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sr-081082-8aAU6 1 0 1982 CA:RMM:r City Council Meeting 8-10-82 Santa Monica, California STAFF REPORT T0: Mayor and City Council FROM: City Attorney SUBJECT: Ordinance Establishing Standards and Procedures for the Removal of Controlled Rental Units This staff report transmits to you an ordinance estab- lishing standards and procedures for the removal of con- trolled rental units. This ordinance, which is in response to the court's decision in Baker v. City of Santa Monica, is scheduled for consideration on August 10, 1982. Prior to the meeting, a more detailed staff report will be distributed. RECOMMENDATION It is respectfully recommended that the accompanying ordinance be adopted. PREPARED BY: Robert M. Myers, City Attorney Stephen Shane Stark, Assistant City Attorney Karl Manheim, Deputy City Attorney Auc 1 a ~sa2 cA:RMM:xMM City Council Meeting 8-10-82 ~~ p~O 0 AUG 1 0 7982 Santa Monica, California SUPPLEr4ENTAL STAFF REPORT TO: Mayor and City Council FROM: City Attorney SUBJECT: Ordinance Establishing Standards and Procedures for the Removal of Controlled Rental Units This staff report supplements one previously issued which transmitted a proposed ordinance establishing standards and procedures for ttie removal of controlled rental units. BACKGROUND On June 18, 1982, Judge Richard A. Lavine issued an Announcement of Intended Decision in Baker v. City of Santa P4onica, et al., Case rdumbers WEC 58763, 59251. This ruling followed trial in Phase 3, involving the constitutionality of Section 1803(1) of the City Charter, Plaintiffs had challenged the removal restrictions on several grounds: 1. That a regulated business is entitled to devote its property to other uses on the showing that it was unable to make a constitu- tional '°fair return" by maintaining the present (regulated) use. Because Section 1803(t) es- tablished a test for removal which included 1 A Auc 1 0 798 factors in addition to the "fair return" criterion, it was unconstitutional. 2. That in any case, a regulated busi- ness has the constitutional right to cease business at will. Consequently, a landlord should be entitled to demolish controlled units without making any particular showing. 3. That Section 1803(t) constituted an unconstitutional restraint on alienation, Because California Constitution Article I, Section 1, declares the inalienable right to own and protect property, a correlative right is that of sale or disposition in any manner preferred by the property owner. Thus, sale of rental units as condominiums could not be restricted by law. Judge Lavine agreed with plaintiffs on the first ground, but declined to reach the remaining issues. Because he found that of- fending portions of Section 1803(t) Caere not severable from the remainder of the Section, he declared the entirety of the Section unconstitutional. In addition to those constitutional claims of plaintiffs not reached by the Judge, he also declined plaintiffs' following requests: 2 1. To enjoin the operation of Section 1II03(t) or to prohibit any and all restrictions on demolitions of rental units. 2. To prohibit the enforcement of evic- tion regulations. 3. To expand the case to include other or future regulations pertaining to zoning or demolition matters. 4. To articulate the constitutional min- imum rate of return to be applied to future rent increase or removal cases. 5. To prohibit the City or the Board from requiring landlords to make any showing relative to a removal permit, thereby allowing landlords to make their own subjective deter- mination as to whether they are receiving a fair return. Judge Lavine granted plaintiffs' request that the City and the Rent Control Board have 60 days to enact a replacement Ordinance covering removal standards and procedures. It is the opinion of the City Attorney that the proposed Ordinance fully satisfies both the intent and letter of Judge Lavine's ruling. The City Attorney and the Rent Control Board administration both feel that the Judge's ruling providing for substitute 3 regulations is best implemented through a combination of City Council Ordinance and Board Regulation. The City Council has the authority to enact a substitute Ordinance while the Board has the experience and capability to implement standards and procedures. A copy of the Board°s proposed regulations consistent with this Ordinance, are attached hereto for informational purposes. ANALYSIS The intent of the proposed Ordinance is to maintain effective controls on the removal of rental units in a manner consistent with Judge Lavine's ruling and guidelines, This is done by eliminating from the standard any requirement that the landlord prove removal would adversely affect tenants or the rental housing stock. The sole test is that of fair return. In any case where the landlord is incapable of collecting rents sufficient to provide a "fair return," the Board is required to issue a removal permit. The Board may also issue a removal permit where the landlord proposes to replace removed units with a like number of replacement units with certain assurances of affordability. (This feature is identi- cal to the old "Category 3" permit.) Section 2(b) establishes three ways in which a landlord can show entitlement to a removal permite 1. The landlord cannot rent the unit at the Maximum Allowable Rent (t~AR) established by the Board. 4 2. The landlord establishes that the MAR does not provide a fair return, and the unit cannot be rented for that amount necessary to provide a fair return. 3. The unit is uninhabitable and cannot be made habitable in an economically feasible manner. These are all applications of the same basic fair return test. In the first method, the landlord can simply show that the MAR is not collectible in the marketplace by virtue of vacancy or rent levels below the P4AR for a certain amount of time. Neither the Board nor the landlord need produce appraisers or other experts. The entire procedure should be both swift and uncomplicated. In the second method, the landlord caould first show entitle- ment to rent levels higher than the current P3AR, to insure the making of a fair return. Then, the landlord would establish that such new and higher rent is not collectible.. The landlord would not be required to offer the unit at the neca rent level in order to make the required showing. Rather, he may prove non-collectibility through the introduction of appraisal or expert testimony. In this manner, only a single Board hearing would be required. The Board would make findings both as to fair return rent levels and collec- tibility. If necessary, these could be judicially reviewed and a determination made without having to return to the Board for fur- ther proceedings. 5 The third method will likely be substantially the same as the current "Category 2" permit process. Landlords would show that the cost of repairing uninhabitable units cannot be recouped through rent increases. The Board has previously had substantial ex- perience with "Category 2" permits and has developed a facility for processing them in relatively short periods of time. Insofar as this route may be the most involved of the three, the other methods should. be even more accessible with relative ease and without undue expense. (Some people have raised the question of whether provisions should be made for limited equity cooperatives. This ordinance does not provide for limited equity cooperatives or other such al- ternatives. This is primarily because of the time constraints un- der which this ordinance was necessarily prepared. Should the Council chose at a later date to make provision for limited equity cooperatives, this ordinance can then be amended to make such provisions.) RECOMMENDATION It is respectfully recommended that the accompanying ordinance be adopted. PREPARED BYe Robert M. Myers, City Attorney Stephen S. Stark, Assistant City Attorney Karl A4. Manheim, Deputy City Attorney 6 7 CITY OF SANTA MCCONIgCA ° L 1 DATE: August 10, 1982 TO: Mayor and City Council FROM: Robert M. Myers, City Attorney SUBJECT: Attachment to Supplemental Staff Report, Agenda Item 8-A. X v F i AUG 1 0 /9982 Through inadvertence, the attachment to the supplemental staff report was not attached. The a.ttachmeht, which consists of the Rent Control Board's proposed regulation, accompanies this memorandum. R?4M : r attachment o?N~ ~ ~® TO AUG 1 0 9982-~ PROPOSED '_2E:JT CONT$OL BOARD REGULATIONS 5013. Removal. A removal permit is required under this chapter if the landlord seeks to remove the controlled rental unit from the housing market by demolition, conversion or other means. A removal permit is not required in order to have a controlled rental unit remain vacant, provided that during the period of vacancy the landlord does not use the controlled rental unit for any purpose (e.g., office space, storage, etc.). A controlled rental unit that remains vacant does not lose its character as a controlled rental unit because of the vacancy. A landlord may not apply for a removal permit because of vandalism to a controlled rental unit during the period of its vacancy. 5014. Standards for Category A, B, and C Permits. (a) Category A. A landlord shall be entitled to a removal permit for a controlled rental unit if the landlord proves that the landlord is unable to collect the current Maximum A1- owable Ren r the U (1) The Board shall not gran der this subsection unl t at t e landlord: 1 permit un- 31ord proves 0008P Chapter 5, Removal Permits 29 July 1982 Paoe 6 Proposed Regulations (A) Has listed the unit for which the landlord seeks a removal permit with the Board at the time of filing an application for a removal permit and maintains such listing to the date of the hearing on the removal applica- tion. It shall be the landlord's affirma- tive and continuing obligation during said period to notify the Board of any changes in the vacancv or occupancy of the unit; and (B) Has underi the unit a in su seci efforts ma llmitect.. to property, < notices on als with re (C) Has not re. t eft at i reasonable efforts to rent e MAR for the period specified (a) (1) (A) a ove. Reasona e elude, but are not necessarily osting rental notices on the rtising in newspapers, posting le tin boards, listing of rent- offer to rent (2) The Board shall maintain for inspection by ro- spective tenants a list of available rental units consisting of units listed as set forth in sub- section (a) (1) (A) above. (3) If a landlord has complied with subsection (a)(1} above, it shall be presumed that the landlord is unable to collect the current MAR for a unit. T is presumption is a rebuttable presumption and affects the burden of producing evidence as de- fihed in Section 604 of the California Evidence (b) Category B. A landlord shall be entitled to a removal permit for a controlled rental unit if the landlord proves that the current MAR for t e unit does not provide a fair re- turn and that the landlord cannot rent the unit at that rent necessary to provide the landlord wit a fair return. fl00$P Chapter 5, Removal Permits 29 July 1982 Page 7 Proposed Regulations (1) The landlord shall, concurrent with the applica- tion for a removal permit under this subsection, file a petition for rent increase. The Board shall refer the petition for rent increase to a hearing examiner for hearing and a recommen e (2) Upon receipt of the recommended decision re ard- ing t e petition for rent increase, t e Board shall review the recommendation of the hearing examiner and determine the increased MAR, if any, to which the landlord is entitled in order to provide the landlord with a fair return. Concur- rently, the Board shall hold a hearing on the landlord's :application for removal. At such hearing, the landlord must prove the maximum col- lectible rent for the unit. If the landlord thereby proves that the MAR w ich would give t e landlord a fair return is not collectible, t e Board shall grant the application for removal permit. Whether the Board grants or denies an application for a removal, it shall make a find- ing as to the maximum collectible rent for the unit. (c) Category C. A landlord shall be entitled to a removal permit for a controlled rental unit which the landlord groves is uninhabitable and cannot be made habitable in an eco- nomically feasible manner. (1) It shall be considered economically unfeasible to make a controlled rental unit habitable if the costs of t e improvements necessary to make the unit habitable, amortized over the useful life of t e improvements, would require that the rent for t e controlled rental unit be at a level in ex- cess of the rent that the landlord reasonably could be expected to collect for the unit. In determining economic feasibility, the Board shall not consider the costs of making those repairs or improvements necessitated by a landlord's conduct as described in subsection (e) below. 0008P Chapter 5, Removal Permits 29 July 1982 Page 8 5015 5016. ( a) Proposed Regulations (?) A rental unit is not uninhabitable merely because o~ tip e existence of housing code violations. The ousing code violations must be of such a nature as to cause a serious threat to the continued ealth, safety and well-being of the occupants. (d) When a landlord seeks to remove a multiple unit rental structure, the landlord must also prove that the MAR's of individual units which the landlord also owns on the same property cannot be adjusted so as to enable t e landlord to collect an overall fair return. Upon suc proof, and provided the landlord has otherwise comp led wit t ese regulations, the landlord shall be tlea to a removal permit. Tne Board s aut ority to adjust rents on the property le tFie landlord to collect an overall f -' air r as .urn e (e) A landlord shall not be entitled to a removal permit for a unit if the landlord is unable to collect the MAR: (1) As a result of the landlord's failure to maintain t e unit, or the property of which the unit is a part, in good repair. (2) As a result of an intent which renders a rental unit unmarketable as rental housing or otherwise incapable of earning a fair return. * * * Section 5015 is repealed and the section number is reserved for future use. Standards For Category D Permits. A Category D removal permit will only be granted if the site on which the controlled rental units sought to be removed will be developed with multifamily rent- al units that will not be exempt from the provisions of Article XVIII of the Santa Monica City Charter pursuant to Section 18U1(c) 0008P Chapter 5, Removal Permits 29 July 1982 Paoe 9 Proposed Regulations (b) A Category D removal permit will only be granted if at least 15 percent of the rental units to be built on site on which the controlled rental units sought to be removed will be rented to low income persons at rents that they can afford. (c) As a condition of approving a Category D removal per- mit, the Board shall require that the applicant enter into an agreement with the Board that will: (1) Provide that the applicant agrees that the rental units to be built on the site will be subject to the provisions of Article XVIII of the Santa Monica City Charter and not be exempt pursuant to Section 1801.(c) . (2) Provide that the applicant shall record a Declar- ation of Restrictions (deed restrictions) and such other covenants and conditions as the Board deems necessary to ensure that 15 percent of the units will be continuously rented to low income persons at rents that they can afford. (3) Provide that construction of the new rental units shall commence within 180 days of the date of demolition of the rental units for which the re- moval permit is granted. (4) Provide that existing tenants will have a right of first refusal for the new rental units. (5) Provide that the new rental units will be of com- parable size, including number of bedrooms, and offer comparable amenities to the units removed from the site. (d) In determining whether to grant a Category D removal permit, the Board will consider the overall impact on the rent- al housing market that will result from granting the removal permit and the impact of the removal on the existing tenants. The Board will not approve a Category D removal permit that re- sults in a net decrease of the number of rental units on the site and the number of rental units on the site that are af- fordable to low and moderate income persons. 0008P DISTRIBUTION OF RESOLUTION # Council Meeting Date d'--/D Agenda Item # ~~ /~ Was it amended? ~~ r VOTE: Affirmative: /~,,~~~.~ Negative: Ahstain: Absent: DISTRIBUTION: ORIGINAL to be signed,. sealed and filed in Vault. NEWSPAPER. PUBLICATION (Date: ~_f~ _ ~~ ) Department originating staff report ( ~ 1 City Attorney (tIrase with. their codes) Agency mentioned in document or staff report __ (certified? Subject file (agenda packet) Counter file Others: Airport Auditoium Building Dept. Environ. Serv. Finance Fire _ General-Serv. Library Parking Auth. Personnel Planning Police (en- forcement?) Purchasing Recr/Parks. Transportation Treasurer Manager ,~,:; SEND FOUR COPIES OF ALL ORDINANCES T0: LODED SYSTEMS, Attn eter ac earie PROFESSIONAL CENTER, RQUTE 71 BRIELLE. NEW JERSEY 08730 SEND. FOUR COPIES OF AT.~ DRT)TNAi~ir'~S _'pO; PRESIDING JUDGE SANTA MONICA MUNICIPAL COURT 1725 M1~IN STREET SANTA ~fONICA, CA 90401 ORDINANCE*# / a S` Introduced: ~-jp-~ a- Adopted: ~=-io--~~ * AI:WAYS PL~LISH ?DOFTED ORDINANCES TOTAL COPIES T 1 1