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SR-CC/RCB-1 (3) ..- ... . HOS-ao l . C!.c./Rc'8.. ( JUt 1 0 JJ8.f CA:RMM:SMM:be City Councll Meetlng 7-10-84 Santa Monica, California STAFF REPORT TO: Mayor and City Councl1 FROM: Clty Attorney SUBJECT: proposed Amendment to Rent Control Law INTRODUCTION ThlS report transm~ts suggestlons for amendments to the Rent Control Law to be subIPitted to the voters for approval at the November, 1984 municlpal election, pursuant to California Government Code Section 34459. The report contains, for each is- sue identified, an analysis of the problem and alternatlve solu- t 10ns , together with the recommendation of the City Attorney and proposed language for a Charter Amendment. ~ The Clty Council dlrected the preparation of this report at lts June 12. 1984 meetlng. Since that time, the City Attorney's offlce has identlfied maJor issues and conducted a thorough legal analysis. SUMMARY OF SUGGESTIONS The proposed amendments to the Rent Control Law are ~n- tended to achleve four main objectives: first, to respond to ]udiclal decisions concerning basic constltutional issues; second, to prevent abuses of owner-occupancy evictions, inten- tlonal wi thho Id~ ng of un1ts, and similar erOSl.ons of the basic protection of the rental housing s to ck ; third, to ensure due process of law and effective adminlstrative remedl.es for both tenants and landlords; and fourth, to specify the independence of the Board in both regulatory and internal matters, as intended by the voters and the City Council. In many areas of concern, the Clty Attorney found that the Board possesses existing authority under the Rent Control Law to enact responsive regulations. In these cases, a Charter change is not regarded as necessary and is not suggested. The Cl.ty Attorney's office suggests that the City Councl1 propose an amendment to the Rent Control Law covering seven main 1 CclRcA-1 JUL 1 0 1184 , .. . . ~ , topics. These topics are briefly outlined below. The complete text of the proposed ballot measure is attached as Exhibit "A. II 1. Powers of the Board. It is suggested that Section 1802 be re-wr~tten to spec1fy the essential independence of the Board in both regulatory and 1nternal matters. Consistent with the current Rent Control Ordinance, Section 1802 would grant the Board sole power over its bu d get and its legal staff and authority to employ a 1egislat1ve lobbY1st. The Board would have author1 ty to make bas~c personnel decisions consistent with the C1ty'S civl.l service system~ it would generally be requ1red to adhere to the C1ty'S central purchasing system. The Board should be authorized to adopt replacement regulations if a port~on of the Charter or Board regulat10n is invalidated. 2. Rent Increases. Section IB05(e) should be amended to expressly perml.t the Board's current "Net Operat1ng IncoI'1e" (NOI) increase regulation 4100, a fair return standard upheld in the Castigll.one and Baker cases. It 1$ also suggested that Sectl.on 1805(h) be amended to prohibit a landlord from increasing rent if units are intentionally left vacant for three months. It lS also suggested that landlords be required to certify that a un~t 1S habltab1e and that no units in the building have been lntentionally left vacant as a prerequisite to increasing rent. The Clty Attorney believes that the Board presently pos- s esses adequate power to provide hardship rent increases for long-term owners, to regulate charges for ancillary serVlces, to grant special "master meter" utility rent increases, and to prov~de short forms for capital lmprovement increases. 3. EVlctions. We suggest that Section l806(h) be amended to liml.t owner-occupancy evictions to one natural person per bu~lding~ to prohiblt eV1ctions in converted condominium units: to clarify the "good faith" requirement~ and to preclude eviction unless no other unit is vacant. We also suggest that Section 1806 be amended to require notices terminating tenancy to state just cause. We do not recommend a~endments to require deposits of rent in court, to prohiblt subletting without consent, to permlt leases w1th f~xed term~nation dates, or to require relocatlon as- sistance to tenants displaced by owner-occupancy. 4. Removals. We suggest that Section l803(t) be amended to allow landlords unable to make a fair return to remove units, as required 1n Baker, and to preclude the City from issuing new tentative subdivision maps and residential building reports ab- sent a reflloval perml t. It is also suggested that a sectlon be added to clarify the relationship between the Rent Control Law and the Tenant Ownership Rights Law (Article XX). 2 , ... . . l . 5. Remedies. It is suggested that Section 1809 be amended to author~ze courts to award treble damages for excess rents upon a show~ ng of fraud, oppresion or malice and to authorize penal- ties of $500 in adminlstrative proceedings before the Board. The requirement that the Board impose treble damages and penalties would be deleted. The Board should also be specifically authorized to impose late payment fees and to sue to collect registration fees and late fees. It is specifically intended that the Board afford a speedy administrative remedy to determine claims of habitab~lity, decreased services, and unlawful vacancy as functions of rent. 6. Exemptions. It is suggested that Section 180l(c} be amended to clarify that the Board is required to approve exemp- tions. We also recommend an additional limlted exemption from removal for units actually used for child-care and other non- proflt residential uses. It is suggested that, as with evic- t1ons, the owner-occupancy exemption be limited to natural per- sons for the duration of thelr actual occupancy of the building. It 18 not recommended that the Rent Control Law be amended to exempt luxury units or otherwise attempt to target benefits to the needy because of potential legal problems and the existence of other City programs. 7. Security Deposlts. We recommend an amendment to Sect~on 1808(5) to requ~re that security deposits be maintained in interest-bearlng federally insured accounts, with 1nterest to be returned to the tenant less deductions permitted by state law. 8. Other Changes. We recommend two changes relative to Art1c1e XX, the Tenant Ownership Rights Charter Amendment. The f~rst adds a section to the Rent Control Law clarify~ng tne relationshlp between the two Articles. The second would amend Section 2006 of the Charter by allowing processing fees for Tenant-Participating Conversions in an amount equal to the actual cost of processing, not to exceed $500 per unit, rather than the existlng limit of $500 per application. ANALYSIS OF ISSUES 1- THE POWERS OF THE RENT CONTROL BOARD The Rent Control Law (City Charter Art1cle XVIII, also cal- led "The Charter Amendment") clearly specifies that the Rent Control. Board ("The Board" ) has exclusive power to set maximum allowable rents and to grant permits for the reooval of rental housing units from the market. The power of the Board over its internal affairs 1S less clear. The Rent Control Law states that 3 t ~ . . ~ . the Rent Control Board is "in the City of Santa Monica" (S ection 1801) and does not expressly preclude other C1ty agencies from exercising thei r functions with respect to rent control ad- ministrative matters such as personnel, budget, purchas1ng I and legal representation. However, the Rent Control Law specifically requires the Board to "f1nance its necessary expenses" (Section 1803 ( f) ( 6 ) and to "hire and pay necessary staff" (Section l803(n)). Over the fJ.ve-year history of Santa Monica rent control, the questJ.on whether the Rent Control Board is independent in 1ts internal affairs or is subject to oversight by the City Council and other C1ty off1cers has been the subject of ordinances and lawsuits. At the present t1me, the provisions of the Rent Control law authorlzing the Board to "hire and pay necessary staff" and to "flnance its reasonable expenses" have been clarifled and imple- mented by the Rent Control Ord1nance, Municipal Code Sections 4601-4613, which provides that the Board's employees are within the classlfied service of t~e Clty, to be classified by the Board (Section 4607); that the Board 1S to adopt an annual budget, without City Council review (Section 4608); and that the Board is to be represented and advlsed by legal staff that it employs and not the Clty Attorney (Section 4611). However, in Crei9hton v. Dennis, Superior Court Judge Raymond Choate ruled that the City Council was required to ap- prove the Board's budget and that the CJ.ty Attorney was required to represent and advJ.se the Board. In Howland v. Board, Superlor Court Judges Rothman and Rittenband ruled that the Board's employees were in the classJ.f1ed civil service of the City and that the Personnel Board and City Council were required to ap- prove employee classifications for Board employees. Both Cre1ghton and Howland have been appealed. There are several posslble outcomes of the litigation (as- s uml ng consistency between Howland and Creighton): 1. Tl'e decis10ns will be affirmed on the basis that the Clty -hal':er requires the exercise of oversight by original C1ty agen,::,'es. (This result would inva11date port1ons of the Rent Contrcl Ord':.nance and necess1tate a change in the status quo.) 2. The decisions will be reversed on the basis that the Rent Control Law is ambiguous and the resolution of ambiguities is a funct10n of the City Council, to be performed by ordinance. (This result would uphold the Rent Control Ordinance.) 3. The decisions will be reversed on the basis that the Rent Control Law was intended to vest exclusive internal authorJ.ty in the Board. (This result would invalidate tre Rent Control Ordinance.) 4 f r . . , . Whatever the outcome of Creighton and Howland, a Charter amendment that clearly states the relationship of the Board to other City agencies would override an inconslstent court deci- sion. This is because the legal issues in these cases only in- vol ve lnterpretation of the City Charter and not state preemp- tion or constitutionality. If the relatLonship of the Rent Control Board to other City agencies is explicltly stated in the City Charter, courts wl11 not lntervene because they disagree with the wisdom of that relatlonshlp, Rather, courts wlIl only act to lnterpret am- bLgu~ ties created by potent~ally conflictlng Charter sections or to determine whether an ordinance, regulation, or POllCY con- fllcts with the clearly expressed requirements of Charter provlsions. If the City Council desires to have the voters clarify the lnternal powers of the Board, it lS suggested that a new Sect10n 1802 be drafted (exist1ng Section 1802 concerns the Interim Board, now obsolete) and that the appropriate powers enumerated in Sectlon 1803 be qualified and clarifled. The specific issues are discussed below. Suggested language for the introductory portion of amended Section 1802 lS: Sect10n 1802. Integrity and Autonomy of Board. The Rent Control Board shall be an integral part of the government of the City, but shall exer- Clse its powers and dutlss under this Article lndependent of and wlthout inter- ference from the City Council, City Manager, and City Attorney. With respect to the internal organization and affairs of the Board: A. Budget. There are t~rep primary alternatives: 1 . Spec1fy that the Board is an agency of the City whose budget is subJect tc approval by the City Council. This is the lnterpretat10n adopted by the Superior court ln Crei~hton. 2. Specify limitations on or standards for the Clty council's review of the Board's budget. The Charter may limit the authority of the City Councll over the Board's budget by requiring a super-majority for amendment or disapproval or by requiring a finding of risk of loss or duplication of serV1ces as a prerequisite to disapproval of a budget ite~. 3. Specify the Board's independent budgetary power and preclude City Council review. The City Attorney believes that, 5 f ,. . . ~ , sJ.nce the electorate that enacted the Rent Control Law in 1979 intended to prec'ude the City Council from direct or indirect 1nterference with vigorous enforcement of the law, the Board should be autonomous in budgetary matters. This view is reflec- ted in Municipal Code Section 4608. In order to make this intent expli ci t, and ensure the budgetary autonomy of the Board, the following language is suggested as Section 1802(a): ( a) Budset. The Board shall, prJ.or to the begJ.nn1.ng of each fl.scal year, July 1, hold a public hearing on a proposed budget and adopt an annual budget. The City Council and the City Manager shall have no authority to over- see, supervise, or approve this budget. Upon final adoption, the budget shall be ~n effect for the ensuing fiscal year and the amounts stated therein shall be and become appropriated by the Board for the respective objects and purposes therein specified. At, any meetl.ng after the adoption of the budget the Board may amend or supplement the budget by the af- f1.rmative votes of at least three mem- bers. Copies of the adopted budget and any amendments or suppleP1ents shall be filed with the City Clerk, City Controller, and City Manager. Necessary adJustments to City administrative procedures shall be made. It 1S noted that under the "Jarvis 4" state constitutional amendment proposed for the November ballot, the Board's ability to increase fees without a popular vote and the city's ability to freely allocate funds for rent control purposes would be severely constra1ned. It 1.S suggested that Section l803(n) be amended to specify that the Board may authorize landlords to pass through the cost of registrat10n fees to tenano:s in accordance with Board regula- tions. Suggested text ~or ~n anended Section l803(n) 1S: ( n) F 1m: ~-~in9' The Board shall rJ.nance its reasonable and necessary ex- penses by Charging landlords annual registration fees ~n amounts deemed reasonable by the Board. The Board may direct that all or part of such fees may be passed through from landlords to tenants and may establish appl1cable con- ditions and procedures. The Board is also empowered to request and receive fund1.ng when and if necessary from any available source for its reasonable and necessary expenses. 6 , , . . \ ( B. Staff. The Howland cases cc,ncern the civil service status of the Board's staff. While the Rent Control Law provides that the Board shall "hire and pay necessary staff, " it 1.S silent as to the civ1.l service status of Board employees, the power to class- i fy and set pay ranges for employees, the power to bargain col- lect~vely and approve Memorandums of Understand~ng, and similar matters. At present, the status of Board employees is covered by Municipal Code Section 4607. Under this ordl.nance: a. All Board employees are with1.n the classl.fl.ed service of the City, and are hired and terminated under the uniform procedures applicable to C~ty employees generally. b. The Board classifies its employees and d~terml.nes the salary range for each classifl.cat1.on. c. The Board has power to bargain W1.th unlons representing Board employees and to approve an MOD, provided that the terms of such an MOD are consistent with the C1.ty Charter and Municipal Code. The Howland litigation challenges the allocation of these powe rs to the Rent Control Board. Like the budgetary powers of the Board challenged in Crei'!hton, the clvil service status of the Board's employees is purely a municipal affair and may be al- located through the City Charter in any way that the voters see fit. Thus, there are three primary alternatives. 1. Clearly speclfy that the Board's employees are to be h1.red, classl.fled, and d1.sC ipll. ned as other employees of the Clty. 2. Clearly specify that the Board's employees are employees of the City, but are to b, claEsified by the Board and subject to MOU provisl.ons approved by the Board. Some of the Board's employees, such as the legal staff and administrator could be exempted from the classified civil service. 3. Clearly specify that the Boardts employees are outslde the classl.fied service, and are to be the exclusive respon- sibility of the Board. The City Attorney recommends that Subsections (b) and (c) be added to Section 1802 to make the Board's authority regarding personnel matters essentially consistent with current Munlcipal Code Sections 4607, as follows: 7 . . . , l (b) p ersonne 1. Except for the elected or appointed C'.:Immissioners, the Admlnistrator and at tOl'neys employed to represent or advise the Board. all employees of the Board are with1.n the classifled CiV1I service of the Clty. The Board shall appoint an Adm1.nistrator to administer and supervise the exercise of its powers and duties, who shall be directly responsible to the Board. All employees of the Board, except the Administrator and attorneys, shall be hired, terminated. suspended, demoted, laid off, and recalled in accordance wlth the provisions of Article XI of the Charter and implementing provisions of the Municipal Code. The Board shall classify employee positions, establish employee salaries and benefits, and evaluate the performance of its employees. The _ Board may enter into and approve a Memorandum of Understanding W1.th representatives of its employees concernlng thelr wages, benefits, hours of work, and terms and conditions of employment in accordance with state law. The Clty Council shall have no power to abolish positions established or classi- fled by the Board under thlS Art1.cle, notwithstanding any other section of this Charter. A rel.ated area is the Board's author1.ty to employ legal counsel. The Cre19hton declsion requires the City Attorney to represent and advise the Board and requlres the Clty Council to approve the retention of any private attorneys to advise the Board in part3.cular matters. Again. there are three alternatives. I. Specify the duty of the City Attorne:r to represent and advise the Board. 2. Speclfy the Board 's authority to -lure legal staff, but requ1re representat1.on by the City Attorney 1n particular sltua- t ions, such as litigation where a denial of due process of law or taking of property is alleged. 3. Specify that the Board shall be represented and advised Dy legal staff that it employs and that it may retaln private counsel 1n partlcular matters. In keep1ng with the princ1ple that the Board should be autonomous in essential matters, the City Attorney recommends specifying by amendment that the Board's legal staff, and not the 8 . , . . , . CJ..ty Attorney, furnish the Board with legal advice and representatJ..on in c~vil matters. A suggested Section 1802 (c), similar to current Municipal Code Section 46Ll, is as follows: (c) Board Legal Work. Legal staff hired by the Board shall represent and advise the Board, its Commissioners, and its staff in any civil matters, actions, or proceed~ngs in which the Board, its Commiss1oners, or its staff, in or by reason of their offic ial capacity, are concerned or are a party. The Board may, in its sole d1scretion and without City Council approval, retain private attor- neys to furnish legal advice or represen- tation in particular matters, actions or proceedings. The City Attorney will contlnue to prosecute crJ..minal ac- t10ns for v1olation of the Rent Control Law. No charter change 1S suggested. However, it is suggested that Section 1810 be amended to clarify exactly' what constitutes a violation of the Rent Control Law. Suggested text is as follows: Section 1810. Criminal Remedies. Any person violat1ng th1S Article shall be guilty of a misdemeanor. Any person convicted of a misdemeanor under the provisions of th1S Article shall be pun1shed by a fine of not more than five hundred dollars ($500) or by imprisonment in the county Jail for a period not ex- ceeding six months, or by both such fine and imprisonment. The following shall constitute a violation of this Article: (1) Any violation of a provision of this Article. (2) Any violation of a rule or regulation of the Board. (3) Any knowing or willful faih,re to obey any decis10n or order of the Board. C. Contracts and Consultants. If the Board is regarded as an agency of the City, it 1S bound by the centralized purchaslng system and competitive bid- d1ng requirements of the City. An amendment to the Charter may specify that the Board is lim1ted in its ability to contract, has plenary author1ty to contract, or is subject to competitive bidding and centralized purchasing requirements with specific exceptions. 9 . , . . \ . Two areas where the Board might have specific contracting authority (in addition to outslde counsel) are consu]tants to as- Slst the Board in the adoption of regulat10ns and legi sla t1 ve lobbyists (resolv1ng the issue in Scaccianoce v. Board). If it lS desired to specify that the Board is subJect to the centralized purchasing system, except with respect to profes- sional serv~ces, the following language may be presented to the voters as Section 1802(d): (d) Contracts and Purchases. The Board shall comply with the provis~ons of the City Charter providing for a central- ized purchaslng system and competitive bidding, and shall procure goods and ser- V1ces as do other City agencies. Provided, however, that the Board shall have sole and final authority without City Council approval to contract with and employ the professional services of attorneys and legislative lobbyists. D. Conforming Regulatlons. The City Attorney believes that the Board should have the power to adopt regulations to Substltute for portions of the Rent Control Law that may be inval~dated by judicial or legislative act. At present, the ab~l1ty of the Board to do this is impaired because the Board cannot act contrary to the express language of the Charter. Therefore, the C1ty Attorney suggests that the fol- low~ng language be added as Section l802(e): (e) Conforming Regulations: If any port~on of thlS Artlcle is declared ~n- valid or unenforceable by decision of a court of competent Jurisdiction or ren- dered invalid or unenforceable by state or federal legislation, the Board shall have authority to enact replacement regulations consistent with the intent and purpose of the invalidated provision and applicable law. Such replacement regulat~ons shall supercede invalidated or unenforceable provisions of this Article and inconsistent ordinances of the City Council to the exent necessary to resolve any inconsistency. 10 . . . , . , . II. RENT INCREASES A. Fa1r Return Standard. Ch arter Section 1805 establ1.shes broad guidelines for general and individual rent increases and authorizes the Board to adopt a formula (Fa1.r Return Standard) for calculating rents. Subsection (e) contains a non-exclusive list of factors to be cons1dered 1n awarding rent increases, includ~ng "the landlords' rate of return on investment. " Additionally, no rent increases are to be allowed unless "necessary to the landlord making a fair return on investment. " The Board or~g1nally promulgated a "return on investment" standard (Regulation 4040) which was clearly conS1.stent with Section IB05(e). After 4040 was declared unconstitut1.onal by Judge Lavine, a replacement standard (Regulation 4100) was developed using the Net Operating Income (NOr) principle. However, the Charter does not expressly authorize an NOI standard. We believe that 4100 is fully consistent with Section 1805(e). Our bellef is based upon several notable cases. However, at least one case challenges the Board's authority to adopt a non-~nvestment based fair return standard (Santamon Properties v. Rent Control Board). To resolve any doubt s, Section 1805 should be amended to expressly authorize an NO! standard and to give the Board the necessary flexibility, it is recommended that Section IB05(e) be amended. The C1ty Attorney's suggested language is: (e) In making individual and general adjustments of the rent ceiling, the Board shall consider the purposes of th~s Article and the requirements of law. The Board may adopt as its fa1r return standard any lawful formula, including but not I1mited to one based on invest- ment or net operating income. The Board shall consider all factors relevant to the formula 1.t employs; such factors may include: 1.ncreases or decreases in property taxes, unavoidable increases or decreases 1n operating and maintenance expenses, the extent of utilities paid by the landlord, capital improvement of the controlled rental unit as distinguished from normal repair, replacement and main- tenance, increases or decreases in l1ving space, furniture, furnishings, equl.pment, or services, substantial deterioration of the controlled rental unit other than as a result of ordinary wear and tear, failure on the part of the landlord to 11 . . . . \ . provide adequate hous1ng services or to comply substantially with applicable hous1ng I health and safety codes, federal and state income tax benef:tts, the speculative nature of the investment, whether or not the property was acquired or is held as a long term or short term investment, the landlord's current and base date Net Operating Income, and any other factor deemed relevant by the Board 1n providing the landlord a fair return. Because of the proposed amendments to Section l805(e) and the Board's current use of an Nor formula, sections l80S(f) and (g) are unnecessary. Accordingly, it is recommended that they be deleted. B. General AdJustments For Vacant Units. The Board's practice ~as been to allow landlords who inten- tionally keep units off the market to take advantage of general rent increases. Upon an application for individual increase, rent for vacant units is imputed. However, log:tc suggests that landlords who intentionally keep the:tr units vacant do not need any rent increase in order to earn a fa1r return. Moreover, any 1ncrease awarded them encourages depletion of the available hous- ing stock. Accordingly, we recommend that general rent adjust- ments be conditioned upon certification that units have not been withheld from the market. Subpart (3) should be added to Sect1.on 1805(f} (formerly 1805(h)) as follows: ( f) No landlord shall increase rent under this Article if the landlord: . . . . ( 3 ) Has held a unlt vacant for three (3) consecutive months or long- er without good cause determlned by the Board. NO landlord shall increase rent unless the notice increasing rent con- tains one of the fallowing statements, or their substantial equivalents: "The un- derslgned (landlord) certifies that no unit on the same property as the unit subJect to this rent increase notice has been vacant for three ( 3 ) consecutive months or longer. II or "The undersigned (landlord) certifies that one or more units on the property have been vacant for three ( 3 ) consecutive months or long- 12 , . . . \ er, and the Santa Monica Rent Control Board has determ~ned that there is good cause for such vacancy. II If a landlord fails to comply with this subsection, tenants on the same property may refuse to pay the improperly not1.ced increase, may seek admin~strative or civ~l remedies under this Article, and may raise the landlords noncompliance as an affirmative defense 1.n any resulting unlawful detainer action. C. No Rent Increases For VlolatLon qf ~abitabllity Standards. The Charter explicitly authorizes both rent decreases based upon the existence of substantial habitability problems and con- d1.tioning of the general adjustment upon compliance with ap- pll.cable habltabilLty standards. Nevertheless, habltabll1.ty problems persist. Var1.0US mod~fications - in the Charter language could be made to strengthen the Board's power to effectuate rent control by en- suring compliance with habitability standards. For example, the Charter could be a~ended to: ( 1 ) Require withholding of individual and/or general ad- justITlents if premises do not comply with habitability standards. (2 ) Authorize rollbacks and refunds for violations of habitability standards. (3) Require that a landlord attest to the unit's com- pl~ance with hab~tability standards on rent lncrease notices and on increase pet1tions. (4) Spec1.fically provide that taking the general adJust- ment or an lndividual increase when the premises do not meet ap- plicable habitabLlity standards constitutes charging excessive rent and that tenants may raise habitability as an aff1rmative defense in an eviction for nonpayment of rent where the tenant refused to pay an increase because of habitability violations. The City Attorney recommends that options 1, 3 and 4 be adopted and specifically recommends that: Section 1805(c) be amended by the addition of the following language at the end of the second sentence "and shall include a declaratlon by the landlord that the unit meets all applicable habitability standards. II Subpart (2) of Section 180S(f) (formerly 1805(h)) should be amended to read as follows: 13 . , . . \ . (f) No landlord shall 1ncrease rent under this Article if the landlord: .. .. . . (2) Has failed to comply substantially w1th state or local hous- ing, health or safety law. No landlord shall increase rent unless the notice in- creaS1ng rent contains a statement in substantially the following form: liThe undersigned (landlord) certifies that this property complies substantially with all state and local housing, health and safety laws. II If a landlord fails to comply with this subsection, the tenant may refuse to pay the improperly noticed 1ncrease, may seek adm1nistrative or civil remedies under thJ.s Art1cle, and may raise the landlord1s noncompliance as an affirmative defense in any reSUlting unlawful detainer action. D. Hardshlp Increase For Long-Term Owners. Concern has been expressed that in particular cases, rents charged in Apr11, 1978 (the base date for determ1n1ng rent in- creases) were substantially below market due to long-term tenant tenure or some other reason. Since Regulation 4100 generally carries forward these base date rents in increase calculat1ons, inequ1ties could be perpetuated. Regulation 4102 establishes a presumption that each landlord's NOI dur1ng the base year (1978) provlded a fair return on property. This presumption may be rebutted only 1n enumerated C1rcumstances as contained in Regulat10n 4103. Part (b) of that regulation allows for an imputed adJustment in base year NOI if lithe rent on the base date was d1sproportionate due to one of" three factors. The third factor Wh1Ch comes closest to the con- cern expressed here, is: (3) The rent on the base date was substantially h1gher or lower than preceding months by reason of premiums be1ng charged or rebates being given for reasons unique to particular units or limited to the period determining the base rent. If addit10nal language, focused upon th1s part1cular con- cern is necessary, the Board may add it to Regulation 4l03--no amendment of the Charter would be necessary. This would also be true if Charter Section l805(e) were amended to specifically refer to an NOr standard. S1nce the 11st of factors thereunder 14 7 . . . is non-exclusive, the Board may consider disproportionately low (or high) rent on the base date as a relevant factor. E. Charges for Ancillary Space and Service. An amendment authorizing rent increases for ancillary space and service has been suggested. One of the factors listed in Charter Section 1805(e) relevant to determining rent increases is "increases or decreases in living space, furniture, furnishings or equ1pment." This allows the Board to grant rent increases or special charges for added space or services. It could also do so by 1nterpretive regulation. No amendment is necessary, although clarifying language may easily be added. F. Short Form Capital ~mprovement Increases. The Board has considered, and unt1l now reJected, adopting by regulation an expedited process for handling petitions for cap1tal improvement rent increases. Because any description of a pet1tion process 15 necessarily detailed and subject to exper1en- tial improvements, it is not recommended that any particular pro- cedure be 1ncluded in the Charter. This may, and should, be handled by regulation. If the voters want to require the Board to provide for short-form petit10ns, the fOllowing add1tion to Charter Section 1805 is suggested: (g) The Board shall provide an ex- pedited procedure for consideration of rent increases for capital improvements where both the landlord and the current tenant(s) of the effected units concur in the nature of the capital improvement to be made or already made. All other rent increases for capital improvement shall proceed accord1ng to regular administra- tive procedures. I l a6d~~ion, Section lB05(d)(12) could be amended to provide for Co sllorter time 1iml t (e. g., 60 days inst ead of 120 days) for short-form cap1tal improvement rent 1ncreases. G. Special Utility ~ Increases. Charter Section 1805 ne1ther specifically precludes nor provides for special general adjustments in the event a landlord pays for all or part of a unitfs utilities. However, it 15 clear that the Board has the author1ty to do so by re'Julation. No charter amendment is necessary, although clarification could be made. 15 , . . , H. Vacancy Decontrol. The Charter does not prohibit vacancy decontrol. Indeed, Section l803(r) expressly empowers the Board to allow it. However, the City and Board have consistently opposed vacancy decontrol in litigat10n and state legislation on the grounds that it is disruptive, unnecessary and unavailing in determining con- stitutlonal requirements, and likely to encourage actual and con- structive evictions. No charter change to mandate vacancy decontrol is suggested. III. EVICTIONS Var~ous rnodiflcat1ons have been suggested to Section 1806 which prohibits eVlctions without specifically stated legal cause. This section covers those suggestions specifically ad- dressed to Sect10n 1806, the suggestion for a prohibition on sub- letting, and the suggestion for an authorization of f1xed ter- mination dates in leases. The latter two are included in this part because landlords would, presumably, enforce such rights through eviction proceedlngs. A. Owner Occupancy. Sectlon l806(h) presently author1zes evictions to recover possesslon for occupancy by the landlord or a l1.st of nine enumerated relatives. By regulation, the Board has limited the owner's right to evict pursuant to l806(h) to one unit per bU1.1d- ing and has prohibited such evictions where an owner or enumerated relative already occupies a unit in the build1ng. It has been suggested that section l80G(h) be eliminated or that the list of relatives be shortened to further lim1.t the num- ber of evictions under this section. Evict10n restrictions operating as bans upon owner occupancy have been struck down in other Jur1.Sdlctions as takings of property. Thus, 1806(h) should not be wholly eliminated. However, the suggest10n that the list of deslgnated relatlves be shortened could be readily implemented by amendment deleting those relatives to be excluded from the list. Fo) e:{ample, the list could be l1mi ted to parents and children. The City Attorney recommends that eviction to allow occupancy by s~bl1.ngs and ~n-laws be elirnlntated. It has also been suggested that evictions for occupancy by a landlord or des1.gnated relative be prohibited where another unit on the property is vacant. We recommend that such a prohibition be adopted. Additionally# we suggest that "property" be defined as "rental units on a parcel or lot or contiguous par- cels or lots under common ownership. " Addit1.onally , it has been suggested that relocation benefits be required where a tenancy is terminated to allow for occupancy by the owner or a des1.gnated relat1ve. 16 > , . . , . The adoption of a provision for relocation benefl.ts would neceSS1.tate various complex policy decisl.ons as to the type of benefits, the class of benefic1.ar1.es, and procedures for paY1.ng or conferring the benefits. Given the fact that the council may require relocation benefits by ordinance, and the complexity of the issue, staff recommends against an amendment on the subJect. At present, Regulatl.on 9002 contains various provis1.ons pertal.n1.ng to Section l80G(h) wh ich we recommend be included 1.n the Charter in order to control abuses of the owner-occupancy prov1.sion. We suggest that the following language be added to l80G(h): For purposes of evictions under th1.s subsection: ( 1 ) A "landlord" shall be defined as a natural person who has at least a 50 percent ownership interest in the property. ( 2 ) No eVlct1.0n may take place 1.f any landlord or enumerated relatl.ve al- ready occupies one un1.t on the property. ( 3 ) The notlce terminating tenancy shall contain the name, address and relationship to the landlord of the per- son intended to occupy. (4 ) The landlord or enumerated relat1.ve must intend, in good faith, to move into the un 1. t wi thin 30 days after the tenant vacates and to occupy the unit as a pr ima ry residence for at least six months. The Board may adopt regulations governing the determination of good fa1.th. : 5) If the landlord or relative spf';~1.f ec. on the notice terminating te~ -lnc~ f,~ils to occupy the unit within 30 days after the tenant vacates, the landlord shall: (i) Offer the unit to the tenant who vacated it. (ii) Pay to said tenant all reasonable expenses incurred in moving to and/or from the unit. 17 . . . . B. Statement of Cause on Not1ce to Quit. Present Char~er language does not explicitly require that a notice terminating a tenancy pursuant to sect10n 1806 state the cause for the termination. However, this requirement may be iw- plied by state law and is explic1tly established by Regulation 9001. It has been suggested that the requirement that cause be stated be incorporated into the Charter. S1nce section 1806 neither requires that cause be stated in the notice term~nating tenancy nor mentions term1nation notices at all, the sugge sted amendment could serve to avert a dispute as to the Board's power to requ~re statements of cause in termination notices. Moreover, it would be in keeping with fundamental notions of fairness and due process. It could also prevent unnecessary litigation by ad- vising the tenant, early on, of basis of the landlord's cla1m of entitlement to possession. Accordingly, staff recommends that the f1rst sentence of 1806 be amended to read: No landlord shall take action to ter- minate any tenancy or bring any action to recover possession or be granted recovery of possession or be granted recovery of possession of a controlled rental unit unless: . . . We also recommend that the conclusion of 1806 be amended to prov1de: In any notice purport1ng to terminate tenancy the landlord shall state the cause for terminat1on, and in any action brought to recover possession of a con- trolled rental unit, the landlord shall allege and prove compliance with th1s section. C. Depos it of ReT! t.-!! Cc_ur c.. It has been suggested that tenants defending unlawful detainer actions based on nonpayment of rent who raise Charter provis10ns as aff1rmative defenses be requ1red to deposit rent into court at the beg1nning of unlawful detainer actions. The City of Los Angeles recently adopted such a provision. Wh11e the Californ1a Supreme Court has upheld the power of localities to estab11sh substantive requirements for evictions in B~rkenfeld v. City of Berkeley, 17 Cal. 3rd 129, 550 P.2d 1001, 130 Cal. Rptr. 465 (1976) it also held that they are preempted from interfering with state-established eV1ction procedures. So, 18 . , . . . a "deposi t into court II amendment could spawn Ii tiga tion if the deposit requirement were suscept1ble to character1zation as procedural rather than subs~antive. The Los Angeles ord1nance precludes a tenant from rais1ng certa1n aff1rrnative defenses based upon the rent control or- dinance if the landlord has obtained a pre-trial depos1t order and the tenant has not compl~ed with the order prior to the tri- al. Though the va11dity of the Los Angeles deposit provision has not been litigated, it is probably not preempted because it does not impose a procedural barrier which would interfere with the power of the courts. However, as noted in our staff report of May 8, 1984, the effect of the Los Angeles provis~on 1S to deprive the tenant of the benefits of the good cause eviction provis1ons unless he or she makes a pretrial deposit ordered by the court. Thus, the deposit requ1rement discourages tenants from assert1ng their rights under the rent control law. It also works a particular hardship upon 10W-1ncome tenants with good defenses. Civ11 Procedure Code Section 1170.5, adopted in 1982, al- ready requires defendants in unlawful detainer actions to pay depos its in certain C1rcuffistances. That statute requires that the courts either set cases for trial within 20 days of a request or, upon a finding of probability that the plaint1 ff-Iandlord w11l prevail, determ1ne the amount of damages suffered by reason of the delay beyond the time 11ffi1t and require the defendant to pay that amount into court. Tnus, an amendment requ1r1ng that tenants defend1ng nonpay- ment of rent claims pay rent into court at the outset of the ac- tion would be subJect to legal challenge, may be unnecessary 1n view of state legislat10n and would certainly operate to di s- courage tenants -- particularly low-income tenants -- from as- serting their rights under the Charter. Therefore, we recommend aga1nst such an amendment. D. Prohibitions On Sublett1ng. An amendment authorizing. pr .:>hibi tions on sublett1ng has been suggested. At present, Sectic'1 ] 806 (b), which authorize s eV1ct1on based upon the tenant - s vi ;:)latl.i)D of a covenant other than a covenant to surrender upon .otlce, covers v101at.l.ons of covenants aga1nst sublett1ng. Sect10n 1806 (9) author1zes the .land.lora to 1nst1tute an eV1ction proceeding where the tenant hO.lding at the end of the term is a sub-tenant not approved by the landlord. Moreover, state law spec1r~cal.ly makes any tenant who sublets contrary to the provis1ons of a lease guilty of un- lawful deta1ner. civil Procedure Code Section 1161.4. In V1ew of these provisions author1zing evictions for unauthor~zed sub- lett1ng, no amendment would appear to be necessary. 19 . . . . \ , E. Permlt Leases With Flxed Termination Dates. An amendment authorlzing leases with flxed termlnatlon oates has been suggested. Whlle a landlord and tenant may volun- tarlly agree that a tenant w~ll vacate on a certaln date and voluntarlly carry through on that agreement, a provls~on specif~- cally authorlz~ng f~xed term~nat~on dates would be unenforceable and contrary to the baslc purposes of the rent contrOl law. The Clty Attorney therefore recommends against such an amendment. IV. REMOVALS A. Santa Mon~ca Plnes Case. In thlS case, the Cal~forn~a Supreme Court upheld Sectl.on l803(t) against a clalm of state preempt~on regarding condominium convers~ons and upheld Judge R1ttenband's decisl.on that the developer had no vested r1ght to convert. Howeve r , the Court also seemed to say that the r 19h t to convert arl.ses contem- poraneously with the f1ling, of the final subdivision tract map. Upon conversion, each apartment unit could be sold to an 1n- dl.vidual buyer, who would then have to fully comply wl.th the Rent Control Law. However, Section 1806{h) currently allows owners to ev~ct for personal or relatlve occupancy. Th1S feature, combined Wl th the rlght to sell indlvidual units ldentlf1ed in Santa Mon1ca P1oes, undermlnes the Charter's eviction protectl.ons. Th1S prOb.1em couia De sO.LVed, conslstent w1th Santa Monl.ca Plnes, by lim~tlng owner-occupancy evictl.ons under 1806(h). The Rent Control Board currently Ilmits evictl.ons under 1806(h) to one per "property. " If the limitat10n were extended to one per "bullding," then the or1gl.nal lntent of 1806(hJ COUld be preser- ved. Alternat~vely, evictl.on for owner occupancy could be prohib1ted 1n converted condom1nium units. Th1S best effectuates the orl.gl.nal intent of the Charter conSl.stent wlth Santa Monica Plnes. We suggest tnat tne tOllowing language also be added to the end 01: ltlOb l h) : ~o eV1ctJ..on pursuant to th1b sut:3ectJ..on shall be allowed 1n any condom.!. nl.l'ffi or stock cooperat1ve unJ..t wh 1 ch has been converted from an apartment or other rental unlt atter Aprll la, 1979, unless the Rent Control Board has issued a removal perm1t or declared a vested r1ght for sal.d unlt. As used 1n th1S subpart, a unlt shall be deemed converted after April 10, 1979, if on April la, 1979, the recorded tract map or parcel map for the property showed the unit as included in the property. 20 . . , . In addit~on to the orig~nal intent of the Charter not to allow ev~ctions from converted units, Section 1803{t) was design- ed to regulate those conversions in the firs place. The cura- t~ve language suggested above does not, by itself, regulate con- versions. Currently, the Housing Element of the City's General Plan limits conversions by discourag~ng the issuance of tentative subd~vision maps. As long as this provision remains, no add~- tional protect~on in the Rent Control Law is necessary. However, the purpose of placing convers~on limitations in the Charter in the f~rst instance was to place the matter beyond the reach of the City Council. Accordlngly, it is suggested that this intent be preserved in the wake of Santa Mon~ca Pines, by adding the following paragraph as Sectlon la03(t)(3). The Hous~ng Element of the General Plan of the City of Santa Monica shall at all times contaln a provlsion that ne~ther the CJ..ty Council nor any City agency shall approve an application for tentative subdivision tract map or parcel map nor issue a Residential Buildlng Report for a unit converted after April 10, 1979, untJ..l and unless the applicant first obtains a removal permit as required by this Sectlon. B. Article XX. Passage of the Tenant Ownership R~ght Charter Amendment (TORCA) in June, may require some slight modification of the Rent Control Law to ensure consistency between the two Articles and remove any doubts as to the extent of continued tenant protec- tions available to tenants 1n buildings converted pursuant to Article xx. SectJ..on 1813 could be added as follows: Section 1813. Relation to Art1cle XX. Section l803(t) of th~s Article shall not apply to any building for whiCh approval has been received pursuant to Art1cle XX (Tenant Ownership Rights Charter Amendment) of this Charter. All other provisions of th1s Art1cle, however, shall continue to apply with full force and effect to each unit in any build1ng receiving approval pursuant to Article XX. Tenants residing in such units, whether or not t1qualifying," "par- ticipating," or any other such designa- tion under Article XX, shall enjoy all the r1ghts and remedies provided by this Art1cle WJ.. thout limitation as to dura- 21 - -- --- . . . ~ . tion. Th~s Sect~on is declarative of existing law and does not impose any new requ~rements or limit any existing ones. C. Brooks-Scanlon Problem. In Baker, Judge Lav~ne declared Section 1803(t) ~nval~d on the grounds that it imposed four condit~ons for removal: the first three relat~ng to ~mpact on housing avallability for low and moderate-lncome tenants, and the fourth relating to the landlord's ability to earn a fair return by ma~ntaining the rent- al un~ts. Judge Lavine found that the first three conditions violated the doctrine establJ..shed by the United States Supreme Court in Brooks-Scanlon Co. v. Railroad Comm1n, and that a landlord must be allowed to leave the regulated market if other- wise unable to earn a fair return. The City Council has adopted Ordinance No. 1255 (CCS) , grantlng author~ty to the Rent Control Board to regulate removals, but 1mpos ing the s~ngle limitat10n relat1ng to fair return. Th1S was cons~dered curative of the Brooks-Scanlon problem ldentified in Baker. ThlS should be 1ncorporated ~nto the Charter by el1minating subparts ( 1 ) , (2 ), and (3 ) of Seetlon 1803(t). We also recommend a 120-day tlme limit for flnal Board ac- tion on removal applicatlons in order address due process con- cerns ra~sed ~n Baker. Should the Board fail to act within 120 days, it would be subJect to a writ of mandate and possibly at- torney's fees. However, the proposed language would not result in an automatic removal permit should the Board fail to take timely actlon. The suggested text of amended Section l803(t) 1S therefore as follows: Section l803(t). Removal of Controlled Unit from Rental Housins l'1arket. (l) Any landlord who desires to remove a controlled rental unit from the rental hous~ng market by demolition, con- version or other means is required to ob- taln a permit from the Board prior to such removal from the rental housing market in accordance wlth rules and regulations promulgated by the Board. In order to approve such a permit, the Board is required to find that the landlord cannot make a fair retur n by retaining the controlled rental unlt. 22 -- . , . . (2) Notwithstanding the foregoing provisions of this subsect~on, the Board may approve such a permit: (i) If the Board flnds that the controlled rental unit 15 unin- habitable and is incapable of being made habitable in an economically feasible manner, or (1~) If the perm1t is being sought so that the property may be developed with multifamily dwelling units and the permit applicant agrees as a con- dit10n of approval, that the units will not be exempt from the provisions of this Art~cle pursuant to Section 1801 (c) and that at least f1fteen (IS) percent of the controlled rental unlts to be built on the site will be at rents affordable by persons of low income. (3) The Housing Element of the General Plan of the C1ty of Santa Mon~ca shall at all tlmes contain a proviSlon that nelther the City Council nor any City agency shall approve an application for tentative subdivislon tract map or parcel map nor lssue a Residentlal Buildlng Report for a unlt converted af- ter Aprll 10, 1979, until and unless the applicant first obtains a removal permlt as required by thlS Section. (4) The Board shall render its r1na1 deC1S10n w1thln 120 days of the f11ing of a cowp1eted application under this Section. V. REMEDIES The remedies provlS1ons of Artlcle XVIII have been the sub- Ject of much I1t1gation. Many of the lssues raised now in lit1gation may be resolved by amendment. A. Excess Rent Hearlngs and Treble Damages. Charter Sections lB09(a) and IB09(b) establ1sh alternate CiVll and admin1strative remedies for rent charges exceeding max- imums established pursuant to the rent control law. In both, the basic relief for an unlawful rent charge is a monetary award from the landlord to the tenant. 23 . " . . In McHu9h v. Board, Judge Lawrence Rittenband of the Los Angeles Super10r Court held that the Board I s award of monetary damages as between landlords and tenants in an administratlve proceeding lntrudes upon the powers reserved to the courts by the California Constitution. The Judgment in McHugh precludes the Board from conduct1ng adminlstrative hear1ngs on excess rent com- plaints. The case is presently on appeal. SlDce the issue 1S a matter of constitutional interpretatlon, it cannot be resolved by amendment. The courts will decide whether the Board may conduct the excess rent hearings required by Section lB09(b). In additlon to authorlz1ng the Board to determlne the amount of past overcharges, Sections lB09(a) and lB09(b) require the Board to: (l) Award to a tenant from the landlord a penalty of $500 or triple the amount of the overcharge, whichever is greater. (2) Authorize the tenant to withhold the award (lncluding the penalty) from future rental payments. By regulation, the Board has established an exception to the mandatory penalty award required by the Charter. Regulation 8039 provldes that a landlord may avoid lmposition of the excess rent penalty by proving that the unlawful charge was neither in- tentlonal nor the result of a failure to take practicable precau- tions against a violation. Simllar penalty systems have been up- held ln other Jurisdlctlons. However, the Section 1809(a) penal- ty has been sucessfully challenged ln three lawsuits now on ap- peal (AlPur, Hovey and Hayashi). These cases demonstrate that the penalty provislon, as presently worded, will probably be rewritten by the courts unless it is modified by amendment. In Almir, Hovey and Hayashi, Los Angeles Superior Court Judges John L. Cole and Harry Hupp expressed serious reservations about the validity of the treble damage provision as applied in admlnlstrat1ve proceedings before the Board. They noted that the California Supreme Court IS Birkenfeld decision only makes con- stitutlonal those rent control provlsions reasonably necessary to accomplish the purposes of a rent control law. Expressing the opinion that the penalty awards in these cases were not reasonab- ly necessary, the judges posed a list of quest~ons including: (1) Whether a munlclpal agency may adJud1cate the rights of private persons (th1S is the McHugh issue). (2) Whether state law pre-empts penalty awards of "treble damages" upon showlngs other than the oppression, fraud or malice: (3) Whether penalties may be imposed without a jury trial. (4) Whether the partlcular penalty awards in the cases were unconstitutional as excessive in amount. 24 . " . . Additionally, the superior court posed two questlons about Regulation 8039: t ~ J Whether the requirement that a landlord prove that a penalty should not be applied to him violates the landlord's due process rights by "presumlng" that he or she should be penalized. (6) Whether the regulation is invalid as conflictlng with the Charter because the regulation provides that the penalty wlll not be lmposed under certaln circumstances while the Charter makes lts imposition mandatory whenever an unlawful charge has occurred. Judges Cole and Hupp both upheld the Board's power to rend- er admlnistratlve declslons on excess rent claims, subject to Judlcial review. (Their holdlngs on this issue are contrary to the declson in MCHu9h.) Additionally, Judge Cole upheld the city I s power to adopt a penalty to enforce rent ceill ngs, and Judge Hupp determined that state law does not preempt the city from authorlzlng rent withholdlng (an issue which will be decided by the California Supreme Court ln Fisher v. Berkeley). However, both Judges struck the penalty awards in administrative proceed- lngs as vlolating the rlght to trial by jury. They based thls decls10n upon the Ca1ifornla Court of Appeal's 1951 declsion 1n Grossblatt v. Wrlght construing the penalty prov1s1on of the former federal rent control law. Like the Charter, that law also imposed a treble penalty for violat2on of rent ceilings. In Grossblatt, the Court of Appeal held that a landlord defend2ng a court action for excess rent charges was en- ti tIed to a trial by jury. While Grossblatt did not deal Wl th adm1nistrative penalty awards, Judges Cole and Hupp decided that It was controlling. The Board has appealed that decision. Additlonally, Judge Hupp decided that state law preempts penalty awards on showings other than oppression, fraud or malice. He also lmposed restrictlons on rent withhOlding. Judge Cole decided that the penalty award in Hovey was unconstitutlonal as excessive. In doing so he relied upon the California Supreme Court's declsion in Hale v. Morgan, holding that statutory penal- tles Wh1Ch are unreasonable in amount are unconstitutional and suggestlng that flat penalties, in which the amount of the award does not depend upon the circumstances of the case, are par- ticularly subject to judicial reversal on a case by case basis. Judge Cole also noted that Regulation 8039 was invalid as con- fl1cting wlth the Charter, but he did not strike the regulation because he had invalidated the penalty award on other grounds. There are numerous options for amending section 1809 in or- der to address the issues raised in the penalty cases and Ilmit future llt~gation of its validity. The optlons available include the following: 25 , , . . ( 1 ) The section could be rewr1tten to l1mit treble penalty awards, or all penalty awards, to court proceedl.ngs and confl.ne the Board's jurisdl.ction to awarding excess charges plus interest or excess rents, plus interest and a $500 penalty. (2 ) The penalty amount could be changed so that it would either be more lim~ted or more dependent upon the circumstances of the 1ndivl.dual case; e.g., a penalty of up to six month's rent depending upon the c1rcumstances. (3 ) The present amount could be retained but the showing necessary for its award could be proof of fraud, oppress~on or mall.ce. That lS, the state standard for punitive damage awards could be incorporated. The problems w1th the regulat10n noted by the super10r court could be addressed by (4) Incorporatl.ng the present except10n l.nto the language of section 1809 in order to eliminate the present conformity problem. (5 ) shl.ft1ng the burden of proof to the tenant and/or chang1ng the standard for imposition of the penalty as in No. 3, above. Absent some amendITlent to section 1809, and assuming the Board rega1ns lts power to hear excess rent claims by preva1l1ng on appeal in McHu Sh , the penalty system w111 be the subJect of cont1nued litl.gation. Since the courts will, rewrlte the penalty provislons unless they are amended, we recommend the following modlflcatlons: (1) Reta1n treble damages as a Judlcial remedy but amend .lB09(b) to ll.ml.t adml.nl.strative awards to the excess charge plus a $500.00 penalty. ( 2 ) Conform the standard for treble damages to state law oy conditJ.onl.ng thel.r award upon a showl.ng of oppresslon, fr aud or malice. ( 3 ) Improve the efficl.ency of the rent withhold1ng remedy DY specifying that an order authorizing rent withholding surVlves sale of the property and that a landlord must pay the balance of rent author1zed to be withheld to a tenant who vacates while a wJ.thholding order is in effect. (4 ) In order to encourage voluntary resolution of disputes, the City Attorney recommends that 1ndependent med1atiion services be made available to landlords and tenants and that Board hearings not commence unless e1ther party rejects mediation. These changes could be accomplished by amendlng Sections IB09(a) and (b) to provide: 26 . , . . , (a) Any landlord who demands, accepts, rece1ves or retains any payment of rent in excess of the maximum lawful rent 1n violation of the provisions of th1S Article or any rule regulation or order hereunder shall be liable in a c1vil action to the tenant from whom such payments are demanded, accepted, received or retained, for reasonable attorney's fees and costs as determ1ned by the c au r t , plus damages in the amount by wh~ch the payment or payments demanded, accepted, rece~ved or retained exceed the maximum lawful rent. A civil penalty of treble the amount of the excess charge shall be awa rded against the landlord upon a showing that the landlord has ac- ted willfully or with oppression, fraud or malice. ( b) In lieu of filing a civil ac- tlon, a tenant may file an administrative compla1nt. The Board shall establish by rule and regulation a hearing procedure Slm1lar to that set forth in Section 1805 (d). (1) Upon the f1ling of the complaint, the Board shall inform the parties of the avallability of mediation serV1ces not funded or controlled by the Board. W1thin 60 days of the filing of the complaint, or upon written reJection of mediat10n services by e1ther the landlord or tenant, the Board shall set a date for hearing of the complaint. ( 2 ) In any administrat1ve hearing under th~s Section, a landlord who demands, accepts, receives or retains any payment or rent in excess of the max- imum lawful rent shall be liable for damages 10 the amount of the excess and may be liable for a penalty of up to $500. The tenant may deduct the penalty and award of damages from future rent payments in the manner provided by the Board. An order authorizing rent with- holdi ng under th1S Article shall survive the sale or other transfer of the proper- ty and shall be binding upon successors of the landlord against whom the order was made. If a tenant authorized to withhold rent under thlS Art1cle vacates 27 , " , . . < the property, the landlord shall pay to such tenant a sum equal to the balance of the rent that the tenant could have withheld. B. Decreases. The Charter expressly empowers the Board to grant rent decreases for decreases in l~v~ng space, furn~ture, furnishings or equ~pment, for substantial deter10ration of the unit other than ordinary wear and tear, for failure of the landlord to prov1de adequate hous1ng serv1ces, or for failure of the landlord to comply substantlally with applicable housing health and safety codes. The Los Angeles superlor court ruled on the validity of these provisions in Sterlin9' Severely restricting the Board's powers, Judge Laurence Rittenband held that: (1 ) The Board may adJust rents downward to reflect decreases in housing services. (2 ) The Board may not adJust rents downward to reflect habitability problems or violatlons of "state and local health or safety laws" apparently because state law preempts local action ln these areas. l J ) The Board may not award "damages" in the form of rent withold~ng because such awards infringe upon the powers reserved to the Judiciary by the state constitution. (4) The Board's determinations in excess rent cases may be prospectlve only, and the Board may not award retroactive relief 2n the form of damages. (The Board's decrease decisions have, in fact, only been prospective in applicat~on. Thus, this holding appears to be unnecessary.) (5) Prospective rent decreases ordered by the Board may not be implemented by the tenant untll the period for appeal from the Board's rullng has expired and no appeal has been taken. If an appeal is taken to the super10r court, the tenant may ~mple- ment the decrease "only after final adjudication by the courts. " S ~2rl -f.:9 ~., now on appeal. Because the conclusions in the Sterling J~dgment are apparently based upon interpretation of the California constltution and upon preemption theory, the questions it covers cannot be resolved by Charter amendment. Resolutl.on will have to come from the courts. However, certa1n aspects of the decrease procedur e hav~ng to do with implementatlon of and compliance with decrease decisions could be clarl.fied by Charter Amendment subject to the appellate deClsion in Sterling. Under the present Charter language, decrease decisions are effective when made by a hearing examiner but subject to review by the Board. If the Board reverses a declsion denying a decrease, the tenant must repay the amount by which he or she has 28 -- ------- , " , . . decreased his rent payments. This provislon. section 1805 ( d) (11 ) , make s increase and decrease procedures consistent. However, i_ could be modified so that decrease decisions, like excess rent decisions, are stayed pending review by the Board. Such a modificatlon would afford 1ncreased protection to landlords 1n decrease proceedings. Present language does not establish any procedures for com- pliance w1th decrease decisions. In practice, compliance hear- ings are scheduled to determine whether landlords have corrected the condit10n which warranted the decrease. Landlords provlng compliance are then authorized to resume charging the rent in ef- fect before the decrease. The suggestion has been made that the Board does not have the authority to hold compliance nearings and that the former rent may be charged as soon as the defect is cor- rected, rather than waiting for a Board find1ug of compliance. We recommend clarifying the Board's power to determ1ne com- pliance by adding a section (14 ) to 180S(d) as follows. Decisions decreasing rents shall remain in effect. until the Board finds that the landlord has corrected the defect warranting the decrease. The Board shall, by regulation, establish procedures for making compliance deternnnations. C. Re9istration Fees. In 301 Ocean, Superior Court Judge Jacqueline Weiss, held that the Charter does not authorize the Board to 1mpose late charges or penalties for late or nonpayment of registration fees. The court also held that the Board lacks author1ty to condl.tion the adjustment upon the payment of fees. Though th1s holding ap- pears to be contrary to the present language of the Charter, an amendment to that language could lay the issue to rest. Therefore, we recommend amend1ng section 1803(f) by adding subsection (15 ) pro'rldi ng "Charge and collect registration fees, lncluding penaJciec: for late payments. " We also recommend clarifying the ~ }arc s authority to withhold the general adjust- ment for late or nOlipaj-mer.t of fees by adding a clause to section 1805 (h) (1) stating "including the provisions requ1.ring the pay- ment of registrat10n fees and registration penalties. II Moreover, the Charter does not explicitly authorize the Board to sue to collect reg1stration fees. Such authorization could be conferred by add1ng a clause to Section 1811 after the word "to" , providing "enforce any provisions of this law or its implementing regulations or to". The title of the Section should then be changed to "Injunctive and Other Civil Relief". 29 . , . . . VI. EXEMPTIONS Charter Secti .:m IBOl(c) defines all res~dent~al rental units in the City as "controlled rental units" with specif~ed ex- ceptions. There are several issues that may be addressed w~th respect to exempt~ons. A. Are Exemptions Automat~c? Some controversy has arisen concerning the Board's authority to requ1re proof of el~gibility for an exempt~on. Any ambiguity in th~s regard may be cured by clarifying the language of Section laOI(c) so that it reads: ( c) Controlled Rental Un~ts. All res~dent~al units . . . except those found by the Board to be exempt under one or more of the following provisions: At the end of Sect~on laOl(c), a subsection should be added to specify the procedural constraints on exemptions. Suggested text is as follows: ( 7) Exemptions are not automatic but shall be granted by the Board upon appl~cat~on by the owner pursuant to Board rules, provided that if the Board does not act upon a completed application for exemption within ninety (90) days of ~ts f~11ng 1t shall be deemed approved. B. Owner-Occupied Un~ts. Section 1801 (c){4) exempts rental unl.ts in owner-occupied dwellings of no more that three units. There are several alter- nat~ves to this provision that may be presented to the voters to e11nunate, narrow, or broaden the exemption, as the City Council des1res. If it is intended to el~minate the exemption altogether, Section l80l(c)(4) would 3imf~y be strl.cken. If it is intended to narrow the exemption, there are several alternatives: l. Requl.re that the "owner-occupant" be a "natural person who owns at least a fifty (50) per cent ownership interest in the bUl.lding and resides on the property as his or her principal place of residence." This language is currently used in Board Regulations and would be consistent with proposed changes to Section 1806(h). 2. Specify that the exemption expires when the owner ceases occupancy. 30 < , . . 3. Speclfy that owner-occupancy does not entitle the owner to remove the property from the market without a removal permit and preclude the procedure _or removals for purposes of exemp- tionH under Board Regulat10n 5017. The City Attorney suggests that Sect10n 180l(c)(4) be amended to 1ncorporate each of the above suggestions. The lan- guage would be as follows: (4) Rental units in owner occupied uwelllngs with no more than three units. For purposes of this section: (1) The term "owner" means a natural person who owns at least a f1fty (50) per cent ownership 1nterest in the bU11dlng and resides on the property as h1S or her prlnclpal place of residence. (li) An exemption under th1s sect~on shall expire by operation of law when the owner ceases to reslde on the property as his or her principal place of residence: thereafter, all units on the property shall be subject to all provi- sions of this Articie. {111} Notwithstandlng any other provision of thls Article, an ex- emption under th1s section shall not ex- cuse the owner from the requirement of obta1n1ng a perml t to remove any un its from the rental hous1ng market in accord- ance with this Article. It has been suggested that owners of single family homes should have a one-time decontrol of maXlmum allowable rents. Th18 could be speclfied in the exemptlons section or in the Falr Return sect10n (See Section II.) C. Non-Profit Uses. An additlonal exemption for units used for child care ser- vices and other non-profit uses could be added. It is suggested that such an exernpt10n be limited to vacant units actually used for residential types of social services, and that other units in the building be subJect to controls. Suggested language amending 1801 by adding a subsectlon is: (6) Where a unit is actually used ror purposes of providing, on a non- profit basis, child care or other residential social services in accordance 31 , . . , W1.th applicable laws. Th1.s exemption shall expire when the use upon which exemption is based ceases.. Th1.s exemp- tion shall only apply to units that are vacant at the time of application, and shall only operate to allow the specified use without the necessity of obtaining a removal permlt under this Article. This exemption shall not be construed to authorize the eVlctlon of any tenant nor to authorize the charging of rent in ex- cess of that permitted under this Article. The Board may adopt regulatlons to determine whether a unit quallfles for an exemption under this section. If desired, specific criter1.a for determ1.n1.ng qualificat1.on for thlS exemption can be wrltten into the Charter. In the ab- sence of such cr1.teria, the Board would adopt regulat1.ons to determine whether a unit qual1.fies for a II social service" exemp- tlon, as is suggested in the above text. D. Target Benefits to the Needy. We have been requested to analyze amendments that would target the benefits of rent control to low and moderate income persons. There are several ways to do this, all of which present substantial legal or practical problems: I. Establish an income ceiling for tenants, and permlt un- controlled rents above the ceiling. The loglcal result would be that property owners would only rent to persons with high incomes. 2. Limit rents to a specif1c fraction of a tenant's in- come. ThlS is unrelated to the owner's return on his property and would probably be declared invalid, at least to the extent that an owner could not earn a fair return. 3. Exempt "luxury units" that rented above a certain level on the base date. ThlS would remove rent ccntr~ls from some more expensive un its, but would not lnsure tha~~ lov.' and f"oderate In- come persons benefitted from controls. Further, it l..S noted that "luxury units" are not necessarily occupied by upper-income tenants, but can be 1.nhabited by low or moderate-income tenants who pool the1.r resources. A var1.ety of programs designed to improve the prov1.sion of housing to low and moderate income persons, including the programs stated in the Housing Element and TORCA, have been adop- ted by the City. There does not seem to be a non-discriminatory, practical, and effective way of insuring that persons with higher 1.ncome s are not "subsidized" in the course of prov1.ding protection for persons with lower incomes. For these reasons, 32 ---- -- -- , . . ~ the Clty Attorney suggests no amendments explicitly designed to target the benefits of rent control to low and moderate tenants. VII. SECURITY DEPOSITS Sectlon 1803(s) requlres that tenant security deposits be placed 1.n lnterest bearing accounts insured by the FSLIC and either used to require return of the deposlt with interest to the ray operatl.ng expenses or paid to the tenant. The section should be amended to allow tenant, to allow invest~ent in all federally l.nsured accounts, and to authorl.ze the Board to regulate the amount and use of deposl.ts. This would be consistent with Board Regulations Chapter 14, defl.nlng security deposits and regulating the amount thereof. The suggested text of an amended Section 1803(s) 1S: (5) Securl.ty Deposits. Any pay- ment or deposlt of money the primary function of which is to secure the per- formance of a rental agreement or any part of such agreement, including an ad- vance payment of rent, shall be placed in an 1nterest bearing account at a federal- ly insured financial institution until such time as it is returned to the tenant together with all accrued interest or used by the landlord in accordance with state law. The Board may regulate the amount and use of security deposlts con- sistent Wl.th the purposes of this Article and state law. VIII. OTHER CHANGES Some concern has been ralsed about the relationship between the Rent Control Law and newly adopted Article XX, the Tenant ownership Rights Charter Amendment. The latter modifies the Rent Control Law ~ tainty, the Clty Attorney recommends that Section 1~13 by added as follows: Sect1.on 1813. Relation to Article XX. Section 1803(t) of this Article shall not apply to any building for which approval has been received pursuant to Artl.cle XX (Tenant Ownership Rights Charter Amendment) of this Charter. All other provisions of thl.s Article, however, shall continue to apply with full force and effect to each unit in any 33 - -- I . . bu~lding rece1.ving approval pursuant to Article XX. Tenants res1.ding 1n such uni ts, whether or not "qualifying, " "par- ticipating," or any other such designa- tion under Article XX, shall enjoy all the rights and remedies provided by this Art~cle without limltation as to dura- tion. This Section is declarative of ex- isting law and does not impose any new requ1rements or l1m1t any existing ones. AddJ.t1onally, it has been suggested that the processing fees limit contaJ.ned in Section 2006 of Art1cle XX be raised from $500 per application to $500 per unit. This is accomplJ.shed by an amendment to the section. RECOMMENDATION It 1S respectfully recommended that the City Council direct the City Attorney to prepare a resolution submitting the proposed Amendment to Article XVIII 6f the City Charter for the approval of the voters, as drafted in Exhibit "A" , with such changes as the CJ.ty Council may direct. PREPARED BY: Robert M. Mye rs , City Attorney Stephen s. 5 tark , Assistant City Attorney Karl M. ManheJ.m, Deputy CJ.ty Attorney Marsha J. Moutrie, Deputy City Attorney " 34 -- -- - , . . . ~ , - l..X::-lIEIT A - 'TIn s exhlLlt cont2.1ES the proposed cr-!ans€s to the text of the Rent COi!"C.rol Charter l>s-.encrent (Artlcle AVrIl). i-i.acltlons are uncerscoredi deletlons are ~t$t*tt~q*. . , . . \ TEXT OF PROPOSED CHART~R AMENDMENT. SECTION 1. Section 1801 of the C~ty Charter is amended to read as follows: Section 1801. Def~n~tions. The follow~ng words or phrases as used ~n this Article shall have the follow~ng mean~ngs: ( a) Board: The term "Board" refers to the elected Rent Control Board established by this Article. (b) CorrU1nss~oners : The members of the Board and Interim Board are denominated Comm~ssioners. ( c ) Controlled Rental Units: All residential rental units ~n the City of Santa Monica, including mobile homes, and mobile home spaces, and tral1ers and trailer spaces, except those found by the Board to be ~xempt under ~ or ~ of the following provisions: (1) Rental units in hotels, motels, inns, tourist homes and rooID1ng and boarding houses which are rented primarily to trans~ent guests for a period of less than fourteen (14) days. (2 ) Rental un~ts in any hospital, convent, monastery, extended medical care fac1l1ty, asylum, non-prof~t home for the aged, or dormitory owned and operated by an ~nstitution of higher education. (3 ) Rental units which a government unit, agency or a uthor ~ ty owns, operates, manage s, or 1n which governmentally subsidized tenants reside only lf app11cable Federal or State law or admin1stratlve regulation specially exempt such un~ts from municlpal rent control. (4 ) Rental units in owner-occupied dwelllngs with no more than -t:hrpe ( 3 ) un1ts. For purposes 2f this section: ji) The term "owner" means 5!. natural person who owns ~ IBast a f1fty (50) per cent ownership lnterest in ~ build~n9 and resldes ~ the property as his or her principal place of residence. (ii) An exemption under this section shall expire by ~peration of law when the owner ceases to reside on the property ~ hlS or her prlnc1pal place of resldence: thereafter, all units on the property shall be subject to all provisions of this Article. (iii) Notwithstanding any other provislon of this Articler an exemption under th1S sectlon shall not excuse 1 . . . the owner from the requirement of obtainins ~ permit to remove any un1ts from the rental housins market in accordance with this Article. (5) Rental units and dwellings constructed after the adoption of this Article~ this exemption does not apply to units created as a result of conversion as opposed to new construct1on. ~ Where ~ unit is actually used for purposes of providing, on a non-proflt basis, Chlld ~ ~ other residential social serVlces 1n accordance with applicable laws. ThlS exernpt10n shall ~xp1re when the use upon which exemption is based ceases. This exemptlon shall ~nly apply to units that are vacant at the time of ~~llcation, and shall confer only operate to allow the speclfl~~ ~ without the necess1ty of obtainins ~ removal permlt under this Article. This exempt10n shall not be construed to authorize the evictlon of any tenant ~ to authorlze the charging of rent 1n excess of that permitted under this Article. ~ Board may adopt regulations to determlne whether ~ unit qualifies for ~ exemption under this section. 12l Exemptions ~ not automatic but shall be 9ranted by the Board upon appllcation by the owner pursuant to Board rules, provided that lf the Board does not act upon a completed application for exemptlon within ninety (90) days of lts fll1ns it shall be deemed approved. (d) Housins Service: Housing services include, but are not 11mited to repairs, maintenance, painting, providing light, hot and cold water, elevator service, window shades and screens, storage, kltchen, bath and laundry facilities and privileges, janitor services, refuse removal, furniShings, telephone, parking, and any other benefit, privilege or facil1ty connected w1th the use or occupancy of any rental unit. Services to a rental unit shall include a proportionate part of services provided to common facilities of the bUllding in which the rental unit is contained. (e) Landlord: An owner, lessor, sublessor or any other person entitled to receive rent for the use and occupancy of any rental un1t, or an cge~t, representative or successor of any of the forego~ng. (f) Rent: All perlodlc payments and all nonmonetary consideration including but not l~m~ted to, the fair market value of goods or services rendered to or for the benef~t of the landlord under an agreement concerning the use or occupancy of a rental unit and premises including all payment and consideration demanded or paid for parking, pets, furniture, subletting and securlty deposits for damages and cleaning. (g) Rental Hous1ng Agreement: An agreement, oral, written or implied, between a landlord and tenant for use or occupancy of a rental unit and for housing services. 2 . . . (h) Rental Units: Any building, structure, or part thereof, or land ap~urtenant thereto, or any other rental property rented or uffered for rent for llving or dwelling house units, and other real properties used for llvlng or dwelling purpos es, together with all housing services connected wlth use or occupancy of such property such as common areas and recreational facilities held out for use by the tenant. ( i) Tenant: A tenant, subtenant, lessee, sublessee or any other person entitled under the terms of a rental houslng agreement to the use or occupancy of any rental unlt. (J) Recosnlzed Tenant Orga~izatlon: Any group of tenants residing in controlled rental units in the same buildlng or in dlfferent buildings operated by the same management company, agent or landlord, who requests to be so designated. (k) Rent Ceiling: Rent ceiling refers to the limit on the -- maXlmum allowable rent which a landlord may charge on any controlled rental unit. < (1) Base Rent ceiliny: The maximum allowable rent established in Section 1804 b). (m) Property: All rental units on a parcel or lot or contlguous parcels or lots under common ownership. SECTION 2. Section 1802 of the City Charter is amended to read as follows: ~t!ittIi!lfttitlrt!ftliltit litl 1rt1 tlf !i!titti mlU!i:: nn '('~ ( "" < 11111111 !Ill 1111 III llllllll 111111!l::;4 !t~ t If 11 ~f ~: **~+tl!i~t!!tttl;llitt~$tt~i1~41~fi'+l'~~*lt~l++~lt+*t.+I**~t+ (~l I 1$++*I~t~~~*~+lw+*4+l~+'I*,~+tl$+tl~~*ll~+$J (~Il 1$++*lt*j**~t~t+lt++~+tl**~+tl$+tl+~*ll.+l~ Section 1802. Integrity and Autonomy of Board. The Rent Control Board shall be ~ intesral part of the government of the Clty, but shall exercise its powers and duties under this Article independent of and without lnterference from the City Council, City Manager, and Clty Attorney. With respect to the lnternal organlzation and affairs of the Board: 3 . , . . (a) Budget. The Board shall, prior ~ the beginning of ~ fiscal year, July lL hOld a publlC hearing ~ a proposed budget and adopt an annual b~dget. The City Council and the Clty Manager shall have ~ authorit~ to oversee, supervise, ~ approve th~s bud~et. Upon flnal adoptlon, the budget shall be ~ effect for the ensulng fiscal year and the amounts stated therein shall be and become approprlated,~ ~,B?ard for the resP7ctive obJects and purposes thereln speclfled. At any meetln9 after the a~option of the budget the Board may amend ~ supplement the budset by the affirmatlve votes of at least three members. Coples of ~ adopted budget and any ~mendments ~ supplements shall be flIed with the Clty Clerk, C~ty Controller, and Clty Manager. Necessary adJustments to City admlnistratlve procedures shall be made. -- (b) Personnel. Except for the elected ~ appolnted Comrnissloners, Administrator, and attorneys employed to represent or advlse the Board, all employees of the Board are within the classified clvil service of the City. The Board shall appoint an Administrator to administer and supervlse the exerClse of its powers ~ dutles who shall be dlrectly responslble to the Board. All employees of the Board, except the Administrator and attorneys, shall be hlred, termlnated, suspended, demoted, laid o~.f_, and recalled .!E. accordance with 1:he provisions of Article XI of the Charter and !mplementlng provisions ~ the Municipal Code. The Board shall classify employee positlons, establlsh employee salarles and benefits, and evaluate ~ performance of its employees. The Board may enter into and approve ~ Memorandum of ~~derstandln9 wlth representatives of lts e~ployees concernlng thelr w~ges, benefits, hours of work, and terms and conditions of employment in accordance with state ~ The Clty Counell shall have no power to abollsh positlons established ~ classifled by th~ Board under this Article, ~~twithstanding any other sectlon of this Charter. -- (c) Board Legal Work. Legal staff hired by the Board shall r~present and advise the Board, its Commissioners, and its staff ir: any civil, ~atters_~ actions, ~ proceedings in WhlCh ~ ~Qard, lts Commissloners, ~ 1ts staff, in ~ by reason of their ~fflcial capacity, ~ concerned or ~ a E9rty. The Board ~ay, ln lts sole Q:l,SCretlon, and wi thou.!:. ap,no.;a~ of the City Counc1l, retaln prlvate attorneys to furnlsh le3al advi~ ~ representat10n in particular matters, actions ~ proceedings. (d) Contracts and Purchases. The Board shall comply w1th the provisions of the City Charter providing for ~ centraliz~ purchasing system and competitive bldding_ ~ shall p~ocure gQods and services ~ do other City agencles. Provided, howeVer, that the Board shall have ~ and flnal authorlty to contract wlth and employ theprofesslonal services of attorneys and l~g1slative lqbbyists. ~ Conforming Re9ulations. If any portion of this Artlcle ~ declared lnvalid ~ unenforceable EY decision of ~ 4 , . . . t court of competent jur1sd1ction ~ rendered invalid ~ unenforceable EY state or federal leer_slation. the Board shall have author~ty to enact replacement rC9ulations -COnsistent with the 1ntent and purpose of the invalidated provis~on and applicable law. Such replacement re9ulat~ons shall supercede invalidated ~ unenforceable p~ovis~ons of this Article and ~ncons~stent ordinances ~ the City Counc~l to the extent necessary to resolve any lnconsistency. SECTION 3. Section 1803 of the C~ty Charter is amended to read as follows: Section 1803. Permanent Rent Control Board. (a) Composition: There shall be in the City of Santa Monica a Rent Control Board. The Board shall consist of five elected Commissioners. The Board shall elect annually as chairperson, one of 1t's members to serve in that capac~ty. (b) Eligibility: Duly qualified electors of the City of Santa Monica are eligible to,serve as Commissioners of the Board. (c) Full D~sclosure of HOldinss: Candidates for the pos~t~on of Comm~ss~oner shall submit a verified statement 11sting all of thelr interests and dealings 1n real property, lncludlng but not 11ffi1ted to it's ownership, sale or management, during the previous three ( 3) ye a rs . (d) Election of Comm1ssioners: Comm1ssioners shall be elected at general municipal elections in the same manner as set forth in Art1cle XIV of the Santa Monica Charter, except that the first Commissioners shall be elected at a special municipal elect10n held within ninety (90) days of the adopt1on of this Article. The elected Commissioners shall take offlce on the f1rst Tuesday following their elect1on. (e) Term of Off1ce: Commlssioners shall be elected to serve terms of four years, beginning on the first Tuesday followlng their election, except that of the first five Commissioners elected in accordance w1th Section 1803(d), the two Commissioners receivlng the most votes shall se~ve until April IS, 1985 and the remain1ng three Commissioners shall serve until April 18, 1983. Commissioners shall serve a mC:'xirlurn of two full terms. (f) Powers and Duties: The Board shall have the following powers and duties: ( 1 ) Set the rent ceilings for all controlled rental units. (2 ) Require registration of all controlled rental unlts under Sect~on 1803(q). 5 . . . . (3 ) Establlsh a base rent ceiling on rents under Section 1804(b). (4) To make adjustments in the rent ceiling in accordance with Sectlon 1805. ( 5 ) Set rents at fair and equitable levels in order to achleve the intent of this Article. (6 ) Hire and pay necessary staff, including hearing examiners and personnel to issue orders, rules and regulations, conduct hearings and charge fees as set forth below. (7) Make such studies, surveys and investigations, conduct such hearings, and obtain such information as is necessary to carry out its powers and duties. (8) Report annually to the City Council of the City of Santa Mon1ca on the status of controlled rental housing. (9 ) Remove rent_controls under Section l803(r). (10) Issue permits for removal of controlled rental units from rental housing market under Section l803(t). (11 ) Administer oaths and affirmations and s ubpo ena witnesses. (12 ) Establlsh rules and regulations for deducting penalties and settling CiVll claims under Section 1809. (13 ) Seek criminal penalties under Section 1810. (14) Seek injunctive relief under Section 1811. (15) Charse and collect registration fees, includins penalt1es for late payments. ( g) Rules and Regulations: The board shall issue and follow such rules and regulations, inCluding those WhlCh are contalned 1n th1s Article, as will further the purposes of the Article. The Board shall publlcize its rules and regulaticns prior to promulgation in at least one newspaper of general circulat10n in the City of Santa Monica. The Board shall hold at least one (I) public hearing to consider the views of lnterested part1es prlor to the adoption of general adjustments of the cellings for maximum allowable rents under Section 1805 and any decision to decontrol or re1mpose control for any class of rental unlts under Sectlon 1803(r). All rules and regulations, internal staff memoranda, and written correspondence explaining the decls1ons, orders, and pol1cies of the Board shall be kept in the Board1s office and shall be available to the public for ~nspection and copying. The Board shall publicize this Article so that all residents of Santa Monica will have the opportunity 6 ------ , . , . . to become lnformed about the1r legal rlghts and duties under Rent Control in Santa Monica. The Board shall prepare a bro~hure which fully describes the legal rights and duties of la.ldlords and tenants under Rent Control ~n Santa Monica. The brochure will be avallable to the public. and each tenant of a controlled rental unit shall receive a copy of the brochure from his or her landlord. (h) Meetings: The Board shall hold .tl++~+tlf~tttt+~i~t I..~ such regularly scheduled meetings as are necessary to ensure the timely performance of its duties under this Art~cle. W+t tlltt Spec1al meetings shall be called at the request of at least three Comm~ssioners of the Board. The Board shall hold ~ts lnltlal meeting no later than 15 days after taking office. ( 1 ) Quorum: Three Commissioners shall constitute a quorum for the Board. ( J ) Votlng: The affirmative vote of three CommisSloners of the Board is required for a decision. lncludlng all motlons, regulat~ons, and orders of tpe Board. (k) Compensation: Each Commissioner shall receive for every meetlng attended seventy-five dollars ($75.00), but in no event shall any Commissioner receive in any twelve month period more than forty-seven hundred and fifty dollars ($4,750) for serVlces rendered. ( 1 ) Dockets: The Board shall maintain and keep in its office all hearlng dockets. em) Vacancies: If a vacancy shall occur on the Board, the Board shall within thirty (30) days appoint a qualified person to fill such a vacancy until the following municipal election when a quallfied person shall be elected to serve for the remainder of the term. (n) Financing: The Board shall finance its reasonable and necessary expenses by charging landlords annual reglstration fees 1n amounts deemed reasonable by the Board. t*,lfit+tl',,~'+ ttt~tlttlt*t!;tttttttt'*~~:+!~!t1t~:~$~tt~~t~t~itll~tt~~I::t~ of such fees may be passed throush from landlords to tenants and ma~~ establish applicable cond1tlons and procedures. The Board is also empowered to request and receive funding when and if necessary from any available source for its reasonable and IllfJtlffriilfliil1iIllllllllllllllllllilllllllliftl!tii~:!:~:~: (0) Recall: Co~missloners may be recalled in accordance with the provisions of Artlcle XIV of the Santa Monica Charter. 7 . . . . (p) Staff: The Board shall employ and pay such staff, ~ncluding hear~ng examiners and inspectors, as may be necessary to perform its funct~on efficiently in order to fulfill the purpose of this Art~cle. (q) Re9~strat~on: WJ..thin sixty (60) days after the adoption of this Article, the Board shall requ~re the reg~5tration of all controlled rental units, which shall be re-reg~stered at times deemed appropriate by the Board. The initial reg~stration shall include the rent in effect at the time on the date of the adoption of this Article, base rent ce~ling, the address of the rental unit, the name and address of the landlord, the housing serv~ces provJ..ded to the unit, a statement ~ndicating all operating cost increases since the base rent ceil~ng date, and any other infomat~on deemed relevant by the Board. The Board shall requ~re the landlord to report vacancies in the controlled rental units and shall make a list of vacant controlled rental un~ts available to the public. If the Board, after the landlord has proper notice and after a hearing, determines that a landlord has wilfully and knowingly failed to register a controlled rental,unit, the Board may authorize the tenant of such a non-registered controlled rental unit to withhold all or a portion of the rent for the unit until such time as the rental un~t 1S properly registered. After a rental unit is properly registered, the Board shall determine what portion, if any, of the w1thheld rent is owed to the landlord for the per~od ~n which the rental unit was not properly registered. Whether or not the Board allows such withholding, no landlord who has failed to register properly shall at any time 1ncrease rents for a controlled rental unit until such un~ts are properly regJ..stered. ( r) Decontrol: If the average annual vacancy rate in any category, class1fication, or area of controlled rental units exceeds five ( 5 ) percent, the Board is empowered, at ~ts d~scret10n and in order to ach~eve the obJect~ves of this Article, to remove rent controls from such category, classification or area. The Board may determine such categories, classif1cations, or areas for purposes of decontrol consistent with the ob]ect~ves of this Article. In determining the vacancy rate for any category, classification or area of controlled rental units, the Board shall consider all available data and shall conduct its own survey. If units are decontrolled pursuant to th1s subsection, controls shall be reimposed if the Board finds that the average annual vacancy rate has thereafter fallen below f~ve (5) percent for such category, classification or area. ( s ) Security Deposits: Any payment or deposit of money the primary function of which ~s to secure the performance of a rental agreement or any part of such agreement, including an advance payment of rent, shall be placed in an 1nterest bearing iiiii~itlt1;itf$*tt;I~~lt~;,~t1tt.}i$.ti.~$I;:41~~.*Itt%tit*~+ unt~l such t~me as ~t 1S returned to the tenant B . . . . , 111!1!!il!lillllllllllill!lij!l!jil!!liill!~llllll~'!lill;:;;;;;l may re9ulate the amount and ~ of securlty deposits cons1stent with 1he purposes of this Article and state law. (t) Removal of Controlled Unit From Rental Housing Market: 1!l Any landlord who desires to remove a controlled rental unit from the rental housing market by demolition, conversion or other means is required to obtain a permit from the Board prior to such removal from the rental housing market in accordance with rules and regulations promulgated by the Board. In order to approve such a permit, the Board 15 required to *.i+ +'~~I~fli~+lf~ii~tl*;I*l~~l'$.t find ~l~l Itt'tlt~+l~~;lt~li+~lii~~+tl~llt~!;lt~tl*illwttt !t!;~ttt+~*I~t!*.* ill~flt+t ~tll*~ +~ I ~ ~ ~ ~tl t tt!~*tjt!t;ttlli!!tl!itltl!ittltftittltltlttit~f~ttfltfltttl1i. tt!tlt::!tttfl~~!ft;l!!ttltt~tttl~tll:1t~tttlt:tftfittt!ttJttil J.l that the landlord cannot make a fair return ~4 l,t++t*+*i by retaining the controlled rental unit. ~ Notwithstanding the foregoing provisions of this subsection, the Board may approve such a per.m1t: Jl! (i) If the Board finds that the controlled rental unit is uninhabitable and is incapable of belng made habltable in an economically feasible manner, or J~) (ii) If the permit is being sought so that the property may be developed w1th multifamily dwell~ng units and the permit applicant agrees as a cond1tion of approval, that the units will not be exempt from the provisions of this Article pursuant to Sectlon 1801 (c) and that at least f1fteen (15) percent of the controlled rental units to be built on the site w1ll be at rents affordable by persons of low income. (3) The ~ousing Element of the General Plan of the City of Santa Monica shall at ~~~ times contain ~ provision that neither the Cit~ Council nor any City agency shall approve an application for tentatlve subdivis10n tract map ~ parcel map nor 9 '. '. . . issu~ ~ Residentlal Buildlng Report for ~ converted unit untl1 and unless the applicant first obtalns a removal permit as required by this Section. (4) The Board shall render its final decision within ~ hundred and twenty (120) days of ~ flling of ~ completed application under this section. SECTION 4. Section 1805 of the City Charter is amended to read as follows: Section 1805. Indlvidual and General Ad~ustment of Ceilings on Allowable Rents. (a) General Adjustment: The Board may, after holding those public hearlngs prescribed by Section 1803 (g), set and adJust upward or downward the rent ceiling for all controlled rental un1ts in general and/or for particular categories of controlled rental units deemed appropriate by the Board. Such an adJustment, however, need not take effect immediately, and the Board may decide that new rent ceilings shall not take effect until some reasonable date after the above-stated time periods. (b) Annual General AdJustment: Each year the Board shall generally adJust rents as follows: (l) AdJust rents upward by granting landlords a utllity and tax increase adjustment for actual increases in the Clty of Santa Monica for taxes and utllities. (2) AdJust rents upward by granting landlords a maintenance lncrease adJustment for actual lncreases in the City of Santa Monica for maintenance expenses. (3) AdJust rents downward by requiring landlords to decrease rents for any actual decreases in the City of Santa Monlca for taxes. In adjustlng rents under thlS subsection, the Board shall adopt a iIiiiiitlilrtitiiitt!rt:rililtjt~tll1tft~ti~ttlt~t~lt~lt~t~l.p~4 (c) Petltions: Upon receipt of a petition by a landlord and/or a tenant, the maximum rent of individual controlled rental unlts may be adJusted upward or downward in accordance with the procedures set forth elsewhere in this Section. The petition shall be on the form provided by the Board and shall include ~ declaratlon EY the landlord that the unlt meets all requirements of Sectlon l80S\hJ. NotwlthstandIng any-other provision of this Sectlon, the Board or hearing examiner may refuse to hold a hearlng and/or grant a rent adJustment If an indlvidual hearing has been held and decision made wlth regard to maximum rent within the previous six months. 10 . . . . . . (d) Hearing Procedure: The Board shall enact rules and regulat10ns govern1ng hear1ngs and appeals of individual adJustment of ce111ngs on allowable rents which shall include the fOl.lOWl.ng: t I} Hearing Examiner: A hearl.ng examl.ner appointed by the Board shall conduct a hearing to act upon the petition for l.ndividual adJustment of ce1l1ngs on allowable rents and shall have the power to administer oaths and affl.rmatl.ons. l2) Notl.ce: The Board shall notify the landlord if the petl.tion was filed by the tenant, or the tenant, if the petitl.on was filed by the landlord, of tbe receipt of such a petition and a copy thereof. ( 3 ) Time of Hearing: The hearing officer shall notl.fy all partl.es, as to the tJ..rne, date and place of the hearing. (4) Records; Tbe hearl.ng examiner may require either party to a rent adjustment hearing to prov1de it with any book s , records and papers deemed pertinent in addition to that l.nformation contained in registration statements. The hearing examiner shall conduct a current building inspection and/or request the City to conduct a current building l.nspection if the hearing examiner finds good cause to bell.eve the Board's current information does not reflect the current condition of the controlled rental unit. The tenant may request the hearing examiner to order such an inspectIon prior to the date of the hearing. All documents required under this Section shall be made available to the parties involved prior to the hearing at the off~ce of the Board. In cases where information f1led in a petition for rent ce~ling adjustment or in add~tional submissions flied at the request of the hearing examiner is inadequate or false, no action shall be taken on said petition unt11 the deficiency is remedied. (5) Open Hearinss: All rent ceiling adjustment hearings shall be open to the public. (6 ) Right of ASslstance; All parties to a hearing may have assistance in presenting evidence and developing their position from attorneys, legal workers, recognized tenant organization representatives or any other persons desl.gnated by said parties. ( 7) Hearln9" Record: The Board shall make available for inspection and copying by any person an official record wh~ch shall constitute the exclusive record for decision on the issues at the hearing. The record of the hearing, or any part of one, shall be obtainable for the cost of copying. The record of the hearing shall include: all eyhibits, papers and documents required to be filed or accepted into ev~dence durl.ng the proceedings: a ll.st of participants present: a summary of all 11 " . . . " testimony accepted in the proceedings~ a statement of all materials officially noticed; all recommended decisions; orders and/or rulings; all final dec~slons, orders and/or rulings, and the reasons for each final decis~on, order and/or ruling. Any party may have the proceeding tape recorded or otherwise transcribed at his or own expense. (8) Quantum of Proof and Not~ce of Decision: No individual adJustment shall be granted unless supported by the preponderance of the evidence submitted at the hearing. All partles to a hear~ng shall be sent a notice of the decision and a copy of the findlngs of fact and law upon which said decision is based. At the same time, partles to the proceed1ng shall also be notif1ed of their right to any appeal allowed by the Board and/or to judicial reVlew of the decision pursuant to this Section and Section 1808 of this Article. (9) Consolldation: All landlord petitions pertaining to tenants in the sawe bUlld1ng will be consolidated for hearing, and all petitions filed by tenants occupying the same building shall be consolidated for hearing unless there is a showing of good cause not to-consolidate such petitions. (lO) Appeal: Any person aggrieved by the decision of the hearing exam1ner may appeal to the Board. On appeal, the Board shall affirm, reverse or modlfy the decis10n of the hear~ng examiner. The Board may conduct a de novo hearing or may act on the baS1S of the record before the hearing examiner without hold1ng a hearing. (11) F2na11ty of Decision: The decision of the hear~ng examiner shall be the flnal decision of the Board 1n the event of no appeal to the Board. The decision of the hear1ng examiner shall not be stayed pending appeal; however, in the event that the Board on appeal reverses or modifies the decision of the hearing examiner, the landlord, in the case of an upward adJustment in rent, or the tenant, in the case of a downward adjustment of rent, shall be ordered to make retroact1ve payments to restore the parties to the pos1tion they would have occupied had the hearing examiner1s decislon been the same as that of the Board. (12) Time for Declsion: The rules and regulations adopted by the Board shall provide for final action on any indivldual rent adJustment petition within one-hundred and twenty (120) days, following the date of filing of the lndlvidual rent adJustment petltion. (13) Board Action in L1eu of Reference to Hearing Examiner: The Board, on its own motion or on the request of any landlord or tenant, may hold a hearing on an individual petition for rent adjustment without the petition first being heard by a hearing examiner. 12 . '" l ~ . . (14) Decisions decreasin9 rents ~ha11 remain in ef-ect until the Board finds that the ]andlord has corrected the defect warrantin9 the decrease. The Board shall, EY resulation, establish procedures for maklns compliance determinations. (e) In making individual and general adJustments of the rent ceiling, the Board shall consider the purposes of this Article and the requirements of law. The Board may adopt ~ its fair return standard ~ny law~~l formula, ~nclud~n9 but not llmlted to ~ based ~ investment ~ net operating income. The Board shall consider all factors relevant to the formula 1t employs: such factors-mar 1nclude: t*tltt*lt~ttttt.+~YI~~*~l~~t 'tllt+l+t.*tlf.~t~*+lt*~ *~ll increases or decreases 1n operating and maintenance expenses, the extent of ~t1l1ties pa1d EY the landlord. capital lmprovement of the -- controlled rental un1t as dlstinguished from normal repair, replacement and maintenance, increases or decreases 1n I1ving space, furniture, furnishings, ~tl equipment, ~ services, substantial deterioration of the controlled rental unlt other than as a result of ordlnary wear and tear, failure on the part of the landlord to provide aoequate houslng serVlces or to comply substantlally with appl~cable houslng. health and safety codes, federal and state income tax benefits. the speculatlve nature of the lnvestment. whether or not the property was acquired or is held as a long term or short term investment, .*~ the landlord's rate of return on investment, the landlord's current and base date Net Operating Income, and any other factor deemed relevant ntmfltlltmt~imdn_iflfflf~mmtuH tift ':/1 ,IIIM!llllllIIIIIIIIIIIMlllllllllllllllllmlll i;t;;t: ~++.+.~I~I!tt~ttJ~'itil~ttt~ttt~iltt+tttt*~tt~t~tft~tttlt~tttt+ liltl!! t ltitt!rilliiiitti!t!iiittttllitf!!tlrlttilt11!itlttit4 It!I!ittlttiJt!i~l!!!fl1ttiirtit!tt!!!i!it!ltlltiiltliti111ttJttt ;tttt~lttl~itt!llttlttt~r%flttlit*1.l'~*~t.'.~4*lt+~I.ft+tlt~, 13 , M . . , . J~l (f) No landlord shall increase rent under this Article if the landlord: (1) Has failed to comply with any provision of this Article and/or regulations issued thereunder by the Board. lucludiug the 2rovisions requiring the payment of reglstration fees and re~istratlon penaltles, or (2) Has failed to comply substantially with any applicable state or local housing, health or safety law. No landlord shall increase rent unless the notice increa~in9 rent contalns a statement in substantl,ally the foIlowin9 form: "The undersisned (landlordr-certifies that thlS property compIles substantially wlth all state and local housin9, health ~nd safety laws." If a landlord fails to comply with thlS subsectl.on, the tenant may refuse to pay the~mproperly notlced increase, maY-- ~ adminlstrative ~ civil remedles under this Article, and ~y raise the landlord's nonc~rnpliance ~ ~ affirmative defense in any resulting unlawful detainer action. (3) Has held a unit vacant for three (3) consecutlve months 2.!:. longer without <)ood cause determined by the Board. No landlord shall increase rent unless the notice increaslng rent contains ~ of the ~011owin9 statements, ~ their substantial equivalents: liThe unders~~ned (landlord) certifies that ~ unit on the same property as the unit subJect to th~s ~ increase notice has been vacant for three (3) consecutlve months or longer." or "The undersisned (landlord) cert~fies that one ~ more unlts on the property have been vacant for three (3) COi1"Secutivemonths or lon9~r, and the Santa Monica Rent Control" Board has determlned that there is good cause ~ such vacancy. If a landlord fails to comply with this subsection, tenants on the-same property may refuse to pay th~ improperly noticed -- increase, may seek administrat~ve ~ civil remedies under this Article, and may raise the landlords noncompliance as ~ afflrmative defense in any resulting unlawful detainer action. (g) The Board shall provide ~ ~xpedited procedure for consideration of rent increases for cap~tal improvements where both the landlord and tr,e current tenant{s} of the effected units concur in the nature .of tt~ capital improvement to be ~ 2.!: already made. ~ othe~ ren~ increases ~ ca~ital improvement shall proceed accord__ng to regular admin~stratl ve procedures. SECTION 5. Section 1806 is amended to read as follows: Section 1806. Eviction. No landlord shall take actl0n to terminate any tenancy including service of any notice to quit or other eV2ction notice or bring any action to recover possession or be granted recovery-of possession of a controlled rental unit unless: 14 , .. . . . , . (a) The tenant has fa~led to pay the rent to which the landlord is entitled under the rental housing agreement and this Article. (b) The tenant has v~olated an obligation or covenant of his or her tenancy other than the obligation to surrender possession upon proper notice and has failed to cure such violation after hav~ng received written notice thereof from the landlord in the manner required by law. ( c) The tenant is committing or expressly permitting a nUl.sance in, or is causing substantial damage to, the controlled rental unit, or 1.5 creating a substantial interference with the comfort, safety, or enJoyment of the landlord or other occupants or neighbors of the same. (d) The tenant is conv1.cted of using or expressly permitting a controlled rental unit to be used for any illegal purpose. (e) The tenant, who ha~ a rental housing agreement which had terminated, has refused, after written request or demand by the landlord, to execute a written extension or renewal thereof for a further term of like duration and in such terms as are not inconsistent with or violative of any provisions of this Article and are materially the same as in the previous agreement. ( f) The tenant has refused the landlord reasonable access to the controlled rental unit for the purposes of making necessary repa1rs or improvements required by the laws of the Uni ted States, the State of California or any subdivision thereof, or for the purpose of showing the rental housing to any prospective purchaser or mortgagee. (g) The tenant hold~ng at the end of the term of the rental housing agreement is a sub-tenant not approved by the landlord. (h) . The landlord seeks to recover possession 1n good faith for use and occupancy by herself or h1mself, or her or h~s children, or parents. t:tt~il'~:i;~~~ifftltt$t~*tl~tJ 1f1~~~+t+t1fl-t1l"t~ I ,<j>Jjl-ttlH.~ 1I.t For Qurposes of eV1ct~ons under this subsection: (l) A "landlord" shall be defined as a natural person who has at least-~ 50 percent ownership l.nterest in the property. ( 2 ) No eviction may take place if a~y landlord ~ enumerated relative alr~ady occupies one unit ~ the property. ill The notice te.rminating tenancy shall contain the name, address and relation~hip to ~ landlord ~ the person intended to occupy. 15 '.,. . . . (4) The landlord or enumerated relatlve must intend in 9oo~ faith to ~ into th~ unit wlthin 30 daY!:;l aft7r the tenant vacates and ~ occupy ~he unit as a primary resldence for 2! least six months. The Board may adopt re9ulations governlng the determination of ~ood faith. (5) I~ the landlord ~ relative specified ~ ~ notice terminatins tenancy fails to occupy the unit within 30 days after the tenant vacates, the landlord shall: (i) Offer the unit ~ the tenant ~ vacated it. (il) Pay to said tenant all reasonable ~xp~nses incurred ~ mov~n9 to and70r from the unit. (6) ~o evict~on p~~suant to this subsection shall be allowed in any condomlnium ~ stock cooperative ~ which has . been converted from ~ apartment or other rental unlt after Aprll 10, 1979, unless the Rent Control Board has issued a removal permlt ~ declared a ~ed rlght for said unit. As used in this subpart, ~ unit shall be deemed converted after April 10, 1979, If ~ April 10, 1979, the recorded tract map or parce~ map for t}1~ property showed the unit ~ included in the property. (i) The landlord seeks to recover possesslon to demolish or otherwlse remove the controlled rental unit from rental residentlal housing use after having obtained all proper permits from the city of Santa Monica. Notwithstanding the above provisions, possession shall not be granted if it is determined that the eviction is in retaliation for the tenant reporting violations of this Art~cle, for exercising rights granted under tnls Article, including the rlght to withhold rent upon authorization of the Board under Section 1803(q) or Section 1809 or for organ~zation other tenants. In any notice purporting to terminate tenancy the landlord shall state the cause for the termination, and in any action brought to recover possession of a controlled rental unit, the landlord shall allege and prove compliance with this Section. Any vl01ation of this Section shall render the landlord liable to the tenant in a civil act10n for a~tual and punitive damages. SECTION 6. Section 1809 of the City Charter is amended to read as follows: (a) Any landlord who demands, accepts, receives, or reta1ns any payment of rent in excess of the maximum lawful rent, in violat~on of the provisions of this Article or any rule, regulation or order hereunder promulgated, includin9 th~ prov~sions ensuring compliance with habitabilit~ standards and regIstration ~ requirements, shall be liable "I~+t+~~.ft~~ 16 t , .. . . . . wt~tt~+~ in ~ c~vil action to the tenant from whom such payments are demanded, accepted, received or reta~ned, for reasonable attorney's fees and costs as determine,l by the court, plus damages ~n ~*I.$~*~~I~flf}t+ll*~~t+~I~~+l~t~1 (f$$~tl~tli~t++l(lt t}~+. the amount by wh~ch the payment or payments demanded, accepted, recelved or retained exceeds the maximum lawful rent. A civil penalty of treble the amount of excess ~harges shall be awarded against the landlord upon ~ showing that the landlord has acted w~llfully or with oppression, fraud 2E malice. (b) In l~eu of fi1ins a civil ac~ion, .+lwt~t~4+~'f~tl~* $+~t~~*ll'~~1 t.1J ~ tenant may file ~ administrative complaint. The Board shall establish by rule and regulation a hearing procedure similar to that set forth in Section 1805{d). l!l Upon the fil~n9 of the complaint, the Board shall inform the parties of the ava~lability of medl~tion service~ not f~nded 2E controlled ~ the Board. Within 60 days of the filing of the complaint, or upon wrltten rejection of medlation services EY either the landlord ~ tenant, the Board shall set ~ date for hearing, of the complaint. (2) In any administrative hearing under this Sectlon, ~ l~nQlord who demands, accepts, receives 2E retains any payment ~ rent in excess of the maXlmum lawful rent shall be {i~i:~;#:~:*;tm;::nifftmimmtm.m!HttmR ~.!f I l~ft.tl~+~~I~+i+t*~~+t~~*l The tenant may deduct the penalty and award of damages from future rent payments in the manner provided by the Board. An order authorizin~ rent withholding under this Article shall survive the sale or other transfer of the property and shall be bindln~ upon successors of the landlord asainst ~ the order ~ made. !! ~ tenant authorized to withhold rent under this Article vacates the property, the landlord shall pay to such tenant ~ ~ equal to the balance of the rent that the tenant could have wlthheld. I _ I .__ (c) If the tenant from whom such excessive payment is demanded, accepted, received or retained in violation of the foregoing provisions of this Article or any rul~ or regulat10n or order hereunder promulgated fails to bring a civil or adm~nistrative action as provided for in Section 1809 (a) and 1809 (b) with~n one hundred and twenty (120) days from the date of occurrence of the violation, the Board may settle the claim arising out of the violation or bring such action. Thereafter, the tenant on whose behalf the Board acted is barred from also bringing an action against the landlord in regard to the same violation for whiCh the Board has made a settlement or brought action. In the event the Board settles said claim, it shall be ent1tled to retain the costs it incurred in settlement thereof, and the tenant against whom the violation has been committed shall be entitled to the rema1nder. 17 ~ '. . . '110 (d) The appropriate court in the jurisdiction in which the controlled rental un1t affected is located shall have jurisdiction over all actions brought under th1~ Section. SECTION 7. Section 1810 of the City Charter is amended to read as follows: Section 1810. Criminal Remed1es. Any person viOlating this Article shall be guilty of a misdemeanor. Any person convicted of a m1sdemeanor under the provisions of this Article shall be punished by a fine of not more than five hundred dollars ($500) or by impr1sonment in the county ja11 for a period not exceeding S1X months, or by both such fine and imprisonment. The fOllowing shall constitute ~ violation of this Article; (1) Any violation of ~ prov1sion of this Article. (2) Any violation of a rule or regulation of the Board. (3) Any knowing or willful failure to obey any decision or order of the Board. SECTION 8. Sect10n 1811 of the City Charter is amended to read as follows; Section 1811. Injunctive and Other Civ1l Relief. The Board, and tenants and landlords of controlled units, may seek rel1ef from the appropriate court within the Jurisdiction w1thin wh~ch the affected controlled rental un1t 15 located to enforce ~n~ provision of this Article ~ its implementing re9ulations or to restrain or enjo1n any violation of this Art~cle and of the rules, regulations, orders and decisions of the Board. SECTION 9. Sect10n 1813 of the C1ty Charter is added as follows: Section 1813. Relatlon to Article XX. Section 1803(t) of th1s Article shall not apply to any building f~r which ~pproval has been received pursuant to Article XX (Tenant Ow~ersh~E Ei9hts Charter Amendment) of this Charter. All other provis10n~_ o~ !his Artlcle, however, shall cont1nue to apply with full forc~ and effect to each unit in any bUl1ding recei~in9 approval pursuant to Art1cle XX. Tenants r~sidingin such units, w~ethe~ ~ not "qualifying," IIpartic1patlns," ~ any other such designatio~ under Artlcle XX, shall enJoy all the r1ghts and remedies prov1ded by this Artlcle w1thout llmitatlon ~ to duration. ThlS Sect10n 1S declarat1ve of existlng law and does not ~mpose any ~ requirements ~ limit any eX1st1n9 ~. 18 .a 'YJ- . . . . ~ SECTION 10. Section 2006 of the City Charter is amended as follows: Section 2006. Prohib2t2on Against other Tax and Fee Requirements. No tax or fee other than those expressly set forth in this Article may be imposed, e~ther directly or indirectly, by the City on a Tenant-Participatlng Conversion except the imposition of t;tttttttt actual processing or map f++, costs not to exceed ;*1' t F~ve Hundred Dollars ($500.00) per .Pp~t~.tt~ unit adJusted annually by the Price Index. 19 , , ~~ · \~t~-()0'. - \ .19. CA:RMM:SSS:be CiTY Council Meeting 6-19-84 SanTa Monica, Cal~forn1a TO: Mayor and City Council FROM: C1ty Attorney SUBJECT: Proposed Amendmen~ to Rent Control Law -- Outline of Issues In response to the City Council's d1rection at its June 12, 1984 meet-ing, the City Attorney's Off1.ce has prepared a list of issues t-hat may be addressed through amendment- to the Rent Control Law. The following lssues, together with others that may be ident1.fied aT a later time, will be analyzed in a comprehensive staff report. I. Powers of the Rent Control Board. r r " , These issues concern the Board's authority over its internal financial and con+ract-ual affa1rs. They arise in response to the dec1sion of the Superior Court ~n Creighton v. Dennis, now on appeal. The J.ssues in CreJ.9hton only 1 nv-6i ve interpretatlon of the City Charter: in -each instance, the voters may amend ~he Rent Control Law to unequivocally provide for independent authorJ.TY of the Board or supervisory au~hority of the C~ty Council. A. Budget. Should the Board adopt J.ts own budget or should the Clty Council approve the Board's budget? B. Contract and Consultants. Should the Board be exempted from the central purchasing system of the City with respect to purchases of suppl~es and/or serv1ces? C. ConformJ.ng RegUlations. If parts of the Rent Con.rol Law are lnvalidated by iudicial decJ.sions, should the Board have the author1ty to enact replacement regulations necessary to "save" the law? II. Staff. The Creighton and Howland cases inVOlve decisions whether the Board'j s staff is subject to the Cl ty' s genera 1 civil service requirements. These 1ssues may be addressed b} Charter Amendment. In the absence of a Charter Amendment, th courts WJ.ll decide whether ~he present status of Boar employees under Munic1pal Code Sec~ion 4607 ~s consis~ent w~t the Rent Con~rol Law and wlth the orJ.gJ.oal Ci+y Char~er. . ... l- . . . A. Class1fication. section 4607 g~ves the Board the power t-o class~fy its employees, although it st.ates t_hat- Board employees are w~thin t-he c1vil service of The C1.ty. Should the Board's power to class1.fy iTs employees be st-a ted explicitly in The Charter? B. civil SerV1.ce Exemption for Legal and Managerial Employees. The Board's attorneys and admin1.strator are classified civil servant_s, unlike the City Manager and City Attorney's s taf L Should they be made unclassif1.ed? C. Legal. The Crelghton declsion reqUlres the City Attorney to represent and adv1.se the Board. Should T_he Charter specify the Board's authorlty to be represented by l.ts legal staff or reqU1.re the CiTY Attorney to represent and/or advlse the Board? Should T_he Boa r d be author1zed t_o h1.re "out s~de counsel"? III. Rent Increases. Charter Section 1805 requires that_ the Board grant- general and 1ndividual adJustments in Maximum Allowable Rents (MAR) so that- property owners W1.ll receive a II falr return on [ t_he ir ] l.nves tment-_s : 11 rent-_ increases are not allowable unless "necessary to the landlord making a fair return on investment. II This section has been the subJect of numerous lawsults, notably the case of Baker v. City of Santa Mon1.ca, now on appeal. There are several issues concerning rent l.ncreases that may be addressed by Charter Amendment. A. i'!~t Operat"ing Income (NOr). The Board's current .. Regula t_1.on 4100" pegs rent 1.ncreases t_o a property owner's "Net" Operat1ng Income" rat"her than his "1.nvestment. " Regulation 4100 was upheld by the Superior Court in Baker and by the Court of Appeal 1n Cast"igl~one v. City of Santa Mon1ca, "NOIII regulat~ons 1.n ot_her cities have also been upheld by appellat-e court-so However, Regulat-~on 4100 1S subJect to poss1ble att_ack on grounds t-_hat it conflicts w~th t-he City Charter. Th 1. S consTruction can be avoided by a Charter Amendment expressly permit-tlng NOr rent- increase regulat1.ons. B. General AdJustment for vacant- un1.ts. In order to discourage landlords from lnten t_lona 1ly withholding unl t_ s from the rental market, the Charter could be amended to preclude rent 1ncreases for un~ts t_ha t have deliberately been left vacant for long perlods of t--ime unless there was a good reason for the withholding. C. Hardshlp increase for long-t1.me owners. Concern has been expre"s.sed rhat owners whose base year (1978) rent s were lower than market_ rates have been 1uequitably treated. Th1.s problem may not require a Charter Amendment t-o address, part1.cularly if Regulation 4100 ~s ultimately upheld (See Regulation 4103, relat-ing to rebuttal of the pres umpt_ ~on that t"he base rent provided a fa1.r return on property.) ------~--- - -- - . ~ . . , D. Char~es for anclllary space and serV1ce. CharTer Section 1805(e) defines all types of housing services, such as garage space, furnirure, and other ancillary it-ems as "rent" . Add1tional remed1es to prevent violations will be explored. E. Cap1.tal ImprovemenT_s. The question of an expedlted process for "capital improvement" rent increases can be accompl1.shed by Board RegulaT_lon. However, the Charter may be amended to requ1re T_he Board to prov1.de for an exped1ted procedure where both landlords and Tenant_s agree. F. Master Meter BUl.ldings. The l.ssue here is whether specJ..al provlsion should be made where T_he landlord pays for substant1.ally all of utillt"ies furnished in a bU.l.lding. While this may now be done by Board Regulat.l.on, the Board may be requlred by Charter Amendment to cans1.der the ext-ent_ of utl.lit-ies paid by the landlord in acting on general and indlV1.dual rent adJustments. G. Vacancy Decontrol. Vacancy decontrol may be required, and quaIlfied In varlOUS respects, by amendment 1"_0 Sect1.on 1805. IV. Removals. Charter Sectlon 1803(t) prohlbit"s T.he removal of a rental unlt" from the market by demollTlon, converSlon, or other means wlthout a permit- from the Board. Seetlon 1803{t-) has been the subJect of much lltigatlon, includlng t"_he Baker, Nash, and Santa Monlca Plnes cases. This lltigation has resu It--ed in some issues t_hat may be clarified by amendment t-o t-he Rent Control Law. A. Owner Occupancy EVlctions at Condominlums. In Santa Monica Pines v. Rent Control Board, t"he Californla Supreme Court- st-at-ed t-hat- the flling of a flnal subdlv~sion map for a condomlnium conversion allows lndivldual unit-s to be sold. (A rehear~ng has been requested to clar1fy thls pOlnt.) S~nce Charter Sect~on 1806 (h) allows all owners of unl t-_ s to evl.ct. for owner-occupancy, Santa Mon1.ca Plnes IDlght be read to permit all owners of condominium uni t-_s to evict tenants, rather than only one owner per bUllding as lnt-ended by Board Regulatlons. It- may be deslred to address this erosion of "the eviction prot-ect-ions of the Rent Control Law; if so, an amendment- to Seetlon 1806(h) would be required. B. The Right to Leave the Market. In Baker t_he Superior Court declared SeCT_lon 180 3 ( T ) invalid on grounds t-hat it- allowed the Board to prohlbit removal even though a landlord showed he could not- earn a fair return on t-he property. This problem can be cured by amending Sec+l.on 1803(t) by striklng some of i t_s current language and clarifying that a landlord who lS unable to earn a fair ret-urn can receive a removal permlt. ---------~~------ - ---- -~- - - - ~ -- - -- , ~ . . ~ -~ V. Remedies. The Board1s abil.~ t_y to conduCT_ administrat~ve hear~ngs and award penalties has been challenged 1.n several lawsul.ts now pending in the Court of Appeal. While some of t_he issues in These suirs l.nvolve questl.ons of preemptl.on by State statutes or infringement on a owner's right to Jury trial, other lssues may be addressed through a Charrer Amendment. A. Treble Damages. In Alm1.r, Hovey, and Hayashi, the Superior Court ruled t_hat_ the Board could not_ award penaltl.es agalnst landlords who charged exceSSl.ve rents. The Rent- Cont-rol Law Makes treble damages mandatory upon a f1.nding that excess rent_ has been charged: "this could be deleted or modi fled, thereby cur~ng the major problem found by t-he courts. Al T_ernatl. vely, txeble damages could be perm1tted only 1.n court proceedings. Moreover, t-he Board's Regulatlon 1.mplement-ing Sect-lon 1809 may not conform to the language of the Charter; this could be cured by Charter Amendment. B. Complaints for Rent Decreases. In Sterl1.ng, The Superior Court held that the Board lacked authorl.ty TO issue rull.ngs awardl.ng tenants prospective rent decreases because of violations of the RenT Control Law. The Board's aut_horl. ty to hear tenant complal.ns and t-o make prospect-l. ve rullngs aut-hor1zing decreased renT might_ be clarif1ed ( aT least 1n part) by a Charter Amendment. C. Registrat10n Fees. The Board's authority ~o deny a landlord a rent increase unless the property has been fully regist_ered and all Reg1.straT~on Fees (and late charges) have been paid could be clar1.f1.ed. Moreover, t-.he Board's authority to impose late charges could be made eXpl1.Clt, +"0 cure T_he problem identlfied 1.n 301 Ocean v. Board. D. No Rent" Increase for violation of hab1tabl11ty standards. The Ren+" Control Law authorizes wi+"hhold1.ng of the general ad]usT_ment_ lf substantlal habitability problems exist-. The Charter Amendment could be amended T~O requ1.re such withholding. ------------ ----- ----- ----~-- --- -- --- r - ~. . . VI. Exemptions. Councilmembers have 1.denT_J. f1.ed several J.ssues concerning propert ies that are exempT from the RenT ConTrol. These l.ssues may be addressed by enlarg1.ng, narrow1.ng, or condit-l.oning the eXl.sting cat_egories for exempt_lon specifl.ed in Charter Section 180l(c). A. Owner-Occupied, three units or less. The Charter may be amended T_O ell.minate or narrow This exemption or, on the aT_her hand, to provide that S1-ngle Family Homes, when rented by a particular owner for the first time, recel.ve a new Maximum Allowable Rent. B. Chlld Care (and oTher non-proflt:) Fac1litl.es. The Charter may be amended to perml.t l1.mited exemptions when uni+_s are actually used for the purpose of providing non-profit servJ.ces such as child care facilit1.es. C. Luxury Units (target benefi t_s to the needy) . It has been suggested that T_he CharTer be amended to specl.fy that all or some of 1. T_S benefits be limited to low and madera t e income persons. Ach1.ev1.ng this goal without violatJ.ng constitutional precepts w1ll be dlfficulT. Al ternat-lves such as exempTions for "luxury" unJ.ts wl11 be explored. VII. Secur1.ty Deposlts. The CharTer's provisl0ns on security deposlts could be clarified, 1.nclud1ng language deleting the restr1.ction that: funds be depos 1. r_ed in FSLIC insT i T_utions and clarifl.caT-l0n on when securiTY deposit 1.ncreases can be required. VI II. Ev~ctions. Charter Section 1806 requlres spec1fied cause for eV1CT~ons. Several issues have ar1sen concern~ng eviction prot_ect ~ons, particularly wlTh respect +_0 owner and relat1ve occupancy. A. Owner Occupancy. Several possJ.ble amendments to the RenT Control Law could be subml.TTed to T_he vo+ers, 1.ncluding a 1im1. raT_ion on +_he number of relat1ves whose occupancy can furnish grounds for evict-ion, a requirement- that vacant- uniTS 1.n a bUlldlng be offered TO a relative (or the potentially displaced tenant) , and mandaTory relocatlon ass~stance for tenants displaced by owner or relaT_ive occupancy. B. Must state cause on Notlce to Quit. Wlal e a landlord may not eV1ct a Tenant without cause, T_his protection has been held nOT to apply to the serV1ce of a Notice to Qui +-. Th1. s could be cured by Charter Amendment. -~ ~ -- -- ---~- -------- --- ---- ------ , -.' . . . C. Permit leases w1th f~xed term1nation dates. The Charter could be amended to perm~T_ evicTion when The landlord and tenant- have agreed that the propert-y be vacated on a part1cular dat"_e. IX. RenTal Agenc1es. 81-_a T_e laws govern agencies -rhaT prov1de "homefinder" services to proSpeCT_l. ve T enan-r s. However. the Rent Control Law could be amended +0 define "rent" ro l.nclude var10US types of fees for serV1ces rendered from renT_al agencies to landlords. x. Other Issues. Counc~lmembers have made several suggesT-J..ons TO protecT landlords subJect T_O abuse s of -rhe Rent Control Law by 1-_enanT_S. Some of these have been lisred above, others may be J.denT-J..fied 1a 1-_er . A. Sublettl.ng. Concern has been expressed that landlords are having difficulty ev~cting persons who have sublet- apartments without" permiss~on of t-he owner. B. Deposit of rent" J..n court. Prepared by: Rober+ M. Myers, C1T_y Attorney STephen S. S1-ark, ASslstant Ci1-_y Art_orney Karl M. Manhel.ID, DepuTY Cl.ty Attorney Marsha Jones Houtr1e, Deputy City Attorney -- - - ~--- - -- - - - .... . jJ. .1.-'* ~ . r/ '. ~VI _.A.e ~ T<( 'i< ,.' Di\ IE June 14, 1984 " -I f --if' TO. Clty Attorney FROM: Clty Clerk SUBJECT: Posslble agenda ~tem for Council meeting of June 19th re Councilmember Zane's motlon regarding Rent Control Charter Amendment Page 20 of the draft transcrlpt of the above Council discusslon includes an addltlon to the motlon by Counci1member Epste1n that "add to the motion that we agendize for next week a very brlef status report so that if it turns out that Bob is swamped by requests, the Councll can take approhriate action at that tlme - - a very brlef status report on w at issues have been submltted. I wlll be preparlng an agenda for the June 19th meetlng on Friday (June 15th). Please adv2se as to whether this item should appear on that agenda -- either as a new ltem or continued as Item 14-B from the June 12th agenda. For your lnformation, other items schedUled for the June 19th agenda are: 1984-85 Budget public hearing and adoption Fourth Street Eastbound Freeway on-ramp discussion continued from June 12th as Item II-D. Closed SessIon continued from June 12th agenda ~s Item ll-F. Please telephone us (Ext. 8211) to advise whether a~d how thls should appear on the June 19th agenda. In other words, If you are not swamped for requests, it could be interpreted that you de not need to agendize lt, etcetera, etcetera. ~ AMSjams cc: Joan Jenson for information In regard to agenda preparat10n - ~ ~ ~ - - ~