The estate of a West Hollywood landlady, who charged her tenants very low rents, will be allowed to double the rents on the units to levels comparable to other rent-controlled apartments in the surrounding area.
The 2nd District Court of Appeal issued the ruling last week in a lawsuit filed in 1986 by Mary Simonson, who claimed severe economic hardship in her request to raise rents in her apartment building. Simonson died in 1989.
Landlord groups immediately hailed the decision as a major triumph that will encourage other landlords charging below-market rents at the time their cities adopted tough rent-control ordinances to push for substantial increases.
"This will have a substantial impact in West Hollywood, Santa Monica and elsewhere," said Christopher M. Harding, the attorney who represented Simonson.
But while Harding and others view the decision as having broad implications, officials in West Hollywood saw it differently.
"We read it as being a very narrow decision arising out of very peculiar circumstances," said City Atty. Michael Jenkins.
City officials say the Simonson case is unique because the rents she charged on seven units of the nine units she rented in her building on Hancock Avenue were far lower than market value at the time the city enacted its rent-control ordinance in 1985.
The one-room and one-bedroom apartments, ranging in monthly rents from $72 to $206, were kept at a low rate as part of an arrangement with her tenants who, in exchange, agreed to help shoulder the cost of the building's upkeep.
Simonson raised rents in 1984 before the passage of rent control, but rents were rolled back when the new law took effect.
Two years later, spiraling medical bills forced Simonson to appeal to the city's Rent Stabilization Commission for relief. But the commission spurned her request. As a result, the 87-year-old widow filed a lawsuit against the city and overnight became a symbol of the landlord's struggle against the city's tough rent control ordinance.
Under the pressure of a lawsuit, the commission allowed Simonson to increase her monthly rents to between $149 and $351. But attorneys for Simonson said the increase still left Simonson's units well below the market value. They continued to press the lawsuit for increases to a range between $325 and $550 a month per unit.
Harding produced an appraisal, supporting the increase, and the appellate court agreed.
In its decision, the court confirmed an earlier 1988 Santa Monica Superior Court ruling ordering the commission to take into account the rents of comparable units in the area when deciding a fair-market rent.
Harding said the court's decision increases the total monthly rental income on the seven units rented to $2,750 plus a 35% cost of living increase, or $3,600 per month, from $1,227 allowed under the commission's most recent ruling. In 1984, the building brought in only $925 in monthly rents.
City officials criticized the court's decision saying it ignored the tenants who still live in the building.
"I'm very troubled, and other people on the council are very troubled that the court seems to be totally oblivious to what is going to happen to the tenants in that building, many of whom are very old and would be devastated by additional rent increases," said Mayor John Heilman. "Someone has to think about what will happen to those tenants."
After a closed-door session of the City Council Monday night, Assistant City Atty. Christi Hogan said the city will ask the court to reconsider its ruling.
"Even with the low rents, she was receiving a better return on her investment than many landlords," Hogan said. "Even though her rents were low, her expenses were also very low, and she practically had no mortgage."
Hogan said that the city will also ask the court to decertify its decision as precedent for landlords seeking consideration because their units were below market value at the time rent control was enacted.
But landlord advocate groups say the Simonson case was not unusual and will lead to more challenges of the rent-control law.
"Nearly 35% of the apartment units in the city were under the market (level) at the time of the rent roll-back (in 1984)," said Grafton Tanquary, an apartment building owner and leader of the West Hollywood Concerned Citizens, a landlord lobbying group. "The city needs to stop sticking its head in the sand and find some solutions to the problem."
Harding criticized the city's decision to ask the court to decertify its ruling. "This indicates that West Hollywood intends to continue its harsh and unfair policy toward smaller owners like Mrs. Simonson who maintain low rents," he said. "We find their conduct to be disgusting and embarrassing."
Larry Gross, the executive director of the Coalition for Economic Survival, a tenants rights group, said the court's decision has opened old sores. "This is just another indication that a hostile environment still exists between the landlords and tenants," he said. "It's not as big a deal as the landlords would make it out to be, but it does represent a chipping away of the city's rent-control ordinance."
Opinions varied on what the ruling's impact would be in Santa Monica. Landlord and tenants rights groups are campaigning for two competing initiatives on the November ballot, offering differing versions of vacancy decontrol.
Carl Lambert, a landlord attorney, said the court's decision could force the rent-control board in Santa Monica to increase rents on tenants who have been paying below-market value. But Lambert said landlords might back away from filing lawsuits if the voters approve the landlord-sponsored Proposition U, which would allow landlords to rent units at the market level when voluntarily vacated by tenants.
Brad Jones, co-chairman of Santa Monicans For Renters' Rights, agreed that the decision could have a broad impact but said the solution lies in passage of the initiative sponsored by the Santa Monica City Council, Proposition W, which sets specific increases on units voluntarily vacated by tenants.
Jones, whose Proposition W is viewed as an effort by tenants to compromise with landlords, was critical of West Hollywood's handling of the Simonson case.
"My understanding is that they took a hard line when they could have settled this thing out of court," he said. "They botched it."