Landlords to Mount Legal Challenge to Rent Control Laws

A newly organized group of landlords has taken aim at Santa Monica’s tough rent control law in mounting what it hopes will become a major legal challenge to rent control statewide.

The group, called the Foundation for the Defense of Free Enterprise, is sponsoring a series of lawsuits aimed at overturning rent control in Santa Monica and other Californian cities on constitutional grounds.

One lawsuit was filed against Santa Monica last September in U. S. District Court in Los Angeles, and five other suits are “ready to go,” Geoffrey Strand, a Santa Monica landlord and spokesman for the Foundation, said.

Far-Flung Allies

Although the organization was formed in Santa Monica--home to one of the toughest rent control laws in the nation--it claims members from apartment-owner associations in at least six other California cities where rent control is law, Strand said.

By joining forces statewide, by turning to federal courts, and by launching a significant fund-raising drive, the landlord group hopes to score a victory in what has been a protracted fight against strict rent control.

In the past, landlords have often won cases against rent control in local courts in Santa Monica, but the rulings were regularly overturned at the appellate level.

Proponents of rent control say the law guarantees affordable housing for low- and middle-income tenants. It became law in Santa Monica, where 80% of residents are renters, in 1979 and has been a hot political issue ever since. Landlords opposed to strict rent control contend it infringes on their private property rights and cheats them out of a fair income.

Long-Term Fight

“The only way to pursue the injustice of rent control is to be prepared to take these cases all the way to the Supreme Court,” Strand said.

“Up to this point, Santa Monica fought its battles, West Hollywood fought its battles, everybody was fighting their own battles,” he said. “Now we are going in a legal direction that is a statewide effort . . . that will bypass Sacramento, bypass a politicized local judiciary, go to the federal courts . . . and go after rent control on constitutional questions.”

Strand also said he believes both the state and U. S. Supreme Courts may be “more receptive” to “free enterprise cases.” Both courts are generally considered to be more conservative now than in the recent past.

Wayne Bauer, a member of Santa Monica’s Rent Control Board, labeled the new assault on rent control “very disturbing.”

“We are bracing for a new round of challenges,” Bauer said. “It is unfortunate to have to allocate money for this. It is expensive and time-consuming (for the city).”

Bauer said that if legal challenges mount, the Rent Control Board may have to increase the size of its legal staff. He suggested landlords apparently have been frustrated as their efforts to defeat or modify rent control have failed at the polls and in appellate courts.

“There appears to be a continuing effort to undo rent control in the courts as well as the legislature,” said Joel Martin Levy, general counsel to the Santa Monica Rent Control Board.

History of Challenges

He added, however, that legal challenges to rent control “are nothing new,” pointing out that Santa Monica’s law stood up to a particularly active flurry of lawsuits in 1979 to 1983, the first years of Santa Monica rent control.

“We weathered that barrage pretty well,” Levy said.

In the first case that the Foundation for the Defense of Free Enterprise has sponsored, Lena Schnuck vs. the City of Santa Monica, the plaintiff is asking that the rent control law be invalidated, and she is demanding a jury trial and damages.

Schnuck is identified as an 89-year-old apartment owner who suffered a stroke earlier this year. Her family sought to evict a tenant so that Schnuck could occupy his apartment.

According to the suit, the Rent Control Board said that she could not follow through on the eviction. Under the law, a landlord cannot evict a tenant in order to occupy the unit if the landlord already occupies another unit at the same building.

‘Denied Use of Own Property’

“Here’s a lady who is 89 years old, worked many years to acquire this (property) . . . and she’s denied use of her own property,” said K. B. Huff, a Santa Monica landlord and chairman of the foundation.

“But it’s a lot more. There are a series of charges (in the suit) . . . covering many of the problems that exist in radical rent control.”

The suit also alleges that because of rent control, tenants have made a business of selling “their right to occupancy to non-tenants” and that tenants “as a matter of common practice and routine, sublet premises and . . . charge higher rents than the existing tenants pay to the landlord and pocket the difference.”

Levy labeled the Schnuck case ill-conceived, predicting it will be short-lived. He said the right to choose successive tenants or to sublet has always been “in the hands of the landlord, before rent control and after it.”

If improper subletting or the auctioning of rights to occupancy “is going on, it is not due to the Santa Monica rent control law,” Levy said.

Seed Money

Huff said the foundation received a significant contribution of seed money from a person he would not identify. He said the organization hopes to raise between $250,000 and $300,000 for its legal work.

Both sides of the rent control issue in Santa Monica are also watching a case that went before the U. S. Supreme Court this week.

In that case, Richard Pennell and Tri-County Apartment House Owners Assn. vs. City of San Jose, the plaintiffs are challenging one provision of the San Jose rent control law that requires a landlord to consider the “economic hardship” of a tenant if the landlord wants to raise rent by more than 8%.

Santa Monica’s rent control law probably would not be directly affected by the case because the contested element of the San Jose law is not currently part of Santa Monica’s law, experts say.

Nevertheless, foundation members hope a ruling against San Jose could be used to buttress their challenges to rent control.

Strengthening Case

“If Pennell wins it will strengthen our case. If Pennell loses, it does not diminish the lack of constitutionality of rent control,” Strand said.

Levy said the City of Santa Monica filed briefs supporting San Jose in the Pennell case.

A ruling against San Jose would not affect how Santa Monica currently enforces rent control but could take away a future option, he said.

“Should it go . . . against the City of San Jose, it would harm the (Santa Monica) board only in the sense that it would take away a potential policy option,” Levy said.

Strand said the foundation lent legal and financial support to plaintiffs in the Pennell case.

In addition to Santa Monica, the foundation has member landlords from West Hollywood, Berkeley, Los Angeles, San Jose, Palo Alto and San Francisco, Strand said. A New York landlords group is also planning to file supportive briefs in the Schnuck case, he said.

Santa Monica’s law also faces another challenge in California’s highest court.

Last week, lawyers began arguments in a 5-year-old case that should decide whether the Rent Control Board can award monetary damages when landlords are found to have been overcharging tenants.

Lawyers for the plaintiff, former Santa Monica landlord Haidy McHugh, contend that allowing the board to do so gives it undue quasi-judicial powers. Levy argued that such a function is part of the board’s enforcement and administrative role.