May 27

Home Free? Why a Resident Employee Must Pay to Live Rent-Free

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If you're a resident employee, don't be surprised if your landlord's promise of reduced rent or a free apartment isn't what it's cracked up to be.

If you’re a resident employee, don’t be surprised if your landlord’s promise of reduced rent or a free apartment isn’t what it’s cracked up to be.

In California, a responsible person must reside on the premises of every apartment building in which there are 16 or more apartments if the landlord doesn’t reside on the premises.1 But attracting resident employees isn’t always easy. That’s because a resident employee doesn’t earn wages unless he’s “carrying out his assigned duties.” Thus, landlords try to rope in resident employees by promising to slash their rent or even live rent-free. If something sounds too good to be true, it probably is. For that reason, California law requires a resident employee to voluntarily execute an on-site apartment manager agreement (OSAMA) before a landlord can claim a rent credit or charge any rent at all.

Why In-Kind Compensation of Resident Employees Isn’t So Kind

Landlords can rob a resident employee in two ways. First, a landlord can credit the lesser of (1) two-thirds of the ordinary rental value or (2) $564.81 per month or $835.49 per “couple” if they both work for the landlord.2 For example, an on-site manager who lives in a $1,600-per-month apartment and works 80 hours per month for $10 hour gets both a “free” apartment and $235 per month in direct pay after the landlord takes the $534.81 credit. But this in-kind compensation is becoming less and less kind as rents skyrocket and wages stagnate. In Santa Monica, the average rent for a one-bedroom apartment is now $3,000 per month.

Second, a landlord can charge a resident employee up to two-thirds of the fair market rental value of his apartment, regardless of the caps on rent credits, so long as the landlord pays him minimum wage for each hour he works.3 In effect, the landlord and employee exchange checks. For example, a Santa Monica landlord can charge a resident employee $2,000 per month for an apartment with a fair market rental value of $3,000. But the landlord must then pay the employee the full Santa Monica minimum wage (soon to be $10.50 per hour) for each hour of work. The landlord may not simultaneously charge the employee rent and claim a rent credit.4

How an OSAMA Can Hijack a Resident Employee’s Wages

Whether a landlord chooses a rent credit or a check exchange, he and the resident employee must form an OSAMA or other “voluntary written agreement.” Consent to a contract must be free and mutual.5 That means an OSAMA is voidable if the resident employee doesn’t enter it free of duress, menace, fraud, mistake, or undue influence.6 For example, a landlord can’t put a gun to the resident employee’s head and make him consent to a rent credit against the minimum wage. The purpose of the requirement of an OSAMA is to prevent landlords from circumventing the minimum wage.7

The law doesn’t define the term “voluntary written agreement” or otherwise say what an OSAMA must include.8 But the Court of Appeal has recently said what the law doesn’t require an OSAMA to include. Specifically, an OSAMA doesn’t have to include the amount of any rent credit, a warning that that the landlord will take a credit against the minimum wage, or a reminder that the resident employee that the law entitles him to the minimum wage.9 Moreover, a voluntary OSAMA can still be valid and enforceable even if it’s grossly unfair. Whether an OSAMA is voluntary and whether it’s unconscionable are two different questions.10

  1. 25 Cal. Code Regs. §42. 

  2. IWC Wage Order 5-2001. 

  3. Lab. Code §1182.8. 

  4. Id

  5. Civ. Code §1565. 

  6. Civ. Code §§1566-1567. 

  7. Brock v. Carrion, Ltd., 332 F.Supp.2d 1320, 1328 (E.D.Cal. 2004). 

  8. Von Nothdurft v. Steck, 227 Cal.App.4th 524, 532 (2014). 

  9. Id

  10. Id

Ben Rothman, Esq.

Ben Rothman is a Los Angeles-based attorney practicing in the areas of personal injury, employment, and workers' compensation on a "no recovery, no fee" basis. Call him at (424) 465-2948 for a free, no-obligation consultation.