ACTION Apartment Association Action-WAM

December 2005

ACTION — Fri, 02 Dec 2005 04:48:23 GMT

October 2005

ACTION — Sun, 02 Oct 2005 03:47:04 GMT

By Wes Wellman, ACTION President

I am honored to return as president of ACTION. I was previously President of ACTION in 1988 and 1989. ACTION will surely miss Gordon Gitlen and I will personally miss him as well. He was a tenacious leader who was always working to protect your property rights.

Whenever there is a change in leadership for an organization it is a time for reflection about where ACTION has been and where it is going. When I first got involved with ACTION in 1984 I found a young organization with members of great creativity, open hostility for rent control and a desire to protect property rights. Over the years we have had the opportunity to try many plans of attack on Rent Control. Some of which have worked and many have failed.

These attacks have included two initiatives for vacancy decontrol, one in the 80’s and one in the 90’s. In the 80’s, we were successful at getting a condominium conversion ordinance passed called TORCA (Tenant Ownership Rights Charter Amendment). We lost on the first attempt at the polls but we were close enough that SMRR leadership decided to negotiate a deal rather than have us pass TORCA on our own. Unfortunately, it had a sunset provision which occurred during the Real Estate downturn of the mid 90’s. Therefore, it died for lack of interest.

We recently attempted a condo conversion ordinance but it failed at the polls because a majority of the owners were more interested in staying in business than selling their units as condos. This is a testament to the success of the Costa-Hawkins vacancy decontrol bill that passed through the California Legislature in 1995, just 10 years ago. The passage of the Costa-Hawkins bill has brought a more amicable era with the Rent Control Board.

Our opponents too were young and dumb and made many mistakes that we were able to exploit. However, they too have grown, matured, calmed down and have set about the business of protecting their political power base. They are willing to even “eat their own young” when politics have required it. This occurred in the early 90’s when SMRR fired their City Attorney, Robert Myers, when he would not tow the political line in trying to crack down on the homeless problem which was by all accounts worse than it is today. Yes, it is hard to believe, it was worse! But Robert Myers would not prosecute even the most hardened criminal element of the homeless. ACTION made an attempt to create an elected City Attorney position. The measure failed. However, we were successful at pinning a badge on Robert Myers as the promoter of the homeless. When SMRR did a survey they discovered that most of the people in Santa Monica equated the homeless problem with Robert Myers. As such, SMRR majority fired their own to protect their voter base at the polls.

Another example of how SMRR has grown up is in the 3304 regulations, which allow owners to evict a tenant who is not using their unit as their primary residence. The Rent Control Board was informed that they could not protect against such a law on a state level unless they passed one themselves. Thus, the Rent Control Board passed the ordinance in order to control the process. Their process of course makes it much more difficult for landlords to evict tenants not in residency. However, units have been recovered using the process.

Over the years we have used the court system many a time in an attempt to protect property rights. We once won a unanimous appellate decision in the Santa Monica Beach case which held Rent Control unconstitutional. However, the California and the U.S. Supreme Courts saw the property rights issue differently and reserved the decision. To make matters worse we have had several recent cases that have negatively impacted property rights. In Lingle v. Chevron U.S. Supreme Court allowed the State of Hawaii to regulate rents on gas stations. Then, in Kelo v. New London the Supreme Court allowed the government to take property for public use provided it paid just compensation. However, an elderly woman’s home was being taken and then given to a private developer for their corporate headquarters. The ink is hardly dry on the decision and the City of Santa Monica has already announced that it wants to seize an apartment building and demolish it for code violations.

ACTION recently won Balter v. SMRCB, which prevents the RCB from forcing us to pay interest on Security deposits. Our attorney Rosario Perry obtained an attorneys fee award of $175,000.

With the new court rulings we must concentrate on smaller cases of general appeal. We should also focus on changing state laws in Sacramento.

Please feel free to call me or the ACTION office with your own short story of what the rent board is doing to you so that we can help to protect your property rights. We are looking for cases to file which would protect property rights in general and that are not totally unique to your situation.

I look forward to serving as your new President of ACTION and I look forward to hearing from you. I also encourage and ask you to jump in and participate more with ACTION. We can become stronger and more effective by having more involvement from our members. I look forward to your participation.

August 2005

ACTION — Tue, 02 Aug 2005 03:45:55 GMT

June 2005

ACTION — Thu, 02 Jun 2005 03:45:03 GMT

May 2005

ACTION — Mon, 02 May 2005 03:44:21 GMT

March 2005

ACTION — Wed, 02 Mar 2005 04:42:08 GMT

By James L. Jacobson

THE SLIPPERY ROAD
TO SECOND CLASS CITIZENSHIP

Santa Monica rental property owners often object to being called “landlords” for good reason: because they are the exact opposite of “landlords.” A much better description would be “landservants” because they are required by local laws to serve their tenants and lose many of the civil rights enjoyed by other citizens once they become the “owners” of rental property.

I would not be a “landlord” in an area with radical rent controls because the California courts have allowed local governments make “landlords” second class citizens to such an extent that it is questionable which side won the American Civil War. This Rent Board Story will review some of the court decisions which led to this situation where property owners are second class citizens.

Birkenfeld v. Berkeley –
Rental Agreements Become Tenant Life Estates

The first step on the road to second class citizenship for property owners came from the California Supreme Court Decision of Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129 which effectively gave all existing tenants property a right to remain on the “landlords” property for life unless they were evicted for “just cause.” As a result, although tenants still had the right and liberty to terminate their tenancies at will property owners could only terminate tenancies by filing eviction actions for limited, specified reasons. The Birkenfeld decision makes this major change on the law seen quite harmless by stating:

These permitted grounds for eviction appear to cover most if not all of the grounds that would otherwise be available except that of termination of the tenancy. No other omitted grounds have been called to our attention and we assume for present purposes that the effect of the provision is simply to prohibit the eviction of a tenant who is in good standing at the expiration of the tenancy unless the premises are to be withdrawn from the rental housing market or the landlord’s offer of a renewal lease has been refused.”

Notice how harmless the quotation above seems. Instead of saying that “landlords” under rent control are permanently forced to continue a business relationship and provide services to persons they no longer wish to associate with (and might have come to despise), the issue is stated as though landlords retain most of their rights except the right to terminate a tenancy. The right NOT to associate with others or to refuse service to anyone is eliminated by this apparently innocuous paragraph. But this was only the beginning of the elimination of the rights of those people known as “landlords.”

Nash v. City of Santa Monica –
Involuntary Servitude Lawful When Applied to Landlords

Although the Birkenfeld quotation above seems to indicate that “landlords” may go out of business because it says that rental units may be “withdrawn from the housing market” this is misleading. The Rose Bird Supreme Court did not actually mean that it would actually uphold the right of “landlords” to exercise the liberty to go out of business. Quite the opposite. Although the Civil War might seem to have outlawed slavery and although the California Constitution at Article 1 Section 6 states, “Slavery is prohibited. Involuntary servitude is prohibited,” the Rose Bird Supreme Court reversed the Court of Appeal on that issue in Nash v. City of Santa Monica (1984) 37 Cal.3d 97 at 110-111, where the Court’s complete disregard for the rights of property owners was best summed up by Judge Rose Bird’s concurring Opinion as follows:

Further, the ordinance [sic] imposes only a minimal constraint on Nash’s freedom. As the majority point out, he can escape from the landlord business by the simple expedient of selling his property or withholding rental units from the market as they become vacant. Nash does not contend that this particular piece of property is especially important to him or that a sale would harm his ability to provide for himself or his dependents. In short, the ordinance burdens Nash’s right to withhold personal services only by limiting his ability to maximize the profits from his property. Though this is a burden, it is not an unduly harsh one in view of the city’s compelling interest in providing housing for its residents.

Thus, according to Rosie and the Supremes, involuntary servitude is a minimal constraint on freedom which “landlords” can easily escape by selling their property and getting out of town. This interpretation of the law seems to be in direct conflict with California Constitution Article I Section 1 which states: “All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy.” Unfortunately, the California Supreme Court ignored this part of the California Constitution for approximately 80 years.

Following the Decision in Nash, the State Legislature passed the Ellis Act to permit apartment owners to go out of business if they paid their tenants thousands of dollars in “relocation fees,” which clearly proves that there is no “right” to possess property or to refuse to perform services in this State because the Legislature can revoke this “privilege” at any time and because no Constitutional right may be conditioned upon paying money to another person.

Pennell v.City of San Jose –
Landlords Are Not Entitled to Equal Protection of the Law

The next step the California Supreme court took to deprive property owners of their rights was to make them responsible for the welfare of tenants by limiting the rent levels to the amount of rent that tenants could afford to pay. This took place in the Decision of Pennell v.City of San Jose which was in conflict with the Court’s earlier decision In Department of Mental Hygiene v. Kirchner (1964) 60 Cal.2d 716.

In Kirchner, the Supreme Court held that equal protection requirements of the State and Federal Constitutions prohibited the State from requiring a small class of persons– parents of adults who were involuntarily confined in state mental institutions– to pay the public expense of a patient’s confinement. This Decision was based upon the Takings Clause of the Fifth Amendment to the United States Constitution which forbids the taking of private property for public use without just compensation. This clause “was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.” (Armstrong v. United States (1960) 364 U.S. 40)

In Pennell v. City of San Jose, the Court of Appeal applied the Kirchner decision and determined that the landlord’s duty to support their tenants could be no greater than a child’s duty to support his parent and struck down that part of the San Jose rent control law. Unfortunately, the Rose Bird Supreme Court ran to the rescue again and decided that landlords have greater duties than citizens generally by stating the following at 60 Cal.2d 716:

Although Kirchner’s principles have been applied in various “responsible relative “reimbursement cases (see, e.g., In re Jerald C. (1984) 36 Cal.3d 1, 10 [201 Cal.Rptr. 342, 678 P.2d 917] (plur. opn.) (and cases there cited)), we have not applied “Kirchner analysis” outside that context. In this regard, there is no authority suggesting Kirchner prohibits rent control generally, or that it prohibits the present tenant hardship scheme specifically. We have often confirmed the propriety of local rent control legislation that in effect placed the burden of “subsidizing” tenants (to the extent of the difference between unregulated market rents and regulated “fair return” rents) not on the local government but on local landlords.”

After the California Supreme Court rendered this outrageous Decision which made it perfectly clear that California cities were “forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole,” that Decision case was appealed to the U.S. Supreme Court, the only two justices who wanted to hear the case were Justices Scalia and O’Connor. Justice Rehnquist wrote the majority opinion which found that the case was not “ripe for review” because no landlord specifically proved that his/her rents had been reduced because of tenant hardship.

The Danekas Decision –
Impairment of Contracts Permitted at Will

California Article 1 Section 9 states: “A bill of attainder, ex post facto law, or law impairing the obligation of contracts may not be passed.” This provision might sound good, but has no meaning when applied to rental agreements in rent controlled areas as proven by Danekas v. San Francisco Residential Rent Stabilization & Arbitration Bd. (2001)95 Cal.App.4th 638 at 651, the Court of Appeal interpreted this provision as follows:

“Legislative impairment of contract rights is forbidden only if the impairment is substantial and lacks a legitimate and significant public purpose. [Citations omitted.]

Therefore, although the Constitution says that the government may not pass a law which impairs contracts, the Courts say that it may do so unless the citizen proves that the impairment is “substantial” and the government does not have a good reason for doing it. For some reason, this approach is never applied to abortion, pornography, flag burning, discrimination or any other issue that liberals favor.

In the Danekas decision, the Court of appeal decided that “landlords” could not limit their contacts to specified persons, but had to permit tenants to replace tenants who departed their rental units even if the rental agreement specifically prohibited this. The Decision said that this impairment was not substantial because landlords operate in a “highly regulated industry” and because “Rent control, like the imposition of a new tax, is simply one of the usual hazards of the business enterprise.”

The judges might have a different attitude if someone broke their contracts and/or moved onto their properties without permission, but those who criticize “landlords” and support controls on them rarely invest any of their own money to providing housing or put their own rights at risk.

Pick v. Cohen –
No Right to Refuse Service to Anyone

It is common to see signs posted in businesses which say, “We reserve the right to refuse service to anyone.” But these signs are never seen in rent-controlled apartment buildings because “landlords” don’t have the right to refuse service to anyone any more.

As explained above, in Birkenfeld v. Berkeley the Supreme Court effectively converted month-to-month rental agreements into life estates for tenants, but that did not go far enough for the little City of West Hollywood where nothing ever seems to go far enough. That City decided that tenants could invite relatives or “domestic partners” to share the rental units (no matter what the rental agreement said) with the additional benefit that the rental agreements became inheritable estates for the domestic partner if the authorized tenant died or became incapacitated.

The Appellate Department of the Los Angeles Superior Court approved this Ordinance in Pick v. Cohen (2000) 83 Cal.App.4th Supp. 6 and explained that this law was a “proper use of police power” for the following reasons:

“The section at issue applies only to certain specific relatives or domestic partners of the named tenant, and provides the named tenant is restricted to only allow one person in this category to move into the premises, the person must have been in residence for more than one year, and the tenant must have died before the disputed section provides any protection. This is a proper use of police power to protect a specific group of relatives or domestic partners residing in the controlled property on a permanent basis from involuntary displacement due to a death or incapacity in the family. Additionally, the protection is only from eviction as a termination of tenancy of the named tenant; all of the good cause reasons for termination remain should the relative or domestic partner not perform his obligations as a tenant.

The restrictions seem reasonable until one realizes that every “named tenant” gets to invite one additional tenant to share the rental unit and that forming a “domestic partnership” in West Hollywood is less serious than joining a good bowling team as fewer qualifications are required.

After the Pick v. Cohen decision was rendered, the Santa Monica Rent Board thought this ordinance was a great idea and had the Rent Control Law amended to basically accomplish the same purpose. This Law was the subject of Rent Board Story 113 titled “How Landlord Virginia Finally Got Her Rental Unit Back.”

For all of the reasons stated, Santa Monica property owners rightfully object to being called “landlords” because the term is not reasonably applicable to them and neither is the Bill of Rights. And if you don’t believe it, go to any good law library and read the Rent Board Stories cited here.

January 2005

ACTION — Sun, 02 Jan 2005 04:39:57 GMT

ACTION’S HAPPY NEW YEAR PRESENT TO YOU

By Rosario Perry

Well, ACTION has done it! It has filed its federal lawsuit against Santa Monica Rent Control. It is entitled ACTION and Mathew Millen v. Rent Control Board of Santa Monica. For those of you who wish to better understand the lawsuit’s theory we have set forth an explanation in the following paragraphs. (Click here to see the actual text of the complaint.)

First, the lawsuit seeks to declare only part of the law unconstitutional. However, because it may be too hard to separate that unconstitutional part from the rest, the entire law may have to be re-written. In any event, based on our research no less than 60% of the existing units which have not had a Costa-Hawkins increase are occupied by wealthy tenants who do not need rent control protection. Put another way, of the approximate 20,000 housing units whose rents are not yet up to market under Costa-Hawkins , more than 60% of them (12,000 units) are occupied by non-qualified tenants. These 12,000 units’ rents must be brought to market whether or not the tenants vacate. The lawsuit seeks to have the court declare the law unconstitutional under the 5th Amendment because the law protects wealthy tenants with low rents. Such protection has no legitimate state interest.

Second, and as a separate cause of action, ACTION is also alleging that the entire framework of rent control is unconstitutional because it does not accomplish its legitimate goals. In Santa Monica Beach v. Santa Monica Rent Control Board, this same argument was raised and rejected by the California Supreme Court. ACTION is going to present this argument to the federal courts.

A particular type of taking involving the 5th Amendment to the U.S. Constitution, deals with the regulation of land (as opposed to the more traditional eminent domain version). This type of taking is called regulatory taking of property. A regulatory taking of property occurs when either one of two things happens: First, when government regulates the use of your property, without substantially advancing a legitimate governmental interest in doing so; or Second, when the governmental regulation of the property is so severe that it deprives the property owner of any real economic use of the property. In Lingle v. Chevron U.S.A. Inc., (a case currently before the U.S. Supreme Court which should be decided in mid 2005) the legal issue is whether a commercial rent control law passed by the State of Hawaii promotes a substantial state interest. The lower court struck down the Hawaiian law as unconstitutional, finding no substantial state interest. If a regulatory restriction is challenged under this test (no substantial governmental interest being served by the challenged law) then the law is said to “effect a taking” regardless of how much money the owner is making or losing. In other words this test deals with the justification (or lack thereof) for the law, and not how much money the property owner is losing because of the regulation.

So, the question in our lawsuit will be: “Is Rent Control (or any part of it) a regulatory taking under, making it a violation of the 5th Amendment (i.e. because rent control serves no legitimate governmental purpose)?” Lingle v. Chevron is the first case before the U.S. Supreme Court that squarely presents this issue as it deals with Rent Control. All other cases dealing with rent control which have made it to the U.S. Supreme Court discussed rent control under different provisions of the U.S. Constitution, such as due process violations or equal protection violations.

ACTION does not want to wait until Lingle is decided before filing our lawsuit, due to the uncertainty of a definitive outcome of the court’s decisions. ACTION hopes that the federal court trial judge will look at the cases previously decided by its own Court of Appeals decisions. In ACTION’s pending lawsuit. ACTION will maintain that there is no substantial state interest in protecting rents of tenants who are wealthy. ACTION believes that even though rent control can arguably be justified as providing a legitimate state interest when limited to protecting the poor, the law is still unconstitutional since the burden of providing affordable housing for the poor is placed solely on the housing providers. The government collects taxes for social welfare from the entire community; it is their responsibility and not the select group of housing providers to deal with this social burden. ACTION believes that the current rent control law has artificially kept rental rates high due to the shortage of supply caused by providing wealthy people holding onto low rental units in Santa Monica. Many of these units are not even occupied full time by the wealthy tenants, said tenants using the units for vacation homes or extended hotel rooms. If these wealthy tenants were forced to pay market rates, they would give them up (because they do not need them as housing) and that would return a great number of units to the market. This would in turn increase the supply of the available units, and lower the rents. Thus ACTION believes that Rent Control is not solving the affordable housing issue; it is exacerbating it. Pure common sense. Not only is there no legitimate governmental purpose for providing low rents to wealthy people (which thus makes it an unlawful taking of private property and a violation of the Fifth Amendment), but by providing these units to wealthy tenants, it encourages them to hoard unused units, and defeats rent control’s intended purpose.

Can this lawsuit succeed? Many detractors state we should not file the lawsuit at all. It is a waste of time and money. Well, the correct question to ask is this: “If we do not file this lawsuit what should we be doing instead?” Or as better expressed long ago: “It is better to light one candle than to curse the darkness.” Thus, ACTION is not guaranteeing victory, but ACTION is guaranteeing action. We are here to make things happen, and we cannot do that if we do nothing. This lawsuit will pose very important questions to the court: Why should Housing Providers subsidize wealthy tenants’ rents? Why should a city be able to force a subsidy just to get the political support of wealthy tenants?

We do not know what the U.S. Supreme court will do in Lingle v. Chevron, but we do know that there will be no opinion issued before approximately May or June 2005. We also know that time is money and we need to move as quickly as possibly. To waste six months for an opinion that may not resolve the question would be a crime.

THE ECONOMY IN 2005?
Should You Refinance To A Fixed At This Time?

There are many views as to what the new year will bring. There seems to be a consensus among those who predict such things as the future economic health of our county, that the years 2004 and 2005 are/will be much like the years’ economy of 1994 and 1995. We here in Santa Monica remember 1994 as the year of the earthquake (January 17, 1994) which shook up not only the local city bureaucracy but the housing market as well. But others remember the 1994-1995 years as those of stock market prosperity. Clearly, the real estate market was on the rise as well. Inflation was low and interest rates were on the way down. Will 2005 bring higher, same, or lower interest rates for the real estate encumbered investors? Most people would state that rates are going up. There is strong support for this position, no doubt. The U.S. dollar has fallen about 30% since 2001 against the Euro. However, it is still higher (stronger) against a basket of foreign currencies than it was in 1995. Thus we have been here before. Household mortgages are at an all time high, no doubt. However, so is home ownership, and those that pay mortgages not only avoid rent payments, but get tax deductions as well. The politicians know what happens if they hurt the home owner, and thus there is another reason mortgage interest rates will not go up dramatically.

Many owners are re-financing from variable rates to fixed rate mortgages to put their loans where their beliefs are currently located. However, there is a contrary philosophy, which states that interest rates are only going up next year 1/2 percent more. The thought is that since inflation is at the stand still, the only thing that could drive up interest rates would be the falling dollar, and the U.S. Government’s need to attract more investors from over seas to buy the billions of dollars in U.S. 10-year Treasury bonds which the government sells each month. The higher interest rate believers maintain that foreigners are no longer attracted by U.S. bonds, and if we are going to get them to buy more in the future, we need to raise the interest rates we offer them. As the interest rates increase on U.S. Treasury bonds so does the interest rate on real estate mortgages. Many variable mortgages are tied to the U.S. Treasury bond (usually an average of the last 12 months interest).

Before you go out and re-finance your low variable rate for a higher fixed rate loan, you might want to consider another view point. And that is that foreigners are not going to abandon buying the U.S. Bonds for a number of reasons. First there is the stock market. A strong stock market encourages foreigners to invest in Bonds. The prediction for 2005 is an across the board upward growth on all stocks. If this happens, foreigners will not abandon U.S. bonds then the Federal reserve rate will stay around 3% for 2005. The U.S. treasury bond will continue to trade around 4.5%, and all this even if the U.S. dollar falls to $1.40 to $1.50 against the Euro. Second, is the idea that the European countries will try to deflate the Euro so as to keep in competition with the U.S. Dollar. If that happens the dollar will not be losing as much value as against the Euro, and the U.S. Dollar will be more attractive to foreign investors. Third, there will be low inflation in 2005 (say 2% as in 2004). There is the idea that the global economy is getting better for all people around the world. And that this continued global competition which will keep inflation low (i.e., prices of good will stay low because of global competition). Under this theory free trade among countries (China included) creates the lowest possible prices for goods and services, and yes, Adam Smith in The Wealth of Nations (1776) was right all along. Thus in inflation stays low, interest rates are not going to increase much more than we have seen. And, finally Fourth, the U.S. Dollar may be increasing in value against the Euro and other foreign currencies. Bush has stated that he will try to increase the value, and prior to his speech the Dollar gained in the market. It just could happen that with a better economy in our country, and tax revenues going up, our dollar will rise in value as well.

So before you trade in your 3.5% variable for a 6% fixed, you should take another look at the big picture. In any event you should wait for a few months to see if interest rates level off before giving up such a tasty loan rate.

TIPS TO THE WISE OWNERS:
NEW YEAR’S TUNE UPS

With the beginning of a new year, each Housing Provider should take stock of his or her building and tune up their operations. There are a few mistakes that have been consistently made by owners in the past, and with the coming new year, this would be a fine time to correct them. Here are a few of the more outstanding issues:

Anniversary of January 17, 1994 Earthquake
We are in striking distance of the big quake’s Anniversary. Just a short reminder and word of wisdom to you all. The major injury occurring to victims of the earthquake last time, was cuts on the hands and feet due to broken glass. After the quake, people got out of bed, walked around their homes in bare feet and used their hands to pick up or remove broken glass. If you buy one present for yourself this season, make it a pair of strong slippers, and keep them by your bed. Wear them whenever you get up. And if there is another quake do not pick up glass. Leave it there. If you want to do something for yourself, take yourself outside (wearing your slippers and warm clothing) and just look for a coffee shop that’s open. Or better yet, just roll over and go back to sleep until it gets to be daylight.

Mold Containment
Mold is still the number one problem for Housing Providers in Los Angeles County. Mold creates a problem when a tenant’s apartment is exposed to its spores. Before you allow a plumber to open up a wall to look for leaks, make sure that the area around the to be made hole, is encapsulated with heavy plastic sheets to contain the spores. All too often a plumber, in looking for a leak, opens a wall inside the apartment unit, and spores infect the entire room causing thousands of dollars in unnecessary remediation.

Insurance, Mold Tool
Shop around. Once you have insurance, you’ll be tempted to stay the course unless something happens, but you may be able to lower your premiums simply by shopping around. If you can’t lower them, at least you’ll feel good knowing you got the best deal. Direct writers of homeowners insurance include American Express (800-535-2001), Amica (800-242-6422), GEICO (for auto, home or boat insurance, 800-841-3000) and USAA (for members of the military and their families, 800-531-8100). They do their selling over the phone and if you qualify, you’ll save, big time, on the commissions. Even with a great policy, you might be able to drop your premium further with one of the ideas given here.

Raise your deductible. Some insurance companies will drop you if you make more than two claims in a year. Make sure your insurance covers you for catastrophes and plan on picking up the cost of everyday expenses. Raising your deductible from $250 to $500 might shave 12 percent off your premiums. Raise your deductible to $1,000 and your savings might double.

Three-Day Notices to Enter for Repairs
An owner needs to understand and use the 3-day notice. All too often, we hear that an owner cannot gain access into a tenant’s unit for purpose of repair, because the tenant refuses to allow the worker access. The owner is not relieved of his or her obligation to make repairs if the tenant refuses access. Rather the owner must do the following: First, prepare and serve a 3-day notice to cure requiring tenant to allow owner access some time after 3 days of service of the notice. Second, prepare and serve with the 3-day notice, a Notice of Entry to Make Repairs, stating a day and time after the 3 Days period expires. Third, and finally, go with the repair person on the appointed time and date and seek entry for repairs. If the tenant refuses entry, do not contest the refusal, but immediately file a lawsuit for eviction. It is a violation of both State and City laws for a tenant to refuse an owner entry for purposes of inspection or repair.

Hoarding
All too often a owner will allow a tenant to hoard junk and trash inside the tenant’s apartment. Hoarding is against the State and City laws. It creates a fire hazard, health hazard, and nuisance for the other tenants at the property. If you have a tenant who hoards material, promptly give that tenant a 3-day notice to cure or quit.

3-Day Notice to Pay Rent or Quit
All too often we see a owner using the wrong 3-day Notice for collection of rent. ACTION has the correct forms for your use, and no one should use an incorrect form. If you do, your lawsuit may be dismissed and you will have to start all over again, giving the tenant the opportunity to pay rent once again. A correct 3-day notice must contain certain information. Also, it must tell the tenant where and how she/he must pay the late rent. Do not allow a below market rate tenant to pay rent late. All too often we hear the owner state that if a 3-day notice is served the tenant will simply pay the rent. If the tenant does not pay within the 3 days, the owner does not have to accept the rent payment offered AFTER the 3 days has expired. If the tenant has a history of 3-day notices, the court will be even more reluctant to give the tenant a break after the lawsuit is filed. Remember also, that the easiest way to evict a problem tenant is for non-payment of rent. All too often we hear owner complaining about how horrible a tenant is, but then hear that the tenant is habitually late in payment of rent, but the owner does not take the effort to serve 3-day notices. That is bad business.

Excess Rent
There are some owners who are charging the incorrect rent. It may be off by only $1.00 (or even less). However, the owner must seek to correct this mistake. The correct MAR is on line at the Rent Board’s web site, by property address. Every owner should check this site from time to time to be sure that the owner is not collecting excess rent. Remember that the correct rent (also called the MLRundefined Maximum Lawful Rent) consists of the scheduled on line MAR, plus $11.00 per month for registration pass throughs, plus lighting surcharges if available, plus school bond taxes the owner pays. If the owner is off by a very small amount, and the tenant fails to pay rent, the owner’s 3-day notice will be incorrect and the owner will not be able to evict the tenant for non payment of rent based upon that incorrect 3-day notice. The owner will have to recompute the correct rent, and then after giving the tenant credit for the over charged rent, serve a new 3-day notice. The owner gains nothing by waiting to correct the rent, instead of doing in now.

Additions or Amendments:
Written Rental Agreements
One of the least understood legal issues in rent controlled properties (any city) is: “Can an owner give a tenant a written rental agreement if the tenant does not have one?” and “What is the best way to handle this situation?” The law is clear that a owner may serve on a tenant a 30-day notice which contains a new written rental agreement, whether that tenant has an existing oral agreement or written agreement. After 30 days that rental agreement will be effective between owner and tenant, whether the tenant signs the agreement or not. However, the Rent Control Board has passed a regulation Chapter 9, which states that an owner cannot evict a tenant for a breach of a term which is contained in a rental agreement the tenant refused to sign. This regulation does NOT state that a owner cannot serve on a tenant a new rental agreement, or that the terms of the rental agreement are not binding for purposes other than eviction. Indeed, there are many economic reasons and legal ramifications that can be advantageously accomplished by the serving of a written rental agreement on the tenant. ACTION has a good rental agreement and a 30-day notice form for this purpose. In the situation where the tenant has an existing written rental agreement, the owner may want to consider amending only certain paragraphs, (such as deleting the attorney’s fees clause) rather than replacing the entire agreement with a new agreement. For the owner who happens to have a good written rental agreement in place, don’t forget that the Rent Control Law states that the tenant must sign a new agreement with terms substantially similar to that one, or move out.

Drop Box For Rent
Each owner should consider establishing a drop box on the property for the payment of rent. This is especially true if the owner has a tenant who habitually pays rent late. The tenant should be notified in writing that the drop box is the only place where rent can be paid. The drop box should be accessible at all times of day and night. The drop box can be a mail slot in the manager’s door or a storage room’s door, or a mail box mounted inside the building. The owner should keep inside the box blank copies of form 3-day notices to pay rent or quit. The owner should check the box on the 2nd of each month. While there, if any tenant has not paid their rent, the owner can fill out and post and mail a 3-day notice. Then the owner can return on the 6th of the month to see if the tenant has paid their rent. If not, the owner can then file a lawsuit for eviction. This method avoids the time delay accompanied by mailed rent, and the possible legal presumptions that the rent was lost in the mail.

Inspections
The city and state require the owner to know at all times the condition of the tenants’ apartment units. If a tenant fails to inform the owner that something is leaking or broken, this failure does not relieve the owner of responsibility. In addition, may leaks if caught in time, will save thousands of dollars in repair bills. Thus it is incumbent upon owner to maintain a schedule of walk throughs of their tenants’ units at least as often as once every months. Each inspection should be noticed by a writing served on the tenant 24 hours in advance (a greater advanced notice would be preferable) The correct notice form is available at ACTION’s offices. The owner or agent can walk through for the inspection. A check list should be used, with the time and date listed, along with the name of the person(s) making the inspection and the tenant or other person present. The check list should contain items such as: smoke detectors, space heaters, water heaters (if any), water pipes, stove, windows, carpets, painting/ walls, ceilings, floors. Any items in need of repair can be noted. The owner should make all repairs and not allow tenant to make any repairs. If the damaged item is the tenant’s fault, then the owner should still make the repairs and sue the tenant for reimbursement. The owner should never allow the tenant to make repairs, because the owner loses control over the material and work done to the building, and runs the risk that illegal material may be used by the tenant (such as illegal paints and varnishes, or non-tempered glass), and further that the work is substandard and will lead to more problems. The owner must never allow a tenant to make repairs and deduct the repair costs from the rent.

December 2004

ACTION — Thu, 02 Dec 2004 04:38:47 GMT

October 2004

ACTION — Sat, 02 Oct 2004 03:38:10 GMT

September 2004

ACTION — Thu, 02 Sep 2004 03:37:21 GMT

July 2004

ACTION — Fri, 02 Jul 2004 03:34:19 GMT

Legal Column, July 2004
By Rosario Perry, Esq.

SM City School Supporters Learn How To Intimidate City Council Members To Pay Out Money To Their Causes

The city has been beset with many problems. Primarily from those private interest groups that wish to impose a financial clamp on the city’s budget. Take for instance the schools. A high profile of SMRR members have joined to blackmail the city into promising that 6 million dollars of our city taxpayers income, will be gifted to the local schools. If the city had not agreed to that, the school supporters had threatened to file an initiative for the November, 2004 election. This initiative would have mandated that the City council designate certain funds each year from its budget to the schools. Now one may ask, inquisitive minds might ask, what is the difference between making the school supporters deliver on their threat to pass an initiative than just give into their demands. Well, it seems that the City Council is prone to give this money anyway, and they do not want a SMRR split in this upcoming November City Council election. However, it is clear that any initiative on how the City would budget its money is not binding on future city council members, and it is also clear that any agreement entered into between this City Council and the schools is not binding on future council members either. However, the entire spectacle of SMRR backed school members siphoning off hard-paid tax dollars for school projects which will not reach the public’s eye for approval, is too crooked for words. The College Board is now proposing a 178 million bond measure for the November, 2004 ballot. Where will all these millions of hard earned tax dollars be going? Where is the accountability? The last school bond measure to be placed on the ballot, just did pass. There has never been any discussion or explanation as to why this money is needed, and why more and more money is needed.

ACTION WINS ANOTHER BIG LAWSUIT:
TENANT HARASSMENT ORDINANCE UNCONSTITUTIONAL!

Well, it has been a short while, and ACTION members were asking its Board of Directors, when are we going to push back City Bureaucracy ? It happened like lightning. The case is entitled ACTION APARTMENT ASSOCIATION v. City of Santa Monica. (You can read the decision in its entirety on the ACTION web site). Special thanks must go to our ACTION member Doreen Dennis, for volunteering to be a class representative in this lawsuit. Doreen had received a threatening letter from the City Attorney’s office, simply because she sought to have her daughter move into her property. Doreen had the courage to stand up to the City and participate as a named plaintiff in this lawsuit. Without members like Doreen, ACTION could not maintain its high standard of service to the community.

The Court of Appeals, in a published opinion that has statewide implications, has ruled that the City’s Tenant Harassment Law is unconstitutional in certain respects. If you remember, ACTION’s Board decided to file a lawsuit against the City because of their harassment of housing providers over whether they were allowed to serve their tenants with 3-day notices and file unlawful detainer complaints. This City, in anger over the state legislature passing the Costa-Hawkins law (vacancy decontrol/recontrol) and with no factual support for their allegations that housing providers were allegedly harassing tenants, passed their much advertised (tenant vote getting) Tenant Harassment Ordinance. This law was totally unnecessary. However, one section of the law was very troublesome in that it made it illegal for housing providers and their attorneys to serve a letter, or 3-day notice, or file an unlawful detainer complaint against a tenant under certain very vaguely defined circumstances. Well, this section had the clear effect of scaring the housing provider and the attorney with jail time and thus interfering with a housing provider’s right to seek resolution of disputes in court. In other words, the City was maintaining that if the housing provider (or the attorney) filed a lawsuit in court over a dispute with a tenant, the City would decide if the dispute was in good faith, and if it the City decided it was not in good faith, the City would sue both the housing provider and the attorney for criminal and civil penalties. It did NOT matter that the housing provider won the lawsuit against the tenant, the City had the right (so goes their diatribe) to still prosecute the housing provider and his attorney for criminal and civil violations. (Maximum of one year in jail).

Well, it is no wonder that ACTION needed to attack this law.

First of all, the City’s track record of implementing the law, was atrocious. The City Attorney’s office would write the most threatening, one-sided letters to the housing provider whenever a tenant filed a complaint with the City. The City always believed the tenant and always disbelieved the housing provider. Indeed many times the City would write a threatening letter without even listening to the housing provider’s side. Faced with City Attorney’s letters threatening criminal prosecution, many housing providers simply gave up, caved in, and forgot about the tenant’s improper conduct (which lead to the issuance of the 3-day notice in the first place). Now, in many instances, the offending tenant conduct was that which bothered many other tenants at the property. So the effect of all of this was to not only interfere with a housing provider’s ability to manage his/her property, but also to foist on other tenants a continuing course of bother from the offending tenant. The entire situation was a mess, but one which the City (and the SMRR backed city council which passed the ordinance) relished in. Indeed for the 250 or so threatening letters sent out by the City, there were only 5 or 6 actual lawsuits filed by the City. And of these 5 or 6 lawsuits only 1 or 2 were tried or settled. The rest were dismissed. One such case which was dismissed, started off with the arrest and imprisonment of the housing provider after a tenant complaint, which normally would have been ignored. Such a record shows that the City Attorney’s office was only interested in intimidation, and had been greatly overstepping known legal principles to further their ill-conceived ends.

ACTION, with its win, has brought an end to most of this illegal coercion. However, a housing provider must act carefully, to bring himself within the safe harbor of this Court of Appeal ruling. See the discussion below:
Some of the more memorable quotes of this case: The court found that there is a statutory privilege which protects the housing provider’s right to petition the government for redress of grievances, a right which includes the right to sue. Housing providers have the utmost freedom to access the courts to secure and defend their rights. The housing provider’s need for access to the courts is an unusually vital one, in that a housing provider cannot terminate his dealings with a tenant without access to the court. The City’s ordinance threatens the housing provider’s free access to the courts.

ACTION has gone a long way in furthering a housing provider’s right to manage and protect his/her property, and provide a safe and peaceful environment for all other tenants at the property. ACTION needs to be congratulated on a job well done in creating a safe harbor for housing providers to live within.

The City plans to ask the Court of Appeal to re-hear their decision, and then to ask the Supreme Court to either decertify the decision (i.e., wipe it off the Books) or to hear the case themselves. ACTION is pleased with the decision as it is, and will resist any attempt to have it altered in any way.

How To Avoid Criminal Prosecution Under the Tenant Harassment Law.
Safety Within The Harbor that ACTION Built.
Housing providers need to understand how to protect themselves under the newly won victory, ACTION v. City of Santa Monica. First, ACTION attacked the Tenant Harassment Ordinance only as it dealt with the City’s attempt to make it illegal to send notices to tenants or file unlawful detainer (and other lawsuits) against tenants. Housing providers must still be careful as to what they say or do with tenants to avoid Government entanglements. The first lesson housing providers must learn is NOT to talk directly to tenants about their breaches of lease, but rather do everything in writing. Send letters or 3-day notices, or file complaints, but do NOT attempt to talk to tenants directly. This is harsh advise, and many housing providers will be saying to themselves, that it is a poor state of affairs we have fallen to, when a housing provider cannot discuss with his or her tenant the problems that tenant is causing. However, if you wish to be 100% protected by ACTION’s recent victory, then keep everything in writing. If you believe that the first amendment’s freedom of speech provisions protect you, and you have the right to speak to tenants, then OK go ahead at your peril, and if you get a threatening letter from the City Attorney’s office, then come to ACTION for help, for round two of the litigation. However, if you wish to avoid threatening letters from the City Attorney’s office, then send a letter or 3-day notice and in it you can explain that everything is in writing out of necessity because of the City’s illegal laws.

If you do take advantage of the safe harbor ACTION has built for you (i.e., if you live within the rules set forth herein), then you will be protected against the storms of City threats and lawsuits.

Here are the rules:
First, if there is a dispute with a tenant about that tenant’s violation of the terms of the rental agreement (either oral or written), or if the tenant is creating a nuisance, or is otherwise doing something or not doing something that you believe could result in that tenant paying you damages or being evicted, then you have a controversy.

Second, if there is a controversy, then you have your choice of either sending the tenant a letter of warning or sending the tenant a 3-day notice to cure or quit (or simply to quit if appropriate). You should either send a letter or a 3-day notice, but you should not contact that tenant verbally. Your letter can be as nice as you want, but it should state somewhere in the letter the following language or language like this “Your conduct as described herein can result in the filing of a lawsuit. I urge you to stop this conduct to avoid the necessity of such an event.” This puts the tenant on notice that your letter concerns the potential of the litigation, and as such will encase you in the litigation privilege established by our recent victory.

Third, if you decide to serve a 3-day notice (either to quit or to cure or quit) then the above quoted language is not necessary because the 3-day notice itself refers to the housing provder seeking possession. It should be remembered that the service of a 3-day notice is a statutory requirement to the filing of a complaint. As such, it automatically comes within the litigation privilege of the ACTION decision.

Fourth, remember, if you serve any type 3-day notice (except one solely for the non-payment of rent) you must also file a copy of that notice with the Santa Monica Rent Control Board within 3-days of the service on the tenant. This is a law that was added to the Rent Control Charter amendment to make it harder for housing providers to evict tenants. A trap for the unwary. However, as always, be prepared, be advised, be ACTION. If you have hired an attorney to help you write and serve a 3-day notice, tell that attorney to serve the Board. Don’t take anything for granted. Many attorneys do not know the special rules of Santa Monica. That attorney will appreciate your helping her or him to better serve your needs. Remember, failure to serve the Board within the 3-days may result in your losing the eviction at trial. If for some reason, the 3-day notice is not served within the 3-days, then reserve the 3-day notice on the tenant, and then on the Board within 3-days of the new service on the tenant.

RECENT CASES OF IMPORTANCE

ACTION is not alone in wining important cases. A 9th Circuit Court of Appeal decision has just been issued that has far reaching impact on rent control as we know it. The case is Chevron USA, Inc. v. Bronster. It is also called Cayetano II. Paid up subscribers will remember our discussion of Cayetano I (i.e., Chevron USA, Inc. v. Bronster, 224 F.3d 1030, 1041 (9th Cir.2000) Indeed in ACTION’s very important lawsuit against the Rent Control Board over Interest on Security Deposits, ACTION cited Cayetano I, and the Court of appeals in their published decision also cited it as well. Cayetano II (or Chevron USA, Inc. v. Bronster, 363 F.3d 846 C.A.9 2004 Hawaii) as the reported decision is named) re-affirms the holdings of Cayetano I. The rule of law is that legislation that effects real property, that does not have a legitimate public purpose is a taking of property in violation of the 5th amendment, and thus is unconstitutional.

Ocean Park Associates v. Santa Monica Rent Control Bd.,114 Cal.App.4th 1050 (Jan 2004). In this Second District, Court of Appeal decision the court ruled that Santa Monica Rent Control Board’s practice of filing building-wide decreases on behalf of tenants who do not wish to file rent decreases against their housing providers, is unconstitutional. The court held that the rent control board exceeded its authority by initiating a petition to decrease rents. This brought to an end once and for all the Board’s practice of harassing housing providers with hugh rent decreases when there were few if any tenants who wished to complain.

ACTION Set To File Lawsuit To Declare Rent Control Unconstitutional

Sometimes victory goes to one’s head and one gets cocky. Well, maybe its the victory in the air or maybe the time has finally come, but ACTION’s Board of Directors has given it’s tentative approval to the ultimate of all lawsuits. A federal lawsuit based on the recent decision Chevron USA v. Bronster, 363 F.3d 846 C.A.9 2004, a federal 9th circuit decision. The case holds that legislation that effects real property, that does not have a legitimate public purpose is a taking of property in violation of the 5th amendment, and thus is unconstitutional.

Rent control as we know it in Santa Monica, West Hollywood, and Los Angeles, has no legitimate public purpose, in that it does not allocate reduced rents to people in need whatsoever. There is no relationship between reduced housing rents and people who need reduced housing rents. Indeed, as we see, the rich tenants get the lowest housing units. A system of laws which allows rich tenants to occupy below market rental units has no legitimate state interest. SMRR’s attempts to get votes by giving housing providers’ units to rich tenants is NOT a legitimate state interest.

ACTION is about ready to file its ultimate lawsuit against the City of Santa Monica based on this theory if we can raise the needed funding from donations from our members. This lawsuit is the mother of all lawsuits, and will seek to have the federal court declare that Santa Monica, West Hollywood’s and Los Angeles’ rent control law is unconstitutional. Once and for all, we will wipe out the regulatory processes of this SMRR city council which seeks to harbor rich tenants on our properties to enrich their economic life style. Can we file this lawsuit and win? The answer is within the ACTION members desire to contribute to our cause. Cocky or not, we shall preservere.

COSTA-HAWKINS HAS SAVED SANTA MONICA RENTAL HOUSING

A study of the City of Santa Monica’s residential rental housing market, including how the City’s April 10, 1979 rent control law has impacted it, shows beyond a doubt that Costa-Hawkins has increased the quality and quantity of rental housing in our City. Indeed without Costa-Hawkins, rental housing in Santa Monica might have all but disappeared. A detailed explanation of the problem created by rent control would take a book. However, a short discussion of the Santa Monica story will show that Costa-Hawkins has preserved rental housing in Santa Monica.

Rent Control came to Santa Monica on April 10, 1979. Prior to that time there was never a problem with rental housing shortages. Rents would fluctuate from time to time, as well as would vacancy rates within the city. Like all other commodities, supply and demand played an important role in its cost and availability. The shortages we experience today are a result of over regulation by city government. Rent control is just one of the regulations which create the shortage. The city has imposed zoning, building code, and land use restrictions as well.

Rent control brought two major economic evils to our City: First, the owners could no longer adjust rents to cover the cost of maintaining their buildings, nor to raise rent to reflect the true value of their properties. Second, those owners who had lower than market rents on April 10, 1979 were punished and required to keep those rents at that level until Costa-Hawkins was passed, regardless of vacancies and turnovers. These buildings with lower than market rents all belonged to the senior citizen mom and pop owners. They were the ones who normally lived on their properties and rented out units to supplement their retirement income. To these people the system was the most vicious. The larger corporate owners (prior to April 10, 1979) were consistently keeping their rents at market, and they did not suffer as great an economic burden as the smaller mom and pop owners.

Of all the many economic hardships rent control brings to residential rental housing, the four most wicked are (1) disincentive to build more rental housing, (2) disincentive to RENT units when they become vacant, (3) disincentive to make needed repairs and renovations in existing apartment buildings, and (4) most importantly of all, disincentive to continue in the residential rental housing market. There are two reason rent control creates these four negative factors. First, rent control imposes a heavy governmental bureaucratic burden on housing providers which imposes mental and economic hardships on the housing providers; and Second, Santa Monica rent control prohibited the Housing Provider to increase rents when they obtained a vacancy. Costa-Hawkins has brought needed relief from most (but not all) of these economic hardships.

In Santa Monica, from April 10, 1979 to Jan. 1, 1996 (the implementation date of Costa-Hawkins) the typical apartment building was in a definite state of disrepair, and disintegration. Initially, the housing industry was not overly impacted. However, after just a few years, and beginning in the early 1980s, the City saw a market decrease in repairs and renovations to its rental housing stock. This, of course, was due to the simple economic realities that with vacancy control, rents could not keep up with the cost of maintaining the rental housing stock, and there was no economic incentive for owners to renovate and repair their buildings to obtain market rate rentsundefined rents were controlled at levels 50% below market rate.

Most of the apartment buildings in Santa Monica were build in the late 1950s and throughout the 1960s. This was a time of little governmental restraint on construction. Some 35,000 rental units were built during this time. The City obtained the nick name of a “Bedroom Community” because there were so many rental units compared to the small amount of commercial business taking place. Thus when rent control passed the housing stock was already some 20 to 30 years old. Buildings were in desperate need of repair and renovation, but the rental stream was not there to pay for it. Furthermore, the housing provider industry, primarily made up of mom and pop owners, were psychologically depressed and politically upset with the government system that stole management and control of their properties away from them. The love and pride of ownership, once so strongly displayed by them, was buried in an anger amounting to almost a guerrilla warfare atmosphere. The last thing housing providers wanted to do was make a property wonderful for tenants who were stealing from them with highly reduced rents.

Furthermore, many owners simply stopped renting out units once they became vacant. Best estimates, based on ACTION IN SANTA MONICA members’ input, put the refusal-to-rent vacancy rate at approximately 5% to 8%. There were 32,500 registered units in Santa Monica when rent control passed, this meant that approximately 2,000 units were kept vacant, or kept for out of town family and friends to stay in, or for storage. This refusal-to-rent vacancy rate increased as time went on, as housing providers got more and more disgusted with the Rent Board bureaucracy.

Finally, absolutely no apartment buildings were constructed in Santa Monica after rent control passed, except for government sponsored ones which were heavily subsidized, and as all things built by government, way over cost. The average subsidized apartment unit built by the City’s affiliate groups were built at twice the cost per square foot as the condominiums being built by private parties during the same time periods. This disgraceful waste of funds is further besmirched when one recognizes that condominiums construction costs 20% to 25% more than market rate apartment buildings, because of their respective quality of finishes.

Like any good bureaucracy intent on economic meddling, the Rent Control Board did not sit still in the face of deteriorating housing stock. They passed regulations which made things worse. In response to the obvious reduction in maintenance, the Board passed the Chapter 4 set of regulations which allowed tenants to apply for rent decreases based on failure of owner to repair. This only further incensed owners, led to greater animosity between tenants and housing providers, and was a strong factor in housing providers increasing the number of intentionally kept vacate units. However, while it did lead to a few units being repaired, (i.e., those units where the tenants stepped forward to file complaints) when one considers that there were approximately 30,000 controlled units in the City in the early 1980s, one instantly sees that it could not do anything to stem the tide of disintegration.

The housing crisis was further worsened in that starting around 1986 after 7 long and horrid years of rent control, many mom and pop owners were giving up on owning rental housing, and selling out to condominium developers. The developers would buy the apartment buildings very cheaply because in the mid 1980s through the mid 1990s (prior to Costa-Hawkins) the sale price of a rental property would be based on its annual rental income. The normal sales price during that time period was between 7 to 9 times gross rental income. What this meant was that the lower the rents were (a policy the Rent Control Board religiously maintained to accomplish) the cheaper these rental properties were, and the quicker they were purchased, demolished and replaced with new condominium buildings. Thus, the Board faced another disaster: loss of rental units altogether.

The problem got so bad that the Board itself sponsored a Rent Control amendment which initiated a limited vacancy decontrol system, so that the housing provider could obtain a rent increase upon vacancy to a below market rate rent, based on which section in the city his/her property was located. The City Council amended the Board’s proposal, because they felt that the amount of increases were not high enough. The city council submitted its limited vacancy rent increase to the voters (since Santa Monica’s rent control law is a Charter Amendment any change must be approved by the Voters). However since 55% of the voters are tenants in rent controlled units, the voters defeated the City Council’s proposed amendment. Thus the City was in the difficult position of not being able to implement a vacancy decontrol policy, and losing rental units at a tremendous rate. In 1994 there were approximately 28,000 rent controlled units, down from the April 10, 1979 count of 32,500.

Then along came Costa-Hawkins. What Costa-Hawkins did for Santa Monica can only be described as miraculous. First, by implementing a system of vacancy decontrol, those remaining owners could see the light at the end of the tunnel. The psychological effect was therapeutic. Immediately, the value of apartment buildings increased from a factor of 7 to 9 times gross rental income to 10 to 11 times gross rental income. This was based on the implication that rents would be going up to market in the future. Remember, by nature the mom and pop owners in Santa Monica are very patient. Now that they could see that there would be economic relief ahead, they were will to wait for it to arrive. With this increased price of apartments, the sale for demolition for condominium construction dramatically decreased. What the City could not do to stem the loss of units, the State legislature did through Costa-Hawkins.

Second, the deliberately left vacant units came on the market for rent. There were approximately 2,000 units which were rented between 1996 and the end of 1997, which were previously kept vacant. There would have been more released to rental use, except for the fact that Costa-Hawkins only allowed a 15% increase over the controlled rent, from 1996 through 1998.

Third, almost all the buildings in the City went through a renovation, as owners who anticipated renting units at market rates, now sought to fix up their buildings so that they could attract the highest possible rents. There was so much repair and renovation going on that the Board (in their bureaucratic wisdom) passed a regulation which allowed tenants to apply for a rent decrease if there was too much noise, dust, disturbance based on renovation work. The entire city was going through a renaissance. Every where one drove, he or she would see buildings being painted, re- roofed, remodeled, landscaping, repiped and rewired. Amenities were being added. These additions, while intended to benefit the soon to come market-rate tenant, actually benefited the existing low paying tenants as well. Indeed a study done by the Rent control board shows that as of December 2003, of the 27,500 remaining controlled rental units, only 30% of them have gotten any Costa-Hawkins rent increase since January 1, 1996. Thus the overwhelming majority of renters benefited by this waive of repairs, has been the existing low rent paying tenants.

Fourth, Costa-Hawkins has allowed minorities and families with children to move into Santa Monica. Pre-Costa-Hawkins, the Santa Monica housing providers could only rent at the artificially low controlled rents. The typical housing provider would thus seek to rent to only one tenant, using a rental agreement which outlawed pets, and subtenants. Thus, even 2 and 3 bedroom apartments were occupied by only 1 person. This negatively impacted surrounding cities in L.A. County, in that the population of Santa Monica actually went down from 92,000 in 1979 to 83,000 in 1996. The City of Santa Monica was not providing for housing its proper percentage of population. However, after January 1, 1996 and especially after January 1, 1999 (when full vacancy decontrol was the rule) housing providers were renting units at the highest possible price, and that meant that minorities and families could literally pay for their right to live in Santa Monica. And they did. While vacancy control was the law in Santa Monica (pre-Costa-Hawkins) the percentage of families and the percentage of minorities actually decreased from pre-rent controlled days. Now it is on the rise (after Costa-Hawkins).

So in summation, what Costa-Hawkins has brought to Santa Monica is a new lease on life for residential rental units, the rush to demolish to build condominiums is now over. Considering the high sales prices of condominiums today, had it not been for Costa-Hawkins there would have been a considerably greater amount of rental units demolished. Only the higher value of apartment buildings, imposed by Costa-Hawkins rent increases, has saved Santa Monica from a substantial loss of rental units.

We can clearly state that Costa-Hawkins has done the following: 1.) It has brought about substantial improvement in the quality and safety of the rental housing stock in Santa Monica; 2.) It has allowed families and minorities to move back into Santa Monica; 3). It has stopped the eroding of the rental housing stock in Santa Monica; and 4). It has brought fairness of economic return on value to the mom and pop owners in our city. The only thing which it has not done is to over come the city’s concerted effort to discourage rental housing; there still are very few rental units being built in Santa Monica. Clearly the negative effects of rent control still linger to discourage even the bravest from building rental units. However, we cannot expect Costa-Hawkins to do it all. Someday, Santa Monica will have to admit that their antagonist zoning and building laws, must be changed if we are to have any substantial construction of rental housing units. Someday some statespersons will have to get elected to City politics and throw out the city bureaucracy which seeks to enslave us all.

June 2004

ACTION — Wed, 02 Jun 2004 03:32:49 GMT

By Paul F. Utrecht, SPOSF Board Member

This is not an April Fool's joke, but it might as well be an early Christmas for small property owners. On April 1, 2004, the federal Ninth Circuit Court of Appeals decided in Chevron v. Lingle that Hawaii’s rent control for gas station is an unconstitutional “taking.” While “takings” law is complicated even to those steeped in constitutional law, the implications of this decision are not: it is a startling and remarkably good step towards finding that residential rent control is also unconstitutional. In 1997, Hawaii adopted rent control for gas prices. In Hawaii, a major oil company often owns the property under a gas station, which is then rented to a franchise who operates the station. The Legislature believed that gas prices would go down if the oil company could not raise the rent charged to the franchisees for the land. (Why hasn’t our Board of Supervisors adopted this easy solution to San Francisco’s skyrocketing gas prices?)

Chevron’s reaction to this new rent control law was immediate: It filed suit, contending that the law would not accomplish its purpose of lowering gas prices. Chevron argued that rent control would only shift wealth between the oil company and the franchisees: the franchisees would continue to charge the market price, but would make more money because their rent was fixed. Moreover, when a franchise is sold, the seller could get a higher price for the business because future profitability would be enhanced by the existence of rent control. Chevron argued that there is a heightened test for constitutionality under the Takings Clause: To be constitutional, it is not enough that the government thinks that a law will work; the government must prove that the law will (or does) work. In 1998, a District Court Judge in Hawaii agreed with Chevron. The judge found that there was no factual dispute and ruled, without a trial, that the rent control law is an unconstitutional taking because it would not lower gas prices; it would simply take money from oil companies and give it to franchisees. Attorneys for the state of Hawaii responded by appealing to a higher court, the Ninth Circuit. That time, in 2002, the decision came down in Hawaii’s favor. The Ninth Circuit held that the trial judge should not have ruled in favor of Chevron without having a trial because there was a factual question of whether the price of gas would go down. It was theoretically possible that the franchisees would pass the lower rent on to consumers in the form of lower gas prices. The Ninth Circuit sent the case back for a trial to resolve that fact question.

Chevron fought back in the lower court with a different judge at the trial. The judge, not surprisingly, found that the franchisees would charge market price and would not reduce the price of gas because their rent was lower. The judge also found the law unconstitutional. Again, Hawaii appealed to the Ninth Circuit Courtundefined with a stunning outcome. By a 2-1 vote, the Ninth Circuit agreed with the lower court that the rent control law is unconstitutional. The most important part of the ruling of small property owners is that all rent control laws are now subject to a heightened test for constitutionality under the Takings Clause. Essentially, the Ninth Circuit agreed with Chevron that the government cannot just say that it thinks rent control works; instead, the federal courts must look at the facts and determine whether rent control works in the real world. If not, the law is an unconstitutional taking. While the Ninth Circuit’s ruling only applies to gas station rent control, its implications are far-reaching. Just listen to the words of the dissenting judge: As a result of this ruling, “virtually all rent control laws in the Ninth Circuit are not subject to (a heightened test under the Takings Clause) and many of those laws may well be held unconstitutional under that test.”

While dissenting opinions are never the final word, they can be prescient. Take Justice Scalia’s dissent from the Supreme Court’s decision that state laws prohibiting homosexual conduct are unconstitutional: He predicted that the decision would lead to same sex marriages. The City Attorney is now relying on that very dissent to argue that Mayor Newsome was simply observing the constitutional right of everyone to marry. The Ninth Circuit’s decision in Chevron shines a new beacon of hope on SPOSF ultimate goal of abolishing rent control.

Reprinted from the Small Property Owners of San Francisco Journal. SPOSF Board member Paul F. Utrecht is an attorney specializing in property law.

Visit the SPOSF website at
www.smallprop.org

April 2004

ACTION — Fri, 02 Apr 2004 04:28:58 GMT

Sacramento Report , April 2004
By Greg McConnell

THE SPLIT ROLL TAX INITIATIVE

It amuses me to hear about the debate about the appropriate name for people who rent residential units. On one end of the spectrum is the term “landlord” which some of the more hostile tenant activists equate to “greedy bloodsucker.” The moniker used at the other end of the spectrum is “housing provider”, a.k.a., “benevolent benefactor sent from high above.”

The truth is that rental property owners are neither devils nor angels. They are business people who sell a product.

The commercial or business nature of landlords/ housing providers will be put on full display this fall. In November, California voters will decide the Split Roll Tax Initiative that is being circulated by the California Teachers Association and universally regarded as a shoe-in to make the ballot.

SPLIT ROLL TAX– A BRIEF DESCRIPTION

The Split Roll Tax Initiative is a proposed constitutional amendment sponsored by the California Teachers Association (CTA) and Robert Reiner. It would scuttle the tax protection provisions of Proposition 13 and significantly increase taxes for all commercial property, including residential rental property valued over $700,000.

The initiative defines commercial residential property as “that portion of a building that contains one or more dwelling units that are not owner occupied.” As to such property, it maintains the current property tax and imposes an additional ad valorem property tax on the assessed value of the property. The rate increases with the assessed valuation of the property from a rate of .10 ($700,000-$799,999) to .55 ($1,000,000 or more).

According to CTA, this measure is necessary to raise revenues for a new pre-school program and K-12 education, including teacher salaries. One third of the revenues are dedicated to the pre-school program. The remaining two-thirds go to K-12 education.

HOW SPLIT ROLL AFFECTS APARTMENT OWNERS

Taxes will increase on residential rental properties that have assessed values of more than $700,000. This includes rented single-family homes and condominiums.

For properties assessed at $700,000, the increase will be an additional $700 per year. For properties with an assessed value of $1million or more, the tax burden will increase by an additional $5,500 for every million dollars of assessed value.

For properties currently assessed below the $700,000 threshold, the major impact will be felt at point of sale. That is when properties will be reassessed and buyers who face new tax loads will undoubtedly try to reflect their added burdens in their offers.

Owners in rent control cities would have a really big problem. They cannot pass the cost of new taxes through to sitting tenants unless the local rent control law allows a pass through. Berkeley owners, for example, would have to absorb the costs for sitting tenants. Nor, can rent controlled owners pass through increased costs under vacancy decontrol. Those units are already renting at market prices and try as one might, owners cannot charge rents that are higher than market.

Owners in non-rent controlled cities will be able to pass some of their costs through to tenants who have long tenancies and pay below market rents.

SPLIT ROLL'S IMPACT ON TENANTS

The proponents of the measure argue that it is necessary to increase funding for pre-schoolers and teachers. What they don’t tell voters is who pays for the tax. In the case of apartment tax increases, that would be, among others, the pre-school operators, teachers, and other long term apartment residents who rent below market and cannot afford to buy California’s medium priced $400,000 plus homes.

Unlike owners who may be able to take tax deductions on some of the loss, the tenant who pays for the increase just eats it. And it is a big bite. On a hypothetical eight-unit building valued at $1 million, the tax increase under the CTA Split Roll Initiative would be $5,500 per year. That translates into rent increases of approximately $57 per month and would necessitate a 5.7% increase on an average asking rent of $1,000 per month. This number will be compounded annually.

Teachers and pre-school operators who are long term tenants with below market rents and who rank amongst the 75% of California residents who cannot afford to purchase a home will be hurt badly by this measure. I wonder if CTA and Rob Reiner thought this through. They raise taxes on the very people they say they want to help. Is this the kind of thinking that led Archie Bunker to call him “Meathead”?

I am sure that many people want to improve our schools. And, in fact, some readers of this column may think that raising taxes is morally the right thing to do. But, if that is the case, why did CTA and Rob Reiner not include new taxes for homeowners in the initiative? Don’t homeowners who have kids in school benefit from the measure? The answer is simple. The proponents didn’t include homeowners because they know that homeowners would vote the measure down.

Bottom line, this is just another deal that tries to pass things on to business people. If it succeeds, it will be another nail in the coffin of what was once a thriving and prominent state.

DEFEATING THE INITIATIVE

Over the next several months, we will report more about the CTA Split Roll Tax Initiative and efforts to defeat it and protect owners from its impact. Suffice it to say that this will be a huge battle that will unify California businesses in unprecedented ways. California apartment owners represented by The McConnell Group will play a significant role.

For now, you can view the full text of the measure on the Attorney General’s website: www.caag.state.ca.us/initiatives/activeindex.htm .

Greg McConnell heads The McConnell Group, a California Advocacy and Consulting firm that represents and advises apartment associations, property management companies, and individual owners throughout California. Please visit www.themcconnellgroup.com .

February 2004

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January 2004

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December 2003

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January 2003

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November 2002

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After I completed Rent Board Story, Part 100, ACTION called and asked if I could put together some of the best horror stories to celebrate Halloween. However, by the time WAM gets to you, it will be closer to Thanksgiving, so here are the top ten Rent Board Turkey Stories.

"The Little Landlady and the Poor Cardiologist" (Part 1)
This was the first Story I wrote and the one that made it clear to me how outrageous and insane Santa Monica Rent Control is. In that case, Landlady Lucille rented an apartment with furnishings without a separate written agreement to a poor cardiologist for $400 per month. The Rent Board reduced her rent to the base rent of $180.00 per month and imposed treble damages for a total award of $11,649.55 which allowed him to live rent free for more than five years. That was the case where the "Chairperson" of the Rent Board observed that a rent reduction to $180 per month was fair because "doctors are not necessarily rich." (Rent Board Commissars were so much smarter in those days.)

"Ten Dumb Decrease Decisions" (Part 10)
This Story is about ten of the dumbest decrease decisions issued up to that point in time (July 1994). Rent decreases were awarded for such things as, (1) refusing to permit a tenant to park on the sidewalk and block the owners garage door with his car, (2) failing to keep an outdoor swimming pool between seventy-seven and eighty-two degrees every day of the year, (3) cutting down a eugenia bush located by the gas meters at the rear of an apartment building, and (4) "insufficient water supply" because after the owner put a new dishwasher in the rental unit, the tenants complained that they couldn't take a hot shower while the dishwasher was running. Rent decrease petitions are much worse now.

"Landlady Jeannie and the House That Wasn't There"
(Part 5)
This story is an example of how difficult it is to get a removal permit and be free of rent controls. In this case, Landlady Jeanne and her husband Harold were the owners of four houses, when the house they occupied burned down and they barely escaped with their lives. Their dog was not so fortunate. They hired me to get them a removal permit for the house that burned down, but the Board hired a "construction expert" who estimated that it would cost $31,000 to build a new house to replace the one that burned down. After hearing testimony from that stooge, the Board denied the removal permit.

"The Beige Berber Carpet Case" (Part 22)
In this case, an apartment owner replaced carpet with beige Berber carpet although the tenant demanded gray plush carpet. The case before went one of the Board's most idiotic hearing examiners, who awarded a rent decrease. The owner filed a Superior Court case over the issue and the judge reversed this outrageous decision and awarded $2,250 in attorney's fees because the Board rendered such an arbitrary and capricious decision. (Note: The attorney's fees cost more than the carpet.)

"The Adventures of Dr. Devenis" (Parts 80 and 82)
Dr. Devenis had an earthquake-damaged building that was sinking into its underground parking garage. He spent $375,000 fixing it as quickly as possible, yet the Rent Board awarded tenants damages in six rent decrease cases to compensate them for their inconvenience. The moronic hearing examiner who issued this decision awarded rent decreases for such things as, (1) "loss of storage" in the garage because the storage cabinets had to be moved to reinforce the walls, (2) "inadequate construction management" because there was debris in the parking area during the rehabilitation of the building, and (3) "loss of security" because the digging of trenches in the underground parking area caused the security gate sensors to be repeatedly taken out of service. Unfortunately, Dr. DV never appealed that decision.

"Secret Files and Hidden Penalties" (Part 47)
This Story explains the Board's unlawful extension of the Rent Control Law's 120-day time limitation by setting up secret files and "pre-filing" case numbers to that the Board's agents can take as much time as they want to gather evidence in excess rent cases against apartment owners. That way, Rent Board employees can work behind the scenes to "assist" the tenants before the case has an official case number and the 120-day time limitations at Section 1805 (b)(1) begin to run. As explained in Rent Board Story Part 97, this tactic was repeatedly used against Village Trailer Park to "consolidate" excess rent complaints by the dozens in order to invalidate leases which are supposed to be exempt from rent Control under the state Mobile home Residency Law. This saga continues.

"A History of the Mighty Yurko" (Part 45)
This is one of three Stories about the Board's Administrator, Mary Ann Yurkonis, who created new penalties for apartment owners by doing such things as, (1) filing rent decrease petitions on behalf of tenants, (2) setting up secret files and "pre-filing" numbers for excess rent complaints and (3) revoking vacancy decontrol rent increases without any notice or a hearing. Commissars may come and go, but Yurko is forever.

"Adventures of the Apartment Owner Known as Audacious Adam" (Part 36)
The first of three Stories about this Santa Monica legend concerned Adam's "do-it yourself" rent increase petition which missed a rent increase by more than $34,000. Although that is not an unusual result, the tenants were represented by the Rent Board's favorite attorney, (whom I refer to as "Sonya Monica") so the Rent Board decided to add insult to injury by awarding the tenants "Professional Fees" of $2,445.00 to compensate the tenants for her services defending them in the rent increase case. Fortunately, Adam hired the famous landlord attorney, Harold E. Griffin, who appealed that determination to court, but the Rent Board scattered like roaches before a light and agreed to remove the award rather than face the ire of Mr.Griffin at trial.

"No More EQ Pass-Throughs for You" (Part 87)
This is the Story about how the Rent Board acted like a reasonable government agency instead of a radical tenant organization after the January 1997 "Northridge" earthquake rumbled through Santa Monica and destroyed hundreds of rental units. For a short time immediately following the earthquake, the Rent Board adopted Regulations to permit "short form" rent increase petitions called "Q-Petitions." These "Q-Petitions" permitted property owners to seek rent increases to repair earthquake damage to comply with retrofitting requirements for "soft story" buildings which the City adopted within a few months following the earthquake. The Regulations also permitted consideration of financing costs and interest payments incurred to make the capital improvements. Unfortunately, this era of good feelings and reasonable government came to an end on June 30, 1995, which was approximately a year and one-half after the earthquake. Although the City Council has twice adopted more stringent and expensive earthquake retrofitting requirements since then, the Rent Board has gone back to its old ways and will not allow a short-form rent increase petition and refuses to allow any financing expenses in its rent increase petition process.
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"Institutional Misrepresentation and Fraud" (Part 91)
This is an excellent example of the extortion demands the Board perpetrates on owners by sending threatening letters that make outrageous demands. In this case, the victims were owners the owners of a three-unit property which they lived on continuously since they purchased it in May 1989 and then received a waiver of Rent Control Registration fees in June 1992. However, in May 1998, the Board sent them a letter demanding registration fees and penalties of $25,785.06 and when the owners did not pay the amount, the Board then demanded balance due of $28,163.68, but offered to settle the case for $816 as payment in full. I advised the owners to tell the Rent Board to take a leap off the Santa Monica Pier because they owed nothing, and to call me if the Board ever took legal action to recover any part of this ridiculous claim. That was the last I heard of that matter, so I don't know if the owner did not take my advice or the Board did not take his advice.

October 2002

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September 2002

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August 2002

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July 2002

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February 2001 - Salute to our Presidents

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January 2002

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October 2001

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September 2001

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July 2001

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(Go to the Members Only Section— another reason to be an Action member)

June 2001

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Credit: San Francisco Apartment Association Magazine

AS SEEN ON EBAY

This unique item was recently auctioned on EBAY for the winning bid of $5,100.00:"UNIQUE OPPORTUNITY! Studio apartment in the hottest SF neighborhood, North Beach. I have lived in this rent controlled studio apartment for years so the rent is WAY below market value. Studios in The City now start at over $1,000.00 per month! Instead, pay me to turn the apartment over to you. A one-time payment of only $4,800 (enter this figure as your bid price) That's not much more than up front move in costs you'd pay elsewhere. After that, pay the rent of only $520 a month!! Because it's rent control, it only goes up around 2.5% - 3% each year! Additional benefits: There is NO LEASE TO SIGN. So there are no legal restrictions for pets or kids (aside from possible disturbances to other tenants), no obligation for a rent increase if you share the apartment with a mate, etc. NO last month's rent required, NO security deposit required! Natural light, clawfoot bathtub, high ceilings, charming historic building on the corner of Washington Square Park just steps away from all of the Italian cafes, restaurants, and shops that North Beach is famous for. It even has a Murphy bed for space conservation. (That's a bed that folds down out of the wall). So go ahead and enter that one time payment figure as your bid price. I'll contact all interested parties."

May 2001

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April 2001

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March 2001 - As Herb's World Turns

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January 2001 - Happy New Year!

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