Landlord Stories: “Extortionist” Tenants

Rental property owner Sharon Darnov appeared before City Council to share an observation: “There are good landlords and there are bad landlords,” she said, “and there are good tenants and there are bad tenants.” But Darnov didn’t talk about bad landlords. She did have a few words about the ”extortionists” and “grifters” she counts as tenants. Every landlord has a story and this is Darnov’s.


The Story Behind the Stories

Darnov’s anecdote reminds us that a landlords’ invocation of the “professional tenant” is often their argument against rent stabilization. It is a staple: these ‘bad’ tenants are gaming the system.

Here Darnov says that her ’grifter’ 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, minimizing the complaint. After tenant then departs (circumstances unexplained) she later brings a health-related complaint against the landlord.

The aggrieved tenant won a $39,000 judgment for damages in arbitration, which Darnov also minimized by claiming the tenant extorted a prior landlord too. But Darnov’s story raises a few issues.

  • Landlords should presume that cigarette smoke complaints have merit. Whether it concerns quality-of-life or health, landlords need to take these complaints seriously. City of Beverly Hills outlawed smoking in multifamily units come January 1st and that should be a signa to landlords.
  • The tenant’s departure is not explained here and may well have been the result of a no-just-cause eviction. That is, after she lodged her second-hand smoke complaint. No tenant should be discouraged from speaking up when health or safety is an issue. That circumstance might account for the arbitration award.
  • Darnov could have addressed the problem by changing the terms-of-tenancy. She could have prohibited smoking with only 30 days notice to snuff-out (sorry!) the problem. She instead suggested here that her hands were tied because the smoker’s lease did not include a no-smoking clause. Now if it had included a smoking clause that’s different!
  • The tenant prevailed 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’s Other Claims

Darnov mentioned how that $40,000 judgment inflated 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 expenses increasing faster than 3% was meant to suggest that the lower cap on the Chapter 6 annual rent increase has done her harm. Now it may have crimped the cash flow marginally, but the city consultant found that landlords take 66 cents of every rent dollar as net income, on average. That kind of margin can take a hit.

Also, if Darnov had increased the rent at the historical average for Beverly Hills, a 3% cap would have been more than enough anyway. Rents have increased overall at less that 3% per year. Perhaps that 3% cap kept 10% increases off the table for her tenants.

And finally on the rent issue, the good news for Darnov is that the allowed increase has floated up to 4.1% with inflation. Now she gets one-third more out of her rent increase if she so chooses.

On the property tax issue, has hers increased too much? Proposition 13 keeps down the cost of business for Sharon Darnov like it does for all property owners. It can keep the real estate taxes way down in fact.

Take for example Darnov’s two relatively large residential rental properties. They are assessed far below market value for tax purposes.

Tax Assessor for Sharon Darnov's 217 S. Tower property.
An ultra-low tax assessment of less than $600,000 means that Darnov and her partners pay less property tax for a 16-unit property than many homeowners pay for their relatively modest single-family home in the city.

On a 16-unit property she pays a tax as if it was valued at the median single-family home value in Los Angeles County — not a Beverly Hills investment property. Why? The Prop 13 capped assessment. Moreover, Darnov’s property tax bill cannot increase by more than 2% in any year anyway, not counting voter-approved assessments like the school bond.

Proposition 13 is the second-greatest gift to landlords after the Costa-Hawkins Rental Housing Act. [1]

The other cost Darnov complained about is her city business tax. Apartment owners pay $1.20 on each one thousand dollars of gross receipts. So the tax is proportional to revenues. If her tax is rising at a rate greater than 3% then so are her rents! And that’s regardless of any impact from rent stabilization. Looked at another way, each additional buck she pays in business taxes means that her gross receipts have increased by $833.33. Not a bad problem to have!

Darnov shared a second anecdote with City Council: one of her other tenants has claimed an injury after a fall in the apartment courtyard. She must have bad luck with grifters!

Darnov told councilmembers that a 25-year tenant “claimed” an injury that required knee surgery. But the landlord questioned the claim, speculating that the tenant “needed a 401k” (an allegation of insurance fraud).

Darnov said nothing about courtyard conditions such as whether repairs were needed. (We’ve seen many under-maintained properties that look like a potential insurance claim.) Instead the landlord’s concern was liability. But here she shared the silver lining: the insurance company’s attorney might be able to get her off the hook if a prior injury can be blamed for the tenant’s 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 unless the tenant is a professional slip-and-fall fraudster. But Darnov redirects the focus to her own problem: liability.
  • This longtime tenant waited a long time to commit alleged fraud. She had lived in the building for 25 years and is only now slipping-and-falling? Hence the reference to a 401k: this is what the police call establishing a motive.
  • A pre-existing condition may allow Darnov to escape culpability. Shouldering-off the liability onto the injured party is called ‘contributory fault.’ If she can just pin some aspect of it on the tenant…

Our View

The lesson here is that there is always more to an anecdotal story once we read between the lines. That’s goes for ‘bad’ landlords or ‘bad’ tenants. While there no doubt tenants looking for some advantage, ethical or otherwise, my sympathy for landlords is limited. They have insurance. If City of Beverly Hills had required each landlord to properly maintain the property, there would be fewer specious claims all around.

  1. Darnov and partners own two relatively large apartment houses: 16-unit 217 S. Tower Road and 23-unit 401 Shirley Place. The combined assessed value for both properties is just $3.5 million, which is comparable to a single-family home south of Wilshire. We hear landlords complain about property tax yet none talks about the Prop 13 benefit. That voter-approved ‘tax reform’ measure was marketed as a benefit to senior homeowners but it confers a much greater benefit to a commercial property investor like Darnov. Fun fact: the lead backer of Proposition 13 in the 1970s was none other than AAGLA leader Howard Jarvis!  ↩