THE AGONY OF VICTORY IN OCEAN PARK CASE

There are popular jokes that are based on the theme, “I’ve got some good news and some bad news.” That phrase comes to mind when I read the Court of Appeal Opinion in Ocean Park Associates v. Santa Monica Rent Control Board, which was issued and certified for publication (as a case that can be cited as authority in other cases) on January 7, 2004. This Opinion has some good news about the Rent Board’s authority to file rent decrease petitions on behalf of tenants and some bad news about rent decreases based on “Construction Impacts.” First, I will address the bad news.

As this Column reported in a number of Rent Board Stories, in September 1999 the Rent Board decided to give itself new powers by adopting Regulation 4400 which awarded damages to tenants who became annoyed by property owners who perform too much construction and/or repairs on their properties. Although the Rent Control Law only permits the Board to decrease rents when housing services are decreased, the Rent Board treats the Rent Control Law as merely a guideline for whatever power it wants to exercise. Therefore, Regulation 4400 has a number of “rent decreases” listed for “Construction Impacts” to compensate tenants for unpleasant effects that occur when construction takes place such as “noise, dust, fumes and “slip and fall hazards.” The effect of this Regulation is to change the Board’s duties from an agency which regulates prices and housing services to a “Tenant Compensation Board” which awards damages to compensate tenants who are annoyed by the effects of construction that takes place on a property.

Regulation 4400 has other insidious provisions that are in conflict with the Rent Control Law. For example, the process begins when the Board’s Administrator discovers construction is taking place on a property and sends letter to the tenants encouraging them to file rent decrease petitions. If this does not produce enough complaining tenants, the Regulation also permits the Administrator to file rent decrease petitions on behalf of the tenants who do not complain.

The Rent Board’s first victim of Regulation 4400 was a property owner known as Ocean Park Associates, which performed substantial construction and rehabilitation of a 43-unit apartment building. That owner did not do all of the construction at once, so the rehabilitation took place over a three-year period of time, which annoyed tenants from 7 of the units enough to file rent decrease petitions under Regulation 4300. When the Board’s Administrator was not impressed with this lack of participation, she filed a rent decrease petition W-001 on behalf of tenants of the other 36 rental units.

After a year of Rent Board hearings, the Board awarded the tenants $137,000+ of “rent decreases” to the tenants, of which only $13,130.15 was awarded to the seven tenants who filed rent decrease petitions and participated at the hearings and the remaining $124,000+ was awarded to tenants who did not support the decrease petitions or, in some cases, actually opposed them.

After the “rent decrease” hearings were completed at the Rent Board, the case was appealed to the Santa Monica Superior Court where the Rent Board applied the “Ghostbusters” defense in which it “slimes” the property owner by citing complaints of the few complaining tenants instead of dealing with the legal issues of the Rent Board’s authority to award monetary damages based upon personal annoyance or inconvenience. Unfortunately, the Santa Monica trial court judge did not see anything wrong with the Board awarding $137,000+ of “rent decreases” to tenants who never complained or participated in the rent decrease proceedings and affirmed the Board’s decision in its entirety. So the decision was appealed to the Court of Appeal.

At the Court of Appeal, the Rent Board again “slimed” the owner by repeating complaints of tenants who participated in the rent decrease proceedings, and the Court of Appeal bought most of the argument. Much of the Court of Appeal’s decision is devoted to rent decrease decisions and issues that were not appealed while it ignores specific provisions of the Rent Control Law and other published Court decisions which establish that, (1) administrative agencies do not have the lawful authority to expand their own powers, (2) the Board’s Regulation 4400 is in conflict with specific requirements of the Rent Control Law, and (3) rent decrease decisions are rent adjustment procedures which can not lawfully award monetary damages for past wrongs or personal injuries.

Now for the good news…. Although the Court of Appeal upheld the rent decrease decisions granted to the seven tenants who participated in the decrease hearings, it reversed the Administrator’s petition which covered the other 36 rental units caused 90% of the damages (i.e., “rent decreases”) that were awarded. Most importantly, the Court of Appeals Opinion finds that the Rent Control Law does not grant the Rent Board the authority to be filing rent decrease petitions on behalf of tenants.

Thus, Ocean Park Associates v. Santa Monica Rent Control Board is an important case because although it affirms the Board’s authority to award rent increases for “construction impacts” very few of those decisions have been rendered. On the other hand, the Rent Board has been filing rent decrease petitions on behalf of tenants for years, and when the Board’s Administrator files a petition she always wins, even when the tenants do not attend the hearings or carry any burden of proof of their entitlement to receive rent decreases. Few owners have been harmed by decrease petitions based on “construction impacts” while many have been harmed by the Rent Board’s Administrator filing rent decrease petitions on behalf of tenants which began in 1986. See Rent Board Stories Part 19, titled “The Siege Of Norma’s Sauna.”

So if you receive rent decrease petitions filed the Rent Board or its Administrator, you need to get a copy of Ocean Park Associates v. Santa Monica Rent Control Board, case number B164439 which will be coming soon as a published decision to a law library near you.