Abandoned homes become a city perk.

The term subsidized housing has taken on a new meaning in upscale Palos Verdes Estates.

Just ask Jim Hendrickson, who became the community’s city manager last fall with a contract that allows him to live rent-free in a bluff-top home with postcard views of the ocean.

“It’s just amazing to sit in the living room and all you see is the ocean,” Hendrickson said.

If Hendrickson stumbled onto a good deal, so did two city policemen who live on the same street. Their houses also are on the bluffs and have ocean views. The officers don’t get free rent, but their contract with the city calls for them to make only $400 worth of improvements to their homes each month.

The good housing deals have come about because of a dozen lawsuits filed against the city over the last decade. Residents of Palos Verdes Drive West, in an area known as Bluff Cove, alleged that their properties were undermined by water from a faulty city storm drain.

Although the city has vigorously defended itself, it has nevertheless found itself the reluctant owner of six homes. Three are occupied by the city employees.

The city will take possession of the other three in future years under the terms of various legal settlements.

Of the remaining half a dozen houses involved in the lawsuits, the city could wind up owning two more, depending on the outcome of litigation. Three were razed because they were uninhabitable, and another was kept by the owners as part of their legal settlement.

City officials maintain that the three homes occupied by the employees are safe to live in, even though 20 to 30 feet of Hendrickson’s back yard long ago fell over a cliff and into the ocean. The city’s assurances notwithstanding, the houses sat vacant and became popular hangouts for transients and revelers until four years ago. That’s when the two police officers inquired about living in them.

City Council members, seeing a way to upgrade, maintain and provide security for the homes--and provide housing for city employees who otherwise could not afford to live in the city--went along with the idea.

“We’re making the best out of a bad situation,” Councilwoman Ruth Gralow said.

In Hendrickson’s case, the city evicted a policewoman who had lived in the house for two years and offered it to him rent free, providing he would accept a salary lower than he would make elsewhere. Hendrickson agreed to accept $65,000 a year, a good $15,000 to $20,000 less than the city would have had to pay otherwise, Gralow said.

Hendrickson said he has put $11,800 of his own money into fixing up the house, installing new plumbing, carpets, blinds and wallpaper. With the rent-free house came a clause in his contract requiring him to be available around the clock. A direct telephone line to the Police Department has been installed in the home, he said.

“I’ve told a number of people I am never going to live in as nice a home again,” said Hendrickson, who was formerly San Clemente’s city manager.

Officer Dave Black, one of the two policemen who originally approached the city about living in the homes, said his house was a “basic fixer-upper” when he moved into it. Because he was a construction worker before he became a police officer, he had the skills to do the work himself, he said.

Detective Darin Kasten, who lives next door to Black, said his home had sat vacant for seven years before he moved in. The windows had all been broken out and the floors destroyed, he said.

“It was just like an open shell,” Kasten said.

Under their contracts with the city, Hendrickson and the officers have agreed not to hold the city liable should the land become unstable. (All three said they do not worry about that happening.)

And although Hendrickson will not be forced to move as long as he is city manager, no such security is offered to the police officers. Their housing contracts with the city can be canceled any month.

Indeed, some city officials have suggested that the houses, located in a neighborhood where dwellings easily sell for seven figures, could be used to entice other top administrators to the city. But if that happens, Black said, he will have no regrets.

“If they asked me to leave tomorrow, I would be happy because I have had four good years.”