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Appeals Court Orders Santa Monica Landlord to Return Units to Rent Control

Bob Kronovetrealty
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By Jorge Casuso

August 1, 2019 -- The owner of a 13-unit Santa Monica apartment building must return the units to rent control a quarter century after the Rent Board gave the go-ahead to remove them from the market, a California Appeals Court ruled Tuesday.

The Court's ruling overturned a trial court decision last year that found the owner had relied on the Board's decision to spend nearly $500,000 in improvements and renovations.

The Appeals Court found that the lower court had erred last year and ruled that the Board was not authorized to permanently exempt the units from rent control.

"None of (the) listed powers and duties authorize the Board to create
categories of rental properties that are exempt from rent control," the three-judge panel said in its ruling.

The issue came to light in January 2016 after an information analyst for the Rent informed a different owner that the four units that had been granted removal permits in 1994 remained subject to rent control.

In March, Stephen Lewis, the Rent Board's general counsel, sent a letter to the owner of the 20th street property.

“Under the law’s plain language," he wrote, "the Board granted you a permit to remove your property from the rental housing market.

"I understand that you did that, but that the property is now again being rented," Lewis wrote. "The property is, therefore, subject to the rental control law.”

Lewis informed the owner the Board was not seeking to recover the rents charged while the property was exempted but instructed the owner to immediately register the units.

Following the Board’s letters, various tenants of the two properties in question filed excessive rent complaints that were granted by the Board.

In March 2017, the owner of the 20th Street property sued claiming the Rent Board's current interpretation of the law was wrong and that the property should be allowed to continue operating without rent restrictions.

The suit also maintained the owner "had detrimentally relied" on the board's original determination "by investing approximately $100,000 in the property and obtaining a $2.55 million loan secured by the
property," according to the court.

On April 23, 2018, the trial court issued an amended ruling ordering the board to reverse and set aside its decision to grant the excessive rent complaints.

It also declared that the Board “is equitably estopped from
denying the 13 units are permanently exempt."

In its appeal, the Rent Board argued that the trial court "erred" by applying the doctrine of equitable estoppel, which is founded on concepts of equity and fair dealing.

By doing so, it required the Board to "act beyond its statutory authority and in contravention of the Rent Control Law."

In its ruling this week, the Appeals Court agreed, citing a previous Appeals Court ruling that found that the “principles of estoppel may not be invoked to directly contravene statutory limitations.”

Lewis said it is unclear why the owner of the property did not use the Ellis Act, a state law that took effect in 1986, to remove the property from the rental market.

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