Palos Verdes Shores Mobile Estates, Ltd. v. City of Los Angeles

• Decision Date: 26 April 1983
• Citation: 190 Cal.Rptr. 866,142 Cal.App.3d 362
• Court: California Court of Appeals Court of Appeals
• Parties: PALOS VERDES SHORES MOBILE ESTATES, LTD., a California Limited Partnership, Plaintiff and Respondent. v. CITY OF LOS ANGELES, the Community Development Department of the City of Los Angeles, the Rent Adjustment Commission, Defendants and Appellants, Civ. 63482.

Page 866

190 Cal.Rptr. 866

142 Cal.App.3d 362

PALOS VERDES SHORES MOBILE ESTATES, LTD., a California Limited Partnership, Plaintiff and Respondent. v. CITY OF LOS ANGELES, the Community Development Department of the City of Los Angeles, the Rent Adjustment Commission, Defendants and Appellants,

Civ. 63482.

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

April 26, 1983.

Hearing Denied July 20, 1983.

Ira Reiner, City Atty., Gary R. Netzer and Claudia McGee Henry, Asst. City Attys., for defendants and appellants.

Tuttle & Taylor Incorporation, Joseph R. Austin and William C. Schweinfurth, Los Angeles, Ervin, Cohen & Jessup, Allan Browne and Gary H. Amsterdam, Beverly Hills, for plaintiff and respondent; Professor Leonard G. Ratner, Los Angeles, of counsel.

FEINERMAN, Presiding Justice.

Appellants, City of Los Angeles, The Community Development Department of the City of Los Angeles and the Rent Adjustment Commission (hereafter collectively referred to as City), appeal from an order granting a preliminary injunction under the terms of which the City is enjoined from (1) That the "Rent Increase Guidelines for 'Just and Reasonable' " (guidelines) as promulgated by the Rent Adjustment Commission pursuant to the rent stabilization ordinance "are invalid on their face and void under Article I, Sections 7 and 15, of the California Constitution ¹ and the Fourteenth Amendment of the United States Constitution;" and

enforcing its Rent Stabilization Ordinance (Ord. No. 152,120, §§ 151.00-151.19) as to respondent Palos Verdes Shores Mobile Estates, Ltd. (PVS). The preliminary injunction was based upon a partial summary judgment which declared the following issues to be without controversy:

(2) That "[i]n the absence of valid guidelines, the Rent Stabilization Ordinance of the City of Los Angeles is also invalid on its face and void under Article I, sections 7 and 15, of the California Constitution and the Fourteenth Amendment of the United States Constitution." ²

In support of its order granting partial summary judgment the trial court found as follows:

"2. The Stabilization Ordinance itself provides no standard as to what constitutes a just and reasonable return on the property of affected landlords; rather, the Stabilization Ordinance delegates to a Rent Adjustment Commission the responsibility both to set such a standard and to formulate an individual rent adjustment mechanism. Ordinance No. 152, 120, Sec. 151.07.

"3. The guidelines adopted by the Rent Adjustment Commission pursuant to the Stabilization Ordinance fail to satisfy due process standards because: (1) they do not articulate a reasonably ascertainable standard for determining a just and reasonable return, and (2) such standards as the guidelines may have intended to articulate will not, in their application to all landlords, avoid confiscatory results."

We find that the trial court erred in ruling that the City of Los Angeles Rent Stabilization Ordinance is unconstitutional. We disagree with the trial court's interpretation of the ordinance and find that the ordinance provides both sufficient standards for the guidance of the Rent Adjustment Commission and a constitutionally adequate rent adjustment medium.

THE ORDINANCE

The Rent Stabilization Ordinance took effect on May 1, 1979, after expiration of the City's interim rent control ordinance (No. 151,415) on April 30, 1979. The stated purpose of the ordinance is "to regulate rents so as to safeguard tenants from excessive rent increases, while at the same time providing landlords with just and reasonable returns from their rental units." (§ 151.01.)

"Maximum Rent" under the ordinance is defined as the maximum legal monthly rent in effect for each rental unit under the former interim rent control ordinance. (§ 151.02, subsec. I.) "Maximum Adjusted Rent" is defined as "The maximum rent plus any rent increases subsequently made or granted pursuant to Sections 151.06, 151.07, or 151.08...." (§ 151.02, subsec. H.)

Under section 151.06, a landlord may automatically increase the maximum rent for a rental unit seven percent each year without securing the permission from the Rent Adjustment Commission or the Community Development Department. ³

Under section 151.07, subsection A, the Community Development Department has authority to grant adjustments in rent for rental units where the landlord shows:

1. It has "completed a capital improvement ⁴ with respect to a rental unit and has not increased the rent to reflect the cost of such improvement";

2. It has "completed rehabilitation work ⁵ with respect to a rental unit and has not increased the rent to reflect the cost of such work"; or

3. "That the rental unit or units were purchased utilizing an escrow entered into between January 1, 1978, and October 1, 1978; the landlord has not been able to increase the rent on the unit or units since October 1, 1978; and as a result the maximum rent is not equitable under the circumstances."

In addition to these provisions for automatic and semi-automatic rent increases, section 151.07, subsection B, gives authority to a designated hearing officer "in accordance with such guidelines as the Commission [Rent Adjustment Commission] may establish" to grant rent increases based on a landlord's application where the hearing officer finds "that such increase is in keeping with the purposes of this Chapter and that the maximum rent or maximum adjusted rent otherwise permitted pursuant to this Chapter does not constitute a just and reasonable return on the rental unit or units." (Emphasis added.) Thereafter, the ordinance sets forth certain non-exclusive factors to be considered in determining whether a rental unit yields a just and reasonable return, including, but not limited to: "a. property taxes; b. reasonable operating and maintenance expenses; c. the extent of capital improvements made to the building in which the rental unit is located as distinguished from ordinary repair, replacement and maintenance, d. living space, and the level of housing services; ⁶ e. substantial deterioration of the rental units other than as a result of ordinary wear and tear; and f. failure to perform ordinary repair, replacement and maintenance." ⁷

The statute sets forth a procedure for application, notice, hearing and decision by the hearing officer as to landlord applications Finally, the ordinance gives the Rent Adjustment Commission authority to regulate rents by categories of rental units. The ordinance provides that the Commission "may make such adjustments, either upward or downward, of the maximum rent or maximum adjusted rent for any class of rental units as it determines are appropriate to carry out the purposes of this Chapter. For the purposes of this section, the phrase 'class of rental units' may include all rental units or certain categories of rental units based on such common characteristics as the Commission may determine, including size, age, construction, rent, or geographic area." ⁸ (§ 151.08.)

for a rental increase where it is claimed that rent increases permitted by other provisions of the ordinance are insufficient to constitute a just and reasonable return. The ordinance also provides for a subsequent appeal to the full Rent Adjustment Commission from the determination of the hearing officer.

The only issues presented on this appeal are whether the Los Angeles Rent Stabilization Ordinance is constitutional on its face and whether the administrative guidelines promulgated thereunder are valid. The question of whether the statute and guidelines are constitutional, as applied, presents questions of fact which have not as yet been ruled upon by the trial court. ⁹

Since the determination of the facial validity of an ordinance presents an issue of law, it is appropriate that the issue be settled on an appeal from an order granting a preliminary injunction enjoining the ordinance's enforcement. (City of Santa Barbara v. Adamson (1980) 27 Cal.3d 123, 164 Cal.Rptr. 539, 610 P.2d 436; North Coast Coalition v. Woods (1980) 110 Cal.App.3d 800, 805, 168 Cal.Rptr. 95.)

DISCUSSION

I. Due Process

In California, the constitutionality of a rent control ordinance is determined pursuant to the guidelines articulated by the California Supreme Court in Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 159, 130 Cal.Rptr. 465, 550 P.2d 1001. In Birkenfeld, the court held that rent control legislation is constitutionally valid as a proper exercise of the police power so long as the legislation is "reasonably calculated to eliminate excessive rents and at the same time provide landlords with a just and reasonable return on their property." (Id., at p. 165, 130 Cal.Rptr. 465, 550 P.2d 1001.)

The Los Angeles Rent Stabilization Ordinance differs substantially from the Berkeley Charter amendment struck down by the Supreme Court in Birkenfeld.

As previously noted, maximum rents under the Los Angeles ordinance are set at the maximum allowed under the interim rent control ordinance (No. 151,415) in effect in Los Angeles from October 1, 1978, to April 30, 1979. However, maximum rents are not rigidly held there, subject only to change by application on the part of an individual landlord, as was the case in Birkenfeld. Under the Los Angeles ordinance, landlords are permitted to increase rents 7-9 percent annually. The ordinance also provides that rents on vacated units may be increased to any amount. On application to the Community Development Department, landlords are allowed to increase rents based on capital improvement costs, special assessment costs and rehabilitation work costs. Luxury apartments ¹⁰ are exempted from all rent control. (§ 151.02, subd. M, 7.)

Finally, in cases where, in spite of the automatic and semi-automatic rent increases allowed under the ordinance, a landlord still believes he is not receiving a just and reasonable return on his property, the Commission has authority to grant individual...