Probationary Tenancy: A Backtrack on No-Just-Cause Eviction

Beverly Hills ended no-just-cause evictions in October, but City Council appears to be ready to backtrack on that commitment with a new proposal to make the first (lease) year of a tenancy a probationary period. This ‘trial’ period would allow the landlord to terminate for no cause the tenancy at the expiration of the lease. It would affect more than 400 households every year.

Imagine moving into a new apartment and even before the boxes are opened the countdown timer starts: 365 days left for the landlord to let you know he won’t be extending your tenancy once the lease expires. No lease renewal is forthcoming and you can’t even continue on month-to-month. Time to start looking for a new place!

Now imagine you are out of pocket thousands for moving expenses for the last move yet there is no relocation fee coming for your next move. That’s adding injury to insult!

That is exactly what Vice-Mayor John Mirisch has proposed during the November 18th rent stabilization study session. Mirisch explained his rationale:

If you [the landlord] have a year lease but no ability to terminate it, then you don’t have a year lease – you have a forever lease…If I sign a car lease for a year, it’s for a year – it’s not forever. Without a ‘trial’ year we’re effectively saying a lease is forever.

But rental housing is not like a leased car; it is a home. Does the vice-mayor not recognize the difference?

This is Backtracking on Today’s Rent Stabilization Ordinance

Today the rent stabilization ordinance provides protection for tenants against no-just-cause eviction in two respects. Ordinance section 4-6-6 identifies six reasons why a tenancy may be terminated for no fault of the tenant and none is for no-just-cause. That includes use by landlords (subsection H); change of building manager (I); demolition or condominium conversion (J); major remodeling (K); and withdrawal of the property from the rental market (L).

And second, the city views a landlord’s refusal to continue a tenancy to be an involuntary termination. If he refuses to offer a lease renewal on the same terms, or to permit the tenancy to go month-to-month, then he must pay a relocation fee. The exception is if the tenant refuses to sign a lease on the same terms, which is grounds for termination under subsection 4-6-6(E).

However allowing for a probationary or ‘trial’ period would represent a step back from the protections that all rent-stabilized tenants have today. In fact the only difference between a no-just-cause eviction and that under the probationary provision is that the latter requires six months notice, not sixty days.

A split City Council on November 20th found preliminary consensus on the probationary tenancy but it is not the law yet.

The ‘Trial’ Tenancy Introduces a New Worry for New Tenants

The key safeguard identified by City Council concerned that extended six-months notice period. However councilmembers didn’t talk about the potential for abuse or even debate the practical challenges of the six-month notice. How would it work? Consider these scenarios:

  1. Six months after moving in, the tenant is notified that she will have to move once the lease expires. The six-month notice period coincides with the last six months of the first-year’s lease, and her last day is the day the lease expires.
  2. Nine months into a lease, say, the landlord notifies the tenant that he will not continue her tenancy. He must give six months notice so she can remain in the apartment for an additional three months beyond the lease expiration, but she can depart with the necessary 30 days notice any time after lease expiration.
  3. Days before the lease expires the landlord notifies the tenant that her tenancy will not be continued. (There is no necessary 30-day notice when a fixed-term lease expires because both parties know the end date.) Because six months notice is required, she can stay for an additional six months — or give notice any time 30 days in advance — making her time in the apartment as long as 18 months.

Clearly the worst case is that notice is given at the 6-month mark. That’s shortly after the tenant has moved in, perhaps while she’s still getting settled, and yet she’s already thinking about replacement housing.

However the real problem is that while she contemplates replacement housing she is still locked into her lease; she’s on borrowed time but she can’t move out before the lease expires as she’s contractually obligated to continue to pay the rent. But she also can’t stay a day longer than the lease because that would invite an unlawful detainer.

The tenant in that situation is effectively held hostage to the landlord. If he won’t release her from her lease obligation early — that is, before the lease is up — she’s locked-in. Council never contemplated that.

Councilmember Bob Wunderlich and Councilmember Lili Bosse opposed the probationary tenancy provision when it was proposed in November. Having had a month to consider it, they were more vehemently opposed at the December study session. Vice-Mayor Mirisch had proposed the probationary tenancy provision in November and he continued to support it (as did Councilmember Gold). Councilmember Friedman appeared to waver though.

How Many Tenants Would be Affected?

We can do a back-of-the-envelope assessment because the potential harm is proportional to the number of new tenancies created in any year. (Only new tenancies are affected.) The city has early data on renting household turnover by now, but in the absence of that data we can look to the American Community Survey for estimates on turnover. Estimates are based on actual surveys but the data does not put a number to the frequency of new tenancies. We can only infer using the data from the not-very-recent 2012-2016 Community Survey.

The relevant tenure/turnover data is presented in this table:

Year householder
moved into unit
Proportion of households
Moved in 2015 or later 7%
Moved in 2010 to 2014 56%
Moved in 2000 to 2009 23%
Moved in 1990 to 1999 9%
Moved in 1980 to 1989 2%
Moved in 1979 or earlier 3%

We see a significant proportion of households have moved into their current apartment in the 2010-2014 period. An even larger proportion moved in during the five years prior. This doesn’t give us annualized rates, though we can estimate from those survey findings. We estimate an annualized rate of turnover for those periods like so:

Year householder moved in Imputed rate of turnover
Moved in 2015 or later 4%
Moved in 2010 to 2014 11%
Moved in 2000 to 2009 2%
Moved in 1990 to 1999 1%
Moved in 1980 to 1989 0%

Clearly the 2010-2014 period shows the highest annual turnover rate for these periods. It appears that households are more likely to move after they have been in an apartment for about two to six years, with tenancies longer than that relatively more stable (lower annualized rates of turnover). The household that last moved prior to 1999 isn’t likely to be moving any time soon.

Multiplying those rates by the 7,700 rent-stabilized units gives us a very rough estimate of the number of units that could turn over in any given year. We have highlighted the peak period where perhaps 800 tenancies could be affected by the probationary provision.

Period Units turned over
each year (inputed)
2015 or later 288
2010 to 2014 863
2000 to 2009 174
1990 to 1999 67
1980 to 1989 16

Another estimate comes from city consultant HR&A Advisors, which has estimated tenancy turnover at a much higher rate of 24% per year — which is double the rate of the peak period, 2010-2014. At that rate, approximately 1,800 households would be exposed to the probationary provision. (However we could not verify that figure from our read of the census data. The consultant did not clarify the matter on our request.)

If the probationary provision makes it into the rent stabilization ordinance, no doubt some new tenants will learn about it the hard way: with a premature, groundless eviction and no relocation fee.

Renters Alliance Key Concerns

First, the probationary tenancy provision is solution looking for a problem. We are aware of no complaints from landlords to the city about wanting to terminate a tenancy after the lease expires. As landlords themselves say, it is not in their interest to do that; they lose rental income and they have to find a new tenant.

Second, we can see a case for landlords using the trial year as an after-the-fact screening: the landlord has a year to reconsider his decision to rent to the tenant. He gets a cost-free do-over if we wants to change his mind. For his mistake in initial screening, perhaps, that tenant would pay.

Third, a landlord inclined to discriminate could invoke the probationary tenancy provision to discriminate after-the-fact with zero recourse available to the tenant. California protects 13 classes of people from discrimination. A tenant denied a fair screening can at least challenge the landlord. But there is no challenge available when no reason need be given to terminate. And of course there is no remedy: she’s already lost her home.

Imagine a scenario like a veteran with some PTSD symptoms denied the continuation of his tenancy because the landlord is not satisfied with the tenant’s comportment. Though his behavior does not rise to the level of nuisance, or even ‘disruption’ under that new reason for termination, he is out of a home after the trial period.

And finally, there will be some proportion of new tenants who are moving house within the city (voluntarily or otherwise). Each will create a new tenancy. All will be exposed to a probationary termination where none existed for them before. Each faces uncertainty after the first year — even a 20-year Beverly Hills tenant with a spotless rental history. It will happen!