and use. The Court of Appeal disagreed. 

Based on the interlocking definitions of “dwelling unit” and “family,” and because Tenants (regardless of familial relationship) did not have common access to and use of all living areas that form the purported dwelling unit, they did not comprise one family within the meaning of the Ordinance. 

LESSONS:

1.         Careful review of the Ordinance is essential to determine if a dwelling falls within the definitions in the Ordinance.

2.         Subdividing a single family residence into separately rented bedrooms may cause the dwelling to fall within the Ordinance.

3.         Given the significant restrictions in the Ordinance on the Landlord - Tenant relationship, Landlords should consider renting dwellings that do not fall within the Ordinance.

Effect of Signing Agreement as to Form and Content

It is common for attorneys to sign agreements, typically settlement agreements, confirming their agreement as to form and content of the settlement agreement, but the meaning and effect of such execution is not well understood. In its recent decision in Monster Energy Company v. Schechter, the California Supreme Court explained the meaning and effect of attorneys signing as to form and content.

In the underlying case, the parties to a tort action agreed to settle their lawsuit. Their agreement was reduced to writing and included several provisions purporting to impose confidentiality obligations on the parties and their counsel. All parties signed the agreement and their lawyers signed under a notation that they approved the written agreement as to form and content. 

Counsel allegedly violated the agreement by making public statements about the settlement and were sued for breach of contract. Counsel argued they were not personally bound by the confidentiality provisions and moved to dismiss the suit. The trial court denied counsels’ motion. The Court of Appeal reversed that ruling, concluding the notation meant only that counsel recommended their clients sign the document. 

The Supreme Court concluded the notation does not preclude a factual finding that counsel both recommended their clients sign the document and intended to be bound by its provisions. 

In 2012, Wendy Crossland and Richard Fournier sued Monster Energy Company (“Monster Energy”) for products liability and wrongful death following the death of their daughter (hereafter “the Crossland suit.”).  In 2015, the parties entered into a confidential settlement agreement that stated that it was made “on the behalf of the settling Parties, individually, as well as on the behalf of their, without limitation, respective beneficiaries, trustees, principals, attorneys, officers, directors, shareholders, employers, employees, parent company(ies), affiliated company(ies), subcontractors, members, partners, subsidiaries, insurers, predecessors, successors-in-interest, and assigns.”(Emphasis added.) 

The agreement included a confidentiality clause: “The Parties understand and acknowledge that all of the terms, conditions and details of this Settlement Agreement including its existence are to remain confidential. Plaintiffs and their counsel agree that they will keep completely confidential all of the terms and contents of the Agreement.

A section entitled “Binding Agreement” stated: “The Parties acknowledge that this Settlement Agreement, inclusive of the releases contained herein, was the product of good faith negotiations, is final, and wholly binding upon them, as well as inure to the benefit of the Released Parties, inclusive of, but not limited to, their respective successors, devisees, executors, administrators, affiliates, representatives, insurers, spouse, dependents, successors, heirs, issue, assigns, officers, directors, partners, agents, subcontractors, attorneys, employers, and employees.” 

The agreement stated that “[i]n regard to any communication concerning the settlement of this Action, the Parties and their attorneys and each of them hereby agree that neither shall make any statement about the Action, each other party or Defendants’ products in relation to this Action, in the media, including but not limited to print, television, radio or Internet,” and any comment “shall be limited to the following, or words to their effect: ‘This matter has been resolved.’ ” (Emphasis added.) The agreement also contained other provisions referring to attorneys for the parties in the Crossland suit.

The provisions included: (1) a release and discharge of the parties and their attorneys from claims arising from the suit, except that “[n]othing herein, however, shall be deemed a limitation of any kind, release, and or discharge on, or prohibition of Plaintiffs’ attorneys’ prosecution of any current or future claims against the Released Parties not arising out of parties. The parties’ attorneys signed under the preprinted notation “APPROVED AS TO FORM AND CONTENT.” 

Shortly after the settlement, an article appeared on the website “LawyersandSettlements.com” entitled “ ‘Substantial Dollars’ for Family in Monster Energy Drink Wrongful Death Suit.” The article attributed several quotes to Crosslands' attorney. 

Monster Energy sued Crosslands' attorneys, alleging four causes of action: breach of contract; breach of the implied covenant of good faith; unjust enrichment; and promissory estoppel. 

Defendants filed a special motion to strike the complaint arguing the suit implicated the constitutional free speech rights of Crosslands' attorneys. The court found the settlement clearly contemplated counsel as being subject to the agreement and noted that Crosslands' attorney signed the agreement. The court concluded that the suggestion that Crosslands' attorney is not a party to the contract merely because he approved it as to form and content only is beyond reason. 

A settlement agreement is a contract, and the legal principles which apply to contracts generally apply to settlement contracts. An essential element of any contract is consent. The consent must be ‘mutual. Consent is not mutual, unless the parties all agree upon the same thing in the same sense. 

The existence of mutual consent is determined by objective rather than subjective criteria, the test being what the outward manifestations of consent would lead a reasonable person to believe. Accordingly, the primary focus in determining the existence of mutual consent is upon the acts of the parties involved.

The Supreme Court found that there is no question that the language of the settlement agreement generally, and the confidentiality provisions in particular, purported to encompass not only the Crossland parties but also their respective counsel. Further, counsel could consent to be bound by the agreement’s provisions, and, ordinarily, in the absence of fraud, mistake, or another vitiating factor, a signature on a written contract is an objective manifestation of assent to the terms set forth there. 

Defendants argue that the signature of Crosslands' attorney on the settlement agreement did not manifest his consent to be bound by its provisions because he signed under the notation “APPROVED AS TO FORM AND CONTENT.” They argued his signature conveyed only that defendants were approving the agreement for their clients’ signatures. 

In light of the procedural posture, the issue the Supreme Court addressed is a narrow one, and it ruled that the notation “approved as to form and content” means that counsel has read the document, it embodies the parties’ agreement, and counsel perceives no impediment to his client signing it. 

A similar understanding of this phrase is reflected in case law regarding orders signed by the court and approved as to form and content by the parties’ attorneys. Thus, there appears a general consensus that “approved as to form and content” has a fixed meaning understood by the legal community. 

The legal question is whether counsel’s signature approving an agreement as to form and content for his clients’ signature precludes, as a matter of law, a finding that he also intended to be bound by the agreement.  An attorney’s signature on an agreement containing substantive provisions imposing duties on counsel may reflect an intent to be bound even though counsel also approves the document for his client’s signature. 

Here, a factfinder considering all the circumstances could reasonably conclude that Plaintiffs' attorney agreed to be bound.  The confidentiality provisions are not only extensive but repeatedly refer both to the parties and their counsel.

The Supreme Court's conclusion also recognizes the role that confidentiality plays in facilitating settlement agreements. The privacy of a settlement is generally understood and accepted in our legal system, which favors settlement and therefore supports attendant needs for confidentiality. Routine public disclosure of private settlement terms would “chill the parties’ ability in many cases to settle the action before trial. Such a result runs contrary to the strong public policy of this state favoring settlement of actions.  

The Supreme Court concluded that an attorney’s signature on a document with a notation that it is approved as to form and content does not, as a matter of law, preclude a factual finding that the attorney intended to be bound by the document’s terms. The intent question requires an examination of the agreement as a whole, including substantive provisions referring to counsel. Ultimately, that question would be resolved by the trier of fact.

The Supreme Court did not suggest that counsel’s signature on a settlement agreement approving it as to form and content will alwayscreate a triable issue of fact with respect to counsel’s intent to be bound by that agreement. A court may find as a matter of law that counsel could not have so intended under the circumstances where, for example, no substantive provisions imposed obligations on counsel.

LESSONS:

1.         Your signature is a very important factor in determining what you agreed to, so be very careful to read and understand documents before signing them.

2.         Confidentiality provisions in a settlement agreement will be enforced and should be complied with by the settling parties and their counsel, especially if counsel executes the agreement as to Form and Content.