Commentary : State High Court and Real Estate : Its Far-Reaching Decisions Made It Friends and Foes
Mention the California Supreme Court to someone involved in housing and expect a strong reaction.
Because of the court’s decisions, there have been economic winners and losers in the world of real estate. Consequently, some love the court and others hate it.
In the last several years, the court has tackled every conceivable real estate legal controversy, including how property owners are permitted to use their land, whether tenants can be evicted from their apartments, how much landlords can raise their rents and when and how land can be developed.
Rulings on rent control, property rights and local land-use regulations have befuddled the housing industry and landowners, while tenant advocates and consumer groups laud the court’s decisions on renters’ rights, housing discrimination and landlord liability.
The court’s rulings on rent control have flustered the housing industry. Its spokesmen have charged, though unsuccessfully, that rent control prohibits a fair rate of return and consequently violates the Fifth Amendment.
Liability Case Rulings
They contend that rent control is a violation of federal anti-trust laws because it wipes out competition by forcing price fixing--a plea turned back by both the state and U.S. supreme courts.
“I don’t know of any case where the state Supreme Court has ruled in favor of landlords, says Jim Parinello, land-use and constitutional attorney. “They have either refused to hear cases that might benefit a landlord, or where they did hear one, they were anti-landlord in their decision.”
Property owners also have been shaken by several liability cases that hold landlords more accountable. For example, in Isaacs vs. Huntington Memorial Hospital, a hospital was held liable for injuries suffered by Dr. Mervyn Isaacs when he was mugged in the hospital parking lot.
In Becker vs. IRM Corp., George Becker was awarded damages from his landlord when he slipped and fell into an untempered glass shower door. And in E. S. Bills Inc. vs. Tzucanow, the court overturned Daniel Tzucanow’s eviction from the gas station he leased from the E. S. Bills Co. after he refused to buy E. S. Bill’s gasoline.
Ban on Discrimination
Real estate trade groups were so unnerved by the Becker case that they have been trying to push through legislation that would soften the liability blow when landlords are diligent about maintaining their property.
Housing advocates give the court high marks for decisions banning housing discrimination. In two decisions, Marina Point Ltd. vs. Wolfson, and O’Connor vs. Village Green Owners Assn., the court said the constitution prohibits landlords or sellers from discriminating against families with children.
“They found that neither statute nor interpretation of statutes sanctioned the sacrifice of the well-being of children on the altar of landlords’ profits or possibly some other tenants’ convenience,” says Marc Brown, attorney for the California Rural Legal Assistance Foundation.
Many local government officials are also cheerleaders for the court. To the delight of many city and county political leaders, when it comes to real estate regulations, local control has been firmly ratified through the court’s actions.
School District Fees
For example, in Candid Enterprise vs. Grossmont Union High School, the court blessed the County of San Diego’s decision to deny approval for a condo project until the developer paid fees to the school district for financing the construction of new schools.
Lawyer and property rights crusader Joseph Gughemetti is so upset with the court that he wrote a book about it, “The People V. Rose Bird.”
“The Bird Court has destroyed the fundamental constitutional guarantee of private property rights and hence our basis of individual liberty,” the book says.
No two issues evoke more feelings and mobilize more legal challenges than property rights and development regulations.
Years of Approval Process
“On the one hand, the court says you need a building permit--so the developer spends years and thousands of dollars to get through a dozen approvals,” says Don Collins, vice president of the California Building Industry Assn. “But at any one point, anyone can just come in and say no to the development; and the court refuses to do anything.”
Developers concede that the California Supreme Court occasionally rules in their favor. Recently, in the case of Building Industry Assn. of Southern California vs. City of Camarillo, the court found that a citizen-sponsored ballot measure that limited the number of residential building permits didn’t meet a specified legal test and was, therefore, invalid.
“An impermissible elitist concept is invoked when a community constructs a legal moat around its perimeter to exclude all or most outsiders,” wrote Justice Stanley Mosk in his support for the majority.
No single action of the state Supreme Court in the last 10 years has had a more immediate impact on California housing than the 1978 Wellenkamp vs. Bank of America decision.
‘Due on Sale’ Decision
In 1975, the Mans family sold its home to Cynthia Wellenkamp who assumed an 8% Bank of America mortgage. The bank told Wellenkamp that she could assume the loan only if she was willing to pay the prevailing interest rate of 9.25%. When she refused, the bank enforced a clause in the loan that permitted it to call the full amount of the loan due.
She sued the bank. With no luck in the lower courts, Wellenkamp appealed to the California Supreme Court, which ruled in her favor, saying that the “due on sale” provision restrained the owner’s ability to sell the home.
The decision became controversial after interest rates shot up in the early ‘80s. The California banking and savings & loan industry watched their earnings erode from the mismatch between high-paying deposits and old, low-interest mortgages.
“The court’s decision was a great mistake,” says Loyola law professor Gideon Kanner. “It almost created economic disaster.”
Friends and Foes
The court’s decision was so important to home sales that the California Assn. of Realtors put the full weight of its research, legal and legislative muscle behind preserving the Wellenkamp edict.
The California Supreme Court has jumped into almost every aspect of real estate and has created loyal supporters and vindictive enemies. If the composition of the court changes, the foes and the friends may trade places, but the court will remain a target for both admiration and disdain.
The court simply reflects California’s intense disagreements about growth, development, regulation and private and public rights--debates that are sure to continue.
