San Jose could face a lawsuit over its rent freeze

San Jose’s recent ban on rent increases could possibly land the city in court.

Douglas Dennington — a land-use attorney with Rutan & Tucker LLP, representing landlords across San Jose — submitted a letter to city leaders Feb. 1 stating that landlords adamantly oppose the rent freeze and warning the city may “wish to limit this significant liability by immediately repealing the ban.”

He said the rent freeze, which was approved by lawmakers this week and halts rent spikes until June for tenants impacted by COVID-19, conflicts with state and federal law and could invite lawsuits from landlords looking to regain money lost during the pandemic.

San Jose’s rent freeze applies to tenants living in rent-controlled apartments and mobile homes.

“As set forth herein, the proposed blanket ban runs afoul of both state and federal law, and, in addition, may give rise to substantial monetary claims in favor of Landlords and against the City,” Dennington wrote in his letter.

City Attorney Nora Frimann declined comment due to potential litigation, but said she wasn’t aware of any pending legal action over the rent freeze.

Dennington warned that the ban on rent hikes violates the U.S. Constitution because it prevents a state from passing a law “impairing the obligation of contracts.”

He said the ban also conflicts with new California law.

Senate Bill 91 — adopted Jan. 29 — extended the statewide ban on evictions through June 30. The bill forbids local governments from enacting local measures meant to protect tenants from eviction during COVID-19 before July 1, when protections under SB 91 expire. Dennington asserts the rent freeze, which seeks to address housing instability, acts as a local protection against eviction.

The California Legislature mandates local eviction protections cannot take effect before July 1, according to Dennington. San Jose’s rent freeze took effect Feb. 2. Dennington added a tenant can use the rent freeze protections as a defense in an eviction proceeding which, in this case, would demonstrate that the ordinance violated state law.

The city would have trouble proving how a rent freeze will help keep tenants housed, he added, especially since the statewide eviction ban is supposed to provide those protections.

Dennington could not immediately be reached Thursday. It’s unclear how many landlords he represents. The letter said the law office is representing “a number of housing providers.”

“While the once touted ‘tsunami’ of evictions that served as the impetus for eviction moratoria never came to fruition, the City may expect a ‘tsunami’ of takings lawsuits by landlords seeking to recoup their losses at the hands of the City,” Dennington wrote.

But not all landlords oppose the rent freeze.

Jeff Zell, a landlord and owner of Zell Associates, doesn’t object to rent freezes but said he wouldn’t be surprised if the city gets sued for preventing landlords from collecting rent. Zell wouldn’t say whether he would personally consider suing for losses.

Zell, who owns 150 units in San Jose, said he made a personal business decision to not raise rents for people harmed by COVID-19 even before San Jose adopted the rent freeze.

“I feel it’s a terrible situation for everyone,” Zell said. “I really feel bad for some of these people that have these high balances — and then they’re never going to pay them off and they’re going to lose a place to live at some point. I feel awful for them. I don’t know what to do.”

One downside to the ordinance, according to Zell, is the additional layer of oversight from the government on top of state regulations, which can limit a landlord’s ability to negotiate payback plans and rent decreases.

He said SB 91 promises to give 80% of a tenant’s balance in rent relief to landlords. But a landlord can risk losing that benefit if they attempt to collect rent debt from a tenant while protections under SB 91 are in effect.

“There’s no incentive or no motivation to waive rent, or to make deals with tenants because of the changing legislative landscape,” Zell said. “The sad part is, our tenants have asked us for things and our answer is ‘we’re waiting to see what happens.’”

Since the pandemic began, Zell said he’s lost more than $1 million due to lack of rent payments, late fees and rent increases.

“There’s no way to make up for losses,” Zell said, adding that landlords would be lucky to get even a fraction of state rent relief funds. “The federal government is the only one that can print money and right now, without allowing people to go back to work, we need to step up and pay the rent for these people who are unable to go and support themselves.”

Contact Carly Wipf at [email protected] or follow @CarlyChristineW on Twitter.