When rental property owner Sharon Darnov appeared before City Council on August 7th she shared an observation. “There are good landlords and there are bad landlords,” she said. “There are good tenants and there are bad tenants.” Darnov didn’t talk about bad landlords but did have a word to say about ”extortionists” and “grifters” among her tenants. Every landlord has a story! Watch the video for Darnov’s story.
The Story Behind the Stories
This video is exhibit A in the landlords’ invocation of the “professional tenant” as a defense against rent stabilization. It is a staple argument from the Apartment Association of Greater Los Angeles that ‘bad’ tenants game the system. The objective: dismantle the regulatory apparatus that would otherwise hold landlords accountable.
Here Darnov takes a practical rather than a philosophical tack. She says that a ’grifter’ tenant of hers had complained about second-hand smoke coming from a downstairs neighbor. “Just a cigarette and a glass of wine on the patio after work,” Darnov said by way of minimizing the complaint. The tenant then departs (circumstances unexplained) and later brings a health-related complaint.
The alleged grifter won a $39,000 judgment for damages in arbitration. Darnov said the tenant was known to have extorted a prior landlord too. Darnov’s story raises a few issues:
- Landlords should presume that second-hand smoke complaints have merit. Whether it concerns quality-of-life or especially safety, landlords should take such complaints seriously. City of Beverly Hills outlawed smoking in multifamily units come January 1st (City Council support was unanimous) and that should be a signal to landlords.
- The tenant’s departure (not explained here) plausibly could have been the result of a no-just-cause eviction after she lodged her second-hand smoke complaint. No tenant should be discouraged from speaking up when health or safety is an issue. We don’t know the circumstances but we will find out.
- Darnov could have changed the terms-of-tenancy to prohibit smoking with only 30 days notice. That would have snuffed-out the problem. But she didn’t. Instead she suggests to Council that her hands were tied because the smoker’s lease did not include a no-smoking clause.
- The tenant won damages and that alone implies the complaint had merit. That tenant must have been some professional kind of grifter: this was her second ‘extortionist’ score, said the landlord.
- The tenant won despite an arbitration process tilted toward landlords. Indeed the dispute went to arbitration only because the lease forced it. AAGLA and other landlord industry associations include arbitration clauses in their lease templates because it generally favors landlords and arbitration limits the costs of defending against tenant claims.
Darnov alsoused the grifter anecdote to illustrate how unexpected expenses like that $40,000 judgment inflate the cost of providing housing. Her property taxes went up more than 3%, she told City Council, and so did her business tax. Let’s put those claims into perspective.
Darnov’s reference to a 3% increase in costs was meant to suggest that the capped Chapter 6 annual increase of 3% has done her harm. The good news for her is that the allowed increase was allowed to float upward to 4.1% (with inflation). Now she gets more out of her tenants if she so chooses.
But have her property taxes increased too much? Proposition 13 keeps down the cost of business for Sharon Darnov and her partners (like it does for all landlords). Indeed it can keep costs way down. Take for example Darnov’s two large residential rental properties. They are assessed far below market value, so the tax basis is far, far below market value.
Moreover her property tax bill cannot increase by more than 2% in any year (exclusive of voter-approved assessments). That’s why Proposition 13 is the second-greatest gift to landlords after the Costa-Hawkins law. 
The other cost Darnov complained about is the city business tax. Apartment owners pay $1.20 on each one thousand dollars of gross receipts. But the tax is proportional to revenues. If her tax is rising at a rate greater than 3% then so are her rents regardless of the impact of the rent stabilization ordinance. Looked at another way, each additional buck in business taxes she pays means that her gross receipts have swelled by $833.33. Not a bad problem to have.
Darnov must be having a run of bad luck with grifters! One of her other tenants has claimed an injury after a fall in the apartment courtyard.
Darnov told City Council that the 25-year tenant’s “claimed” fall resulted in an injury that required knee surgery. But the landlord questioned the claim saying that the tenant “needed a 401k” and that was the reason for the claim (an allegation of fraud). Darnov said nothing about courtyard conditions and whether they needed repair. Instead her concern was liability. Here’s the good news: the insurance company might be able to get her off the hook if the tenant’s prior injury can be blamed for the need for surgery.
Let’s take a look at this bare-bones story.
- The tenant had a claim. She did evidently suffer a fall and sustained an injury that seems to have required some surgery. Hardly a grifter claim. But the substance of the claim gets lost in the telling because the narrator’s focus is on the liability. (Magicians call that ‘misdirected attention.’)
- This longtime tenant waited a long time to commit alleged fraud. She had lived in the building for 25 years already, so why file a slip-and-fall claim now? Ah, the need for a retirement fund! (Hence Darnov’s reference to a 401k which the police call establishing motive.)
- The pre-existing condition may allow the property owner an out. Darnov may shoulder-off some or all of the liability on to the injured party — the tenant. (Attorneys call the concept ‘contributory fault.’)
The lesson here is that there is always more to an anecdotal story offered by landlord once you read between the lines. The ‘problem’ or ‘bad’ tenant, or even the ‘extortionist’ or ‘grifter’ tenant, may have a good reason for pursuing an action against the landlord. And while there are tenants looking for an advantage, any advantage, ethical or otherwise, my sympathy for landlords here is limited: it’s a feature of our system. City of Beverly Hills has let down both tenants and landlords.
- Darnov and partners own two relatively large apartment houses: 16-unit 217 S. Tower Road and 23-unit 401 Shirley Place. Yet the combined assessed value for taxable purposes on both properties is just $3.5 million. That’s comparable to a single-family home south of Wilshire! Property tax is something landlords love to complain about yet none talk about the benefits they get from Prop 13. Consider that her property will retain that very low assessed value until she sells it. (By contrast, every one of her incoming tenants pays rent that floats higher with the market.) Indeed the voter-approved ‘tax reform’ measure was marketed as a much-needed benefit to senior homeowners. But in fact it confers much greater benefits to commercial property investors like Darnov. Fun fact: the lead backer of Proposition 13 in the 1970s was none other than AAGLA leader Howard Jarvis! ↩