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
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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:
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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
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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