Rent Control for Businesses a 2-Sided Coin

Montana Avenue in the city of Santa Monica on Los Angeles’ West Side is one of those little enclaves a city cherishes--a stretch of small neighborhood stores, upscale boutiques and trendy restaurants that draws people from all over. “It’s one of few places in L.A.,” says West Side resident Jamesina Henderson, “that’s like a small town, a walking area and not all ritz and glitz.”

Inevitably, it drew other retailers and new investors, and now rents are going up, and high-priced stores are moving in where humbler businesses used to thrive. To those pushed out, this is not free enterprise at work. “It’s a moral issue,” says Barbara Harris, a children’s store owner whose rent was doubled, “if you’re in a business where you want to serve the community.”

Harris’ plaint, though arguable, is not just sour grapes. Everyone recalls what happened when nearby Westwood Village, UCLA’s once-charming business community, became a mecca, heavy on restaurants, movie theaters and trendy boutiques: Bookstores, food stores, even drugstores were priced out of the mix.

Similarly, picturesque Carmel, up the coast, used to be a “family community,” says longtime resident Olga Grimes. But as it drew more visitors, “rents got so high, the little local stores and repairmen were driven out,” says Grimes. “Now, it’s all art galleries and jewelry shops, and the whole town caters to tourists. You have to drive or take a bus to the mouth of the valley to buy a needle and thread.”

Not Everyone Pleased

Everyone on Montana agrees that something must change when rents that went from $1 a square foot to $2 five years ago are doubling again to $4, not counting other fees and assessments. Already one can find $400 dresses and charcuteries but not TV repairmen and soda fountains, and many residents feel, like Henderson, that “there should be some sort of control on life style.”

But what should be preserved and protected? Merchants dislike high rents but not growth: Most, through their merchants association, support a city proposal to narrow the four-lane street to two and have angle parking, allowing 100 added spaces. Homeowners, however, are circulating petitions against it, fearing more visitors and congestion.

Some residents fret about losing familiar stores--their shoemaker, the hardware store, the garden center. Others, many of them newcomers who spent $750,000 for houses that were $50,000 a decade ago, have no trouble with $400 dresses. They may even agree with landlord Lawrence N. Taylor (who bought into Montana in 1986) that shoemakers and video rental stores should locate several streets south because Montana “is a street that wants to have galleries and places to shop.”

Even if everyone agreed on the goal, there’s no sure way to achieve it. One can understand “a community’s attempt to maintain a neighborhood atmosphere that made it attractive in the first place,” says Santa Monica Planning Director Paul Berlant, “but it’s hard for cities to legislate that.”

There are always zoning limits, which control what planners call the “intensity” of development, and architectural controls. Montana Avenue already has both: thus the limited retail space, the appealing neighborhood atmosphere.

One drawback, as Taylor says, is that “by tightening zoning requirements and restricting density, the city has increased the rents.” And “you may still,” Berlant says, “get low-intensity, high-end businesses. A zoning ordinance generally doesn’t distinguish character--whether it’s a drugstore or expensive dress shop in a space.”

Cities can also limit an area’s restaurants and nightclubs--attractions that draw outsiders. This would please residents who fear more noise and parking problems, but not merchants, who’d welcome added customers.

Another possibility is commercial rent control--a rarity, and quite different in purpose and appeal from residential controls, which protect the poor and elderly from being priced out of a changing neighborhood. Commercial rent control serves, says Golden Gate University law Prof. Myron Moskovitz, “to keep the neighborhood shops and services available to the residents.” Its first beneficiary, of course, is the business tenant.

In California, only Berkeley has such controls, first passed in 1982 just to save one shopping street “when the local businesses--bookstores, hardware stores, a soda fountain--were threatened with triple rent increases,” Moskovitz says. “The landlords were starting to rent to chains and boutiques and stores serving people other than area residents.” Even Berkeley may lose them if a new California law prohibiting commercial rent control is allowed to stand.

Moreover, there’s a downside risk, as in residential rent control, which can discourage development and shrink available housing. “You might keep a favorite barber,” says Berkeleyite Ralph Warner, whose Nolo Press publishes legal self-help books, “but also some not very efficient old fusty businesses that don’t keep up. In a commercial society, there’s a certain amount of dynamism in the market. Adjustments go on all the time; barber shops find a place to go.”

Others may have to change if they want to stay--particularly those who “came in here long ago and got spoiled by the low rents,” said Alexis Scharff, an apparel store owner who heads the Montana merchants association. They could just raise prices--difficult for stores that sell standard, brand merchandise such as hardware or books. They could also add product lines and services, changing their mix to appeal to old and new customers, or simply sell more. Scharff, for one, intends “to buy better, give better service, develop more of a following.”

Moskovitz, who wrote Berkeley’s law, doesn’t wholly disagree. “In general,” he says, “most business areas need continual turnover, when stores there aren’t satisfying people or getting high volume. But in certain situations, rent control is justified--when, for example, the businesses serve the neighborhood and it’s difficult for residents to get those services elsewhere.”

There may be other solutions, including Harris’ suggested boycott of the trendy shops that replace neighborhood services. But the customer mix has already changed, and as Henderson says, “the people who like those shops will come and buy anyway.”

Indeed, for Montana Avenue, already much changed in character of both supply and demand, it may be too late. Many people think that’s just life. “It’s a natural attrition which happens in any good retail commercial environment,” says Taylor. “Tenants come in and others go out: Some are very successful, some are marginally successful, and some fail.”