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Legal Column, August 2002
By Rosario Perry, Esq.

OUTRAGEOUS GOINGS ON AROUND TOWN

As you will read in this column and the others, the state and local city legislatures are very busy passing laws to regulate the housing industry. For years, the small mom and pop owners were able to provide an abundance of housing for residential rental needs through out our state. Then politicians with bankrupt ideologies started using the housing needs of tenants throughout the state for their own political ends. What started as rent control some 22 years ago has blossomed into a more pervasive form of housing control and production. What has happened since these politicians have started their campaign of control, is a drastic shortfall in rental housing production. Now, with these politicians reaching our state legislature, we have not only local rent control, but we are saddled with state regulations as well. The housing situation is now real. The politicians taking a non-problem and turning it into a real problem of state wide dimensions. However, while the local politicians are blaming the housing providers for the problem, it is clearly these local politicians who are causing the crisis. They are restricting the construction of housing by down zoning cities, and increasing the cost of building housing in many other ways.

ON THE LEGAL FRONT

Armed with Lawsuits, ACTION Goes To War
Action's Board of Directors has decided that the only way to obtain justice and fairness for its members is though litigation. To that end ACTION has sponsored a series of lawsuits which seek to overturn the worst of laws attacking housing providers. These laws have been passed by the State, City, and Rent Control Board. A list of our current and to be filed lawsuits is as follows:

(1) Interest on Security Deposits is the biggest winner. ACTION goes to trial soon to prove up damages for all housing providers in Santa Monica.

(2) Tenant Harassment Lawsuit. ACTION seeks to have the court outlaw certain parts of this ordinance that make the service of 3-day notices and lawsuits a criminal event. Such conduct is clearly a violation of housing providers' First Amendment rights to petition government for redress of grievances.

(3) Illegal restrictions on the use of Ellis property. The old City law forbade anyone but family members from living together in Ellised properties. This restriction was imposed to make it harder for owners to use Ellised properties. The City Council has just amended this law, due to ACTION's lawsuit, to now allow anyone to live in an Ellised property, except multiple owners. However, ACTION will continue its litigation so that even multiple owners will be allowed to live together in Ellised properties. This litigation is now even more important than ever considering the State's (Kuehl's) attempt to once again amend the Ellis law (see below for further information).

(4) Multiple Owner Occupied Evictions for the same property. In this lawsuit ACTION seeks to challenge the Board's limitation of only one owner occupied eviction per property. ACTION believes that such a limitation is a taking without just compensation in violation of the owners' Constitutional rights.

(5) 60-Day Notice to Terminate Tenancies. ACTION filed a lawsuit against the state of California because Kuehl got the state to pass a law which required owners to give tenants 60 day notices to quit (rather than 30 days), but only for housing providers in Los Angeles, Santa Monica and West Hollywood. ACTION's lawsuit alleged that the law was discriminatory applied against them. As a result of ACTION's lawsuit, Kuehl was required to introduce a law, which if passed this year, will extend this 60-day notice provision to all cities across the state. It is ACTION's belief that if other owners across the state experience the trauma as ACTION members in Santa Monica have, then more owners will join the fight.

(6) Others… There will be more lawsuits, keep tuned to hear about them all.

Action's Interest On Security Deposit Lawsuit
Strikes Winning Blow
Action's lawsuit filed to strike down the Rent Control Board's interest rate on security deposit has won another victory, in its path to complete success. This time it is the Board's withdrawal of its regulation altogether. This means that there is no regulation on the books now requiring owners to pay any interest rate on security deposits that they hold. This relief will last until well past October 1, 2002 (the date that the original yearly payment was to be made). In a vote taken this June, the Board completely rescinded its interest rate on security deposit regulations. The Board, citing ACTION's lawsuit, rescinded the regulation because there was too great a danger of a damages judgment against the Board. Already the Board is looking at a potential $2,000,000 judgment, payable to all housing providers in Santa Monica.

ACTION has filed a similar lawsuit against the City of West Hollywood (there the city required its housing providers to pay 5% interest on security deposit) and the City of Los Angeles (they only required 1.5% interest).

Ellis Law Changes In State Legislature
Once again Sheila Kuehl is busy attacking owners' rights to go out of business by adding further amendments to the Ellis Act. After considerable amendments in both the state Senate and Assembly, the new law appears to be that once an owner files his / her intent to Ellis the property with the Board, that owner must stay out of business 2 years, and if they go back into business within 5 years of filing with the Board, then the rent is limited to the old MAR rent (plus annual adjustments) for another 5 years from when the owner went back into business. This change was going to apply to all properties Ellised, no matter when, but due to heavy lobbying from owners, the law was changed to apply to only those owners who elect to go out of business after January 1, 2003. However this means there is an alert for those owners who are currently Ellised and who wish to go back into business in the near future. With the new law coming, the time to go back into business is NOW. Under the new law if an owner wishes to go back into business, that owner must establish a market rate tenant before December 31, 2002. Otherwise, they will be faced with up to 5 years of MAR rents when they come back into business. The magic language of the statute is:

"The amendments to this section enacted by the act adding this subdivision shall apply to all new tenancies created after December 31, 2002. If a new tenancy was lawfully created prior to January 1, 2003, after a lawful withdrawal of the unit under this chapter, the amendments to this section enacted by the act adding this subdivision may not apply to new tenancies created after that date."

More On Dogs
In a recent court of appeal decision, entitled Villa De Las Palmas Homeowners Association v. Paula Terifaj, the court held that a restriction in a condominium association prohibiting all pets was enforceable, even if imposed (passed) after the complaining owner purchased her unit. The court relied upon the California Supreme Court decision Nahrstedt v. Lakeside Village Condominium Assn.þ(1994) 8 Cal.4th 361. In Nahrstedt, the court held that their was a presumption of reasonableness to the no pet policy which could only be overcome if the party challenging the restriction could prove that the restriction: (1) "violates public policy"; (2) "bears no [reasonable] relationship to the protection, preservation, operation or purpose of the affected land"; or (3) "otherwise imposes burdens on the affected land that are so disproportionate to the restriction' s beneficial effects that the restriction should not be enforced." Applying that standard, Nahrstedt held that a complete ban on animals was not unreasonable and was therefore enforceable. This is good news to housing providers who wish to maintain a no-pet policy on their property. Since the court has ruled that there is no fundamental right to have pets and that it does not violate any public policy goal of the state.

Furthermore, Terifaj claims that because the pet restriction was recorded after she purchased her property, she cannot be expect to have agreed to it and is therefore not bound by it. The court held that since the HOA was authorized by statute to amend the rules as to pets at any time, that such a rule could be applied to homeowners who previously purchased their property. The court stated: "We do not believe that the Legislature would have authorized amendments if it did not intend for them to be enforceable..."

This case is some help for owners who wish to impose a no pet policy on existing as well as new tenants. There seems to be some support that if owners can be required to give up their pets after purchasing their units, then tenants should be no better protected than condominium owners.

Drouet Still Undecided
For those interested in Ellis Act, we are still waiting for Drouet to be decided. Drouet discusses what defenses, if any, tenants can raise if they are being evicted under Ellis withdrawals. The court of appeal decided that only procedural defects could be raised, but tenants wanted the court to sanction "retaliatory eviction" defenses as well. If the tenants' position is adopted by the court, Ellis withdrawals will be harder to accomplish.

GOOD ECONOMIC NEWS

Mortgage rates have taken a bit of a roller coaster ride from March to May 2002. Up and now down. In fact, based on Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed-rate mortgage (FRM) averaged 6.76 percent for the week ending May 31, 2002, slipping from 6.81 percent last week. Last year at this time, the 30-year FRM averaged 7.24 percent. The 30-year FRM has not been this low since the week ending November 23, 2001, when it averaged 6.75 percent. The average for the 15-year FRM this week is 6.22 percent dropping from last week's average of 6.28 percent. A year ago, the 15-year FRM averaged 6.78 percent. The 15-year FRM has not been this low since the week ending November 16, 2001, when it averaged 5.98 percent. All things considered, it is better to obtain a 15-year loan than a 30-year loan, because of the great savings in interest rate afforded by the shorter-term loan. "Slower economic growth this quarter and little or no inflation worries allowed rates to drift downward these last few weeks to the benefit of home buyers. As a matter of fact, low mortgage rates induced an unexpectedly high level of new and existing home sales last month," said Frank Nothaft, Freddie Mac's chief economist.

RENT BOARD ADOPTS $11.00 PER MONTH
FLAT INCREASE
Well it's official. The Board over objections from ACTION members, adopted the flat $11.00 per unit increase for the year September 1, 2002 through August 31, 2003. Do not become confused however, with the $11.00 registration pass through fee. That is in addition to the $11.00 rent increase. Thus if an owner pays the registration fee timely (i.e. the $132.00 per unit fee all due prior to August 1, 2002) then the owner can pass through to the tenant the $11.00 registration fee per month. In addition to that fee, the owner is allowed to take an increase of $11.00 per unit per month in the rent (i.e. the unit's MAR increases $11.00). ACTION is thinking about filing a lawsuit to test the legality of this flat rate increase, in that it discriminates against the owners with higher rents.