1041 20TH St., LLC v. Santa Monica Rent Control Bd.

• Citation: 250 Cal.Rptr.3d 376,38 Cal.App.5th 27
• Decision Date: 30 July 2019
• Docket Number: B290242,B290956,B291240
• Court: California Court of Appeals
• Parties: 1041 20TH STREET, LLC, Plaintiff and Respondent, v. SANTA MONICA RENT CONTROL BOARD, Defendant and Appellant. ASN Santa Monica, LLC, Plaintiff and Respondent, v. Santa Monica Rent Control Board, Defendant and Appellant.

38 Cal.App.5th 27

250 Cal.Rptr.3d 376

1041 20TH STREET, LLC, Plaintiff and Respondent,

v.SANTA MONICA RENT CONTROL BOARD, Defendant and Appellant.

ASN Santa Monica, LLC, Plaintiff and Respondent,

v.Santa Monica Rent Control Board, Defendant and Appellant.

B290242

B290956

B291240

Court of Appeal, Second District, Division 5, California.

Filed July 30, 2019

Donald F. Woods, Jr., for Plaintiff and Appellant.

Santa Monica Rent Control Board, J. Stephen Lewis, Los Angeles; Best Best & Krieger, John C. Cotti and Gregg W. Kettles, Manhattan Beach, for Defendant and Appellant.

No appearance for Plaintiff and Respondent.

KIM, J.

I. INTRODUCTION

Plaintiffs, 1041 20th Street, LLC and ASN Santa Monica, LLC, filed petitions for writs of administrative mandamus ( Code Civ. Proc., § 1094.5 ), and 1041 20th Street, LLC also filed a complaint for declaratory relief, requesting, among other things, a finding that defendant Santa Monica Rent Control Board (the Board) was equitably estopped from asserting that rental properties were subject to rent control.¹ The trial court granted the petitions and the requested declaratory relief. The Board appeals, contending that it did not have authority to permanently exempt rental units from rent control by a permit pursuant to the Santa Monica City Charter, article XVIII, section 1803(t),² and thus could not be equitably estopped. We agree and reverse.³

II. BACKGROUND

A. Santa Monica's Rent Control Law

"In April 1979, the City of Santa Monica (the City) adopted a rent control charter amendment (... the Rent Control Law) and created an elected rent control board (Board) to regulate rentals. Among other things, the Rent Control Law requires that owners register each rental unit and pay annual registration fees to the Board, establishes maximum allowable rents, provides for annual general adjustments and individual adjustments of allowable rents, prohibits evictions except for specified reasons, and prescribes remedies for violations of its provisions." ( Santa Monica Beach, Ltd. v. Superior Court (1999) 19 Cal.4th 952, 957, 81 Cal.Rptr.2d 93, 968 P.2d 993 ( Santa Monica Beach ).)

"The stated purpose of the Rent Control Law, as expressed in the preamble to the charter amendment[s], [is] as follows: ‘A growing shortage of housing units resulting in a low vacancy rate and rapidly rising rents exploiting this shortage constitute a serious housing problem affecting the lives of a substantial portion of those Santa Monica residents who reside in residential housing. In addition, speculation in the purchase and sale of existing residential housing units results in further rent increases. These conditions endanger the public health and welfare of Santa Monica tenants, especially the poor, minorities, students, young families, and senior citizens. The purpose of this Article, therefore, is to alleviate the hardship caused by this serious housing shortage by establishing a Rent Control Board empowered to regulate rentals in the City of Santa Monica so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return.’ " ( Santa Monica Beach, supra , 19 Cal.4th at p. 957, 81 Cal.Rptr.2d 93, 968 P.2d 993.) One stated intent of the Rent Control Law is "to enable the Board to provide relief to persons facing particular hardship and to protect and increase the supply of affordable housing in the [C]ity." ( Id. at p. 988, 81 Cal.Rptr.2d 93, 968 P.2d 993.) Another purpose is to "attempt[ ] to provide reasonable protections to tenants by controlling removal of controlled rental units from the housing market ...." (§ 1800.)

Section 1803(t) provides one means for controlling removal of units from the housing market, the removal permit. It states: "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 [the] 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 return by retaining the controlled rental unit." (§ 1803(t).)

In 1983, the Board implemented regulations that govern the granting of removal permits. Those regulations, which are currently suspended, describe four categories of removal permits. Category A permits are for landlords who are "unable to collect the current Maximum Allowable Rent (MAR) on the unit." Category C permits are for landlords who prove a controlled rental unit "is uninhabitable and cannot be made habitable in an economically feasible manner."

In 1984, voters approved an amendment to the Rent Control Law which was intended, among other things, "to ensure due process of law for landlords and tenants, effective remedies for violation of the law, and consistency with constitutional requirements."⁴

B. In 1993, the Board Granted a Category C Removal Permit to 20th Street Owner

In 1989, 20th Street Owner purchased the 20th Street property for $880,000.⁵ The 20th Street property, which consisted of 13 residential rental units, was registered with the Board on June 15, 1979. The 20th Street property was in poor condition at the time of purchase.

On June 14, 1993, 20th Street Owner filed an application for a Category C removal permit. The application stated it was "hereby made for a permit to remove a controlled rental unit from the residential rental market pursuant to the Santa Monica City Charter ... and the rules and regulations of the [Board]." 20th Street Owner indicated on the application that the removal was for "Renovation of Building."

On October 14, 1993, the Board held a hearing on 20th Street Owner's application. At the hearing, the Board discussed a staff report, including findings by its property inspector. The staff report found that the 20th Street property was uninhabitable, the costs for repairs to bring the building to a habitable condition exceeded the maximum collectable rent, and the owner would not be able to repair the property to habitability in an economically feasible manner.

At the hearing, a Board commissioner asked a Board staff attorney to describe the effect of a Category C removal permit. The two engaged in the following exchange:

"COMMISSIONER [ ]: Why don't you walk through it with me. What is the meaning of the Category ‘C’ removal at this point?

"[STAFF ATTORNEY]: It means that Mr. Corrigan can rent these units for whatever he wishes. They are no longer subject to rent control.

"COMMISSIONER [ ]: They go to market, they're called market rates, rental rates.

"[STAFF ATTORNEY]: Right, right. If, in fact, he wished to redevelop this property, the [R]ent [C]ontrol Board would sign off on any development permit that came before it, the staff would. We would settle it as a property that was not governed by rent control. "⁶ (Italics added.)

On October 14, 1993, following the hearing, the Board granted 20th Street Owner a removal permit, and made the following findings: "1. The subject property is uninhabitable .... [¶] 2. The repairs necessary for habitability cannot be completed in an economically feasible manner."

C. In 1994, the Board Granted a Category A Removal Permit to Ocean Avenue Owner

On May 14, 1987, Ocean Avenue Owner purchased the Ocean Avenue property, which was comprised of 70 residential rental units.⁷ On March 31, 1994, Ocean Avenue Owner applied for a Category A removal permit for seven of its 70 units.⁸

As with 20th Street Owner's application, the first paragraph of Ocean Avenue Owner's application provided that it was for "a permit to remove a controlled rental unit from the residential rental market pursuant to the Santa Monica City Charter ... and the rules and regulations of the [Board]."

By the time of the hearing, three of the units for which Ocean Avenue Owner sought a removal permit were rented. The staff report recommended that the Board grant the Category A removal permits for the remaining four units.

On July 14, 1994, the Board held a hearing. On July 28, 1994, the Board issued its decision granting the removal permit as to three units, including the unit at issue, Unit 211, as the owner had rented one additional unit by this time.

D. The Board's Treatment of Removed Residential Rental Units as Exempt from Rent Control

Following its issuance of the removal permits, the Board consistently treated all of 20th Street property's rental units and particular units of the Ocean Avenue property as exempt from rent control. In its communications with 20th Street Owner and Ocean Avenue Owner, as well as in its internal communications, the Board unequivocally stated that the properties had been granted permanent exemptions from the Rent Control Law and did not need to be registered with the Board.

E. In 2016, the Board Notified 20th Street and Ocean Avenue Owners that Rental Units Remained Subject to Rent Control

On January 27, 2016, an information analyst from the Board sent a letter to Ocean Avenue Owner, stating: "Units # 211 [and others] at 1915 Ocean Avenue are subject to the Rent Control Law. Although removal permits were granted for these units on July 14, 1994, they were not demolished or converted and continue to be used for residential rental purposes. Accordingly, they remain subject to the Rent Control Law ...."

On March 7, 2016, J. Stephen Lewis, the Board's general counsel, sent a letter to a tenant in the 20th Street property advising that 20th Street Owner, after displacing tenants pursuant to a removal permit, had returned the property to the rental market and thus the property was "fully subject to the rent level and eviction protections afforded under ... Santa Monica's rent control law ...."

On March 16, 2016, Lewis sent an email to 20th Street Owner, acknowledging that Board staff had previously opined that "a removal permit is a permit to ‘remove a property from rent control[.]’ " Lewis continued, "Under the law's...