Evan Meyer and his wife Gay Lee Gulbrandson have owned their house on Hopkins Street in North Berkeley since 1973. The 1,600-square-foot home was just the right size to raise their family of three kids — and it provided an extra financial benefit. There was a second, 1,900-square-foot, three-bedroom home on the property, which the couple rented out.
A number of years ago, Meyer and Gulbrandson transferred their property into a revocable living trust, a legal mechanism that allows people to pass property on to their heirs without going through probate. It is a common estate-planning tool used by people who don’t want the court system to play a role in the distribution of an estate.
Imagine their surprise, then, when they got a notice on April 15 from the Berkeley Rent Stabilization Board informing them that the legal act of putting their house in a trust meant their rental property was no longer exempt from rent control, as it had been for the prior 46 years. The property was no longer owned by a “natural person,” the letter said, which is the terminology used in the law that sets out how owner-occupied duplexes can be exempt from rent and eviction controls. A trust entity is not a “natural person,” the letter said. A Rent Board associate management analyst informed Meyer and Gulbrandson that they should register their second property by July 1 or face penalties. If they didn’t, they would be prohibited from raising their tenant’s rent or evicting her.
“I think this is an overreach by the Rent Board,” Meyer told the Rent Board at its May 16 meeting. “I am well within my rights to live in my property and to have it held in trust so that I can pass it on to my heirs… I think its time for the Rent Board to take action and quash this motion.”
Meyer and Gulbrandson are not the only owners of what is known in Berkeley parlance as a “golden duplex” to find that the property that had been exempt from rent control was suddenly subject to it. Warren Chong, who has owned and lived in his Harper Street duplex for more than 30 years, was also informed his second unit was subject to rent control. He was also told that he should pay $20,000 in penalties for never registering his unit, he wrote in an email to the Rent Board.
“It’s shocking to me to know I’ve lost my exemption and that I have to pay penalties,” Chong told the board.
When Berkeley voters adopted the Rent Stabilization and Eviction for Good Cause Ordinance in 1980, the measure included an exemption for owner-occupied duplexes. The law stated that as long as someone who owned 50% or more of the property lived there by Dec. 31, 1979, the second unit was exempt from rent control. If the property owner moved out, rent control would apply. The exemption could be passed on to a new owner, but only if he or she owned 50% of the property and lived on the premises.
“The rationale for this exemption from rent control is the belief that an owner who shares a small property with a tenant will have a more familial relationship with his tenant and, therefore, there is less need for external rules to protect the tenant from unwarranted rent increases,” according to a Q&A on the Rent Board website.
No one is exactly sure how many “golden duplexes” there are in Berkeley since they don’t have to be registered. Krista Gulbransen, the executive director of the Berkeley Property Owners Association, estimated there could be from 400 to 1,000 such properties.
The law remained static until 2013 when a bank foreclosed on a golden duplex in Berkeley and successfully argued in court that it had successor rights to be exempt from rent control. The Rent Board, concerned that the judicial ruling would allow other banks and corporations to use the same loophole, inserted the term “natural person” in 503b, the section of the rent control ordinance that addresses owner-occupied duplexes.
“During the foreclosure crisis, attorneys for banks successfully argued that their clients had ‘stepped into the shoes’ of foreclosed-upon owners and therefore were entitled to exemptions that apply only to owner-occupants,” Matt Brown, the staff attorney for the Rent Board, wrote in a memo.
No one paid much attention to the change until Meyer’s renter asked the Rent Board if her home should be exempt from rent control, he said. That triggered an examination by the Rent Board staff. In Chong’s case, he wanted to sell his property so he went to the Rent Board in May or June 2018 to make sure the exemption was registered. He was shocked to find that the Rent Board had no record of his exemption. (A question had come up about it in 1995 and the Rent Board ruled then that his property was exempt. He eventually found a copy of the exemption.) But Chong’s request triggered an investigation into his home, which led to the Rent Board telling him that his property was in violation since he put it into a trust. The Rent Board said Chong also owed $20,000 in back registration fees and penalties, he wrote in an email to the Rent Board.
At the May 16 meeting, some members of the Rent Board seemed unclear about the intent of the legal steps Meyer and Chong took.
“Isn’t creating a trust allowing the property owner to be immune from liabilities, from personal liabilities,” Commissioner Alejandro Soto-Vigil asked Charles Drexler, an attorney Meyer retained, at the May meeting.
Drexler informed the board that it was not.
“The trust is the same as you,” said Drexler. “The trust has the same responsibilities as you do. You cannot avoid a creditor by putting it in the trust. You cannot avoid any taxes by putting it in the trust.”
Rent Board Commissioner John Selawasky explained that the term “natural person” was intended to make sure corporations did not take over these properties.
“We’ve written this policy to ensure that a real person is leaving real property to a real heir,” said Selawsky.
Jay Kelekian, the executive director of the rent board, said Meyer could appeal the Rent Board ruling by challenging staff’s interpretation of the law. Or the Rent Board could take another look at the policy, he said.
Members of the Rent Board and its staff have taken a number of steps since then to address the issue. Dozens of owners of golden duplexes and ADUs appeared at a 4×4 meeting of the rent board and city council on May 21 to protest the “natural person” ruling, according to Gulbransen. The 4×4 committee voted to ask the Rent Board’s Individual Rent Adjustment committee to examine the issue.
At its June 20 meeting, the Rent Board voted to suspend the assessment of any fees against owners of golden duplexes until the issue was resolved. And on July 2, the Individual Rent Adjustment committee voted unanimously to recommend that golden duplex owners be able to pass their property on to heirs through a revocable living trust and still stay exempt from rent and eviction controls. The entire board will take up the issue on July 18.
“It’s very important to protect against banks and corporations from abusing an owner move-in exemption,” said Commissioner Leah Simon-Weisberg, who also chairs the Individual Rent Adjustment committee. “The trust issue presents an unusual situation… In the pursuit of protecting tenants, we have to make sure there aren’t loopholes.”
The measure the board will consider was carefully drafted so it “would apply narrowly and predictably,” Brown wrote in a memo to the committee. “It would not permit a landlord to claim exemption for a property that is owned by another person or a property that is owned by any sort of business entity. It would not permit a landlord to claim owner occupancy of a property that is held in any other type of trust for tax or business purposes. Lastly, the draft language would not permit a landlord to claim exemption for children or spouses who did not own the property before it was held in trust.”
Meyer said he was cautiously optimistic that “the amendment would help me now,” but “the struggle is not over yet.”
For Gulbransen, and some owners of golden duplexes who did not want to be named for fear the Rent Board would scrutinize their properties, the push to make golden duplexes fall under the rent control ordinance reflects the Rent Board’s long-held desire to eliminate them entirely, they said.
In June 2018, the Rent Board discussed asking the City Council to put an amendment on the ballot. It would have required any new owner of a golden duplex to live there for three years before the property would once again be exempt from rent or eviction controls. The impetus was to stop new owners from greatly increasing the rent on the second unit after they moved in, according to a Rent Board agenda minutes.
Before the Rent Board voted on the measure, Soto-Vigil introduced a substitute motion to put a measure to entirely eliminate golden duplexes on the ballot, according to Rent Board minutes. While Soto-Vigil, Simon-Weisberg and Maria Poblet voted in favor of that, the rest of the board voted against it, so it failed. Then the Rent Board decided not to send any measure to the City Council.
Simon-Weisberg told Berkeleyside that there was no push at the current time to change the golden duplex law.
“I don’t think there’s any attempt to change anything around how we regulate golden duplexes,” she said.
“It’s a philosophical fight between property rights and the right to housing,” said Gulbransen, who said she thought the Rent Board intended to put something about golden duplexes on the November 2020 ballot.
Simon-Weisberg said to Berkeleyside that any changes to the golden duplex law would have to be approved by voters.