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Rent Board Stories, March 2002
By James L. Jacobson

FIVE RENT CONTROL PROBLEMS
THAT SHOULD NOT EXIST

One of the most ironic features of Santa Monica Rent Control is the way it perpetuates and aggravates the very problems that is it supposed to solve. The stated purpose of the Rent Control Law is to protect tenants from the effects of a shortage of affordable housing while at the same time the City Council and elected Rent Control Board acts in a manner which insures that the "housing shortage" will never end.

For example, during the week of January 3 - 8, 2001 the Santa Monica Mirror published an article titled "Population Declines; Density and Problems Rise." The opening paragraph of that article states that the Census found that between 1990 and 2000 the population of Santa Monica declined from 86,905 to 84,084. After raising the subject of a population decline in the first paragraph, the article then states, "Despite the drop, continuing increases in density are creating a myriad of problems for residents as well as City Council members they elect¾ including higher levels of noise, a shortage of parking, increased traffic congestion more air pollution and alterations in the character of the city." After I read the article, I scratched my head and asked myself, "How it is possible for the City to lose population while having 'continuing increases in density?'"

The article never discussed rent control or down zoning as possible reasons for the population decline. The article did quote City officials who thought that more regulation of traffic and commercial development were solutions to the density problem but nobody addressed the "serious shortage of affordable housing" that supposedly caused the need for rent control more than twenty-two years ago. Unfortunately, the "housing shortage problem" will never be solved because elected officials benefit from creating conflicts between the tenant majority and the small "landlord" minority. Five of the most egregious examples of unnecessary conflict created by the Santa Monica Rent Control Board are stated below.

No Rent Increases For Additional Occupants:
The biggest reason for unnecessary eviction actions and legal fees is the Board's refusal to permit rent increases for additional occupants. If Santa Monica apartment owners were permitted to increase the rent by 15 % per additional person (as Los Angeles owners are permitted to do) the number of evictions based upon illegal subleasing would certainly be reduced. Additional reductions would result by permitting additional rent increases for pets (perhaps a rent increase of 5%). Contrary to the Rent Board's assumptions, additional persons and pets do cause additional operating expenses for the apartment owners, but instead of applying the Rent Control Law in a reasonable manner, the Rent Board creates needless conflict by blaming the owners for evicting too many tenants instead of adopting reasonable regulations which would reduce tenant evictions.

No "Short Form" Capital Improvement
Rent Increases Permitted:
The Rent Board has steadfastly refused to permit "short form" capital improvement rent increases— not even for earthquake retrofitting expenses. As a result of this unreasonable and destructive attitude, thousands of housing units were lost in 1994 when the Northridge Earthquake arrived. That woke the Board up and made it more reasonable… but only for a short time.

For approximately two years following the earthquake, the Board permitted short-form rent increase petitions, but it soon returned to "business as usual." Most owners don't realize that in 1999 the City adopted very strict earthquake retrofitting code requirements, which will eventually cause many of you to perform thousands of dollars of retrofitting improvements without any means of recovering the cost from existing tenants. Or maybe you will end up with a lead paint abatement order or and mold infestations problem. If you do then, "tough luck " because the Rent Control Board, which was created to promote "public health, safety and welfare, does not actually function in a manner to promote those objectives.

No Increases Permitted for Security Deposits:
State Law permits property owners to have a have a security that is equal to two months of the rent. The Rent Board takes the position that security deposits can never be increased, and as a result, many owners are stuck with security deposits that were established years ago, or none at all. The Rent Board has no logical justification for taking the position that security deposits may never be increased. On one hand, security deposits are defined by the Rent Control Law as "rent" (although they are clearly not rent for a number or reasons.) Therefore, the Board gets to regulate them because they are defined as Rent. On the other hand, if security deposits are "rent" then they should be treated the same way as "rent" and increased with every general adjustment.

This is another example of where the City of Los Angeles approaches the issue in a reasonable manner. When the rent is increased each year, security deposits may be increased by the same amount. As a result, there is less litigation and aggravation because most owners do not request additional security deposits and most tenants do not demand interest from the deposits. This is because one cancels out the other and most landlords and tenants are content to leave the issue alone.

Rent Board Filing Rent Decrease Petitions
On Behalf of Tenants:
The Rent Control Law authorizes landlords and tenants to file rent adjustment petitions. The Rent Board is authorized to resolve those administrative disputes but is not authorized to file those petitions or to be a party to those actions. Approximately ten years after the Rent Control Law was adopted (and after more than 2,000 rent decrease petitions had been filed), the Board authorized its Administrator to file rent decrease petitions on behalf of tenants who never complained to the Board. These are known as "common area" rent decrease petitions and begin with the prefix "A" for "Administrator." There have been approximately one hundred of these petitions, which usually concern recreational services such as swimming pools, saunas and recreation rooms.

These petitions assume that the unidentified tenants are upset about these "reductions" and want the Board's Administrator to represent their interests.

For example, in one case, an owner converted a recreation room into a manager's office and apartment unit to provide greater housing services, and the majority of tenants supported this change. Although tenants from 5 units supported a rent decrease petition for that issue, tenants from 15 units signed a petition opposing it and tenants from 10 units took no position. The Board responded by issuing a decision that authorized rent decreases for all rental units. See Rent Board Story, Part 81: More Harassment For Doctor Devenis.

Creation Of New Penalties
And Damage Awards For Tenants:
Between 1983 and 1990, the Superior Court injunction in McHugh v. Santa Monica Rent Control Board prevented the Rent Board from imposing excess rent awards and penalties. Then, at the end of 1989 the California Supreme Court determined that the Board could lawfully award restitution but it could not impose penalties. Undeterred by the McHugh Decision, the Rent Board the Board adopted new penalties known as "general adjustment blocking" in 1990. For example, if an owner began collecting excess rent 10 years ago and the Board determines that this was the result of a non-intentional calculation error, the ten years of general rent adjustments are included as part of the "lawful rent." But if the Board decides that the error was intentional (which happens at least 90% of the time) the "lawful rent" remains frozen at the rent level of 10 years ago so that each general adjustment creates results more excess rent to be paid to the tenant. In many cases this penalty is worse than the treble damages penalty of the original Rent Control Law, which was invalidated by the McHugh decision.

The Rent Board also created new damage awards for tenants by inventing a new type of petition at Regulation 4400, which is titled, "Rent Decreases for Construction Impacts." As I reported in Rent Board Story Part 80, the Board was ready to adopt that Regulation at the meeting of August 13, 1999, when a Court of Appeal issued decision in the case of Golden Gateway Center v. San Francisco Rent Stabilization and Arbitration Board (1999) 73 Cal App 4th 1204, 87 Cal Rptr.2d, 232. That decision concerned rent decreases that were authorized for repair and rehabilitation of an existing building and housing services, which inconvenienced the tenants. The Court of Appeal held that landlords who undertake to perform necessary repair and maintenance work on residential properties cannot be penalized with rent decreases because they have not decreased housing services in any meaningful way.

Although the Golden Gateway decision caused the Board to pause for a short time, it simply modified Regulation 4400 (b)(ii) and began awarding tenants compensation for the past inconvenience they suffered during rehabilitation and construction. In other words, the Board changed the Rent Decrease process from a rent adjustment proceeding which could only affect future rent levels were affected to a judicial-type proceeding where tenants were awarded for past inconvenience as determined by a the Board's hearing examiners. As a result, the tenants have their own court system where they can have nuisance claims adjudicated by friendly hearing examiners appointed by a local Rent Board where every Commissioner is also a member of the Santa Monican's for Renter's Rights. It reminds me of George Orwell's book titled Animal Farm, where all animals are equal, but some are more equal than others.

The five problems identified above have the following features in common.

First, none of the issues identified above exist in the City of Los Angeles. That is because the City of Los Angeles Rent Stabilization Commission functions as an administrative price control agency, not a government-funded tenants' rights organization.

Second, none of the problems are required by the Santa Monica Rent Control Law itself. All of the problems were created by the Rent Control Board after the Rent Control Law was adopted. Nothing in the Law prohibits "short form" capital improvement rent increases, or requires that security deposits be frozen or authorizes the Board to create and apply new remedies and penalties.

Third, none of the issues identified above are reasonably related to solving the "serious housing shortage" that purportedly led to adoption of the Rent Control Law more than twenty-two years ago. Each of the policies make it more expensive and aggravating to operate rental units in Santa Monica, which can only make the "housing shortage" worse.

Unfortunately, the "serious housing shortage" is one of those problems that the local politicians would rather not solve because its existence assures their continued political existence.