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SR-CC/RCB-1 (2) .. , . . ~b1> ~ ~2e.-1 \\'D~"'OD\ JUL 1 0 111M CA:RMM:SMM:km City Council Meeting 7-10-84 Santa Monica, California . SUPPLEMENTAL STAFF REPORT NUMBER 2 l TO: Mayor and City Council FROM: City Attorney SUBJECT: Rent Increases In Cases Of Vacant Units The July 9, 1984 Evening Outlook carried an article about the proposed Charter Amendment prepared by this office. The ar- ticle questioned the const1tut10nality of proposed Section l80S{f) (3). That sect10n conditions the availabllity of rent in- creases on the landlord's cert~fying that no unlt has been with- held from the rental mark~t, without good cause, for three months or longer. This office firmly believes that the proposed change is entirely valid, and disagrees wlth statements to the contrary given by others. Moreover, the provi sion is a necessary and proper response to a serious problem caused by intentional with- holdlng of habitable units. Nothing in existing Article XVIII requires landlords to re- rent vacant un 1 t s . Concern has been expressed that such a requirement may be construed as too intrusive on a landlord's property or personal rights. However, units intentionally with- held from the rental market exacerbate an already severe housing shortage. No reliable estimate exists as to the extent of this problem 1n Santa Monica, although there are several notorious cases, and local newspapers have reported hundreds of units pur- posefully left vacant. There is seldom good cause for intentional withholding. Its us ua 1 purpose is either as a protest against rent control or to ::-eap a windfall in the event of changes in the law. During the Ba.<e r case, 1t was widely reported that landlords were leaving ~nlts vacant in the anticipation of vacancy-decontrol mandated by the Superior Court. Pendlng state legislation requirlng vacancy decontrol may also encourage landlords to keep their units vacant. The lncentive for this gamble is that vacant unlts would provide a windfall upon the lmposition of vacancy decontrol. A sim1lar analys1s migh t apply to the recent enactment of Article xx (Tenant Ownership Rights Charter Amendment), in that presently vacant units could be rented only to persons agreeing to purchase thelr Own apartments, thereby facilitating conversions. Regardless of the reason for refusing to rent units, it is clear that the housing stock suffers, perhaps permanently. When measured against the motivations noted above, it is clear that a 4"~ --rb cell. ,. .., 1 Jm It'. -- ---- --- ~~. . . serious problem emerges well wi thin the scope of the municipal police power for resolution. Yet, the Rent Control Board has failed to take any steps toward amelioration of this problem in five years. . Given the constitutional constraints against mandatin9 landlords to re-rent vacant units, some other solution has to be ยท dev~sed. The one proposed is the fairest, simplest to administ- er, and most sat~sfy~ng of legal concerns. Its basic format is premised on the simple observation that landlords who do not rent units obv~ously do not require additional rent increases in order to assure a fair return. Existing rent levels are not disturbed. The section simply establishes a rebuttable presumption that additional rent increases are unnecessary and would only con- st1tute a w~ndfall to the landlord while penalizing other tenants ~n the building. In other words, any deficiency in such landlord's return 1S self-imposed. As noted in Helmsley v. Borou~h of Fort Lee, 394 A.2d 65 (N.J. 1978), rent increases must be sufficient to avoid "confiscatory impacts upon eff~cient landlords." Id. at 73. J:n a legal sense, a landlord intention- ally leaving income producing units vacant would not be economi- cally efficient. This limitation, that only efficient landlords are entitled to rent increases, is also noted by Ca11fornia authorities. Moreover, the Supreme Court has clearly suggested that rent ~n- creases in this situation are not constitutionally required. Thus, in Birkenfeld v. City of Berkeley, 17 Cal. 3d 129, 550 p.2d IDOl, 130 Cal. RPtr. 465 (1976), the Court stated the constitu- tional standard that rents could not be set lower "than cou Id reasonably be considered to be required for the measure's stated purpose." Id. at 166, 130 Cal. Rptr. at 491. The stated purpose of Article XVIII is to ameliorate the ill effects of a rental housl.ng shortage. Awarding rent increases to landlords who in- tent10nally contr1bute to this shortage is counterproductive. At the same t1me, withhold1ng additional rent increases from such landlords does not "lower rents more than" are necessary "for the measure's stated purpose." B~sed 0n actual exper1ence of intentional unit vacanC1es and the legal a'lthorities which counsel against rent increases ~n such cases, it is clear that proposed Section 1805(h) (3) 1S reasonable, necessary, and within legal constraints. PREPARED BY: Robert M. Myers, City Attorney Stephen S. Stark, Assistant City Attorney Karl M. Manhe1m, Deputy C1ty Attorney Marsha J. Moutr1e, Deputy City Attorney 2