Justices Rule Against Santa Monica Landlord in Rent Case

SAN FRANCISCO —  The California Supreme Court, ruling in a Santa Monica rent control case, decided Tuesday that cities are not required to compensate landlords for losses caused by an illegal rent curb if the money can be recouped through future rent hikes.

The court also held that owners need not prove that an illegal regulation stripped their asset of all its value to sue government for illegal confiscation or a “taking” of private property.

But when owners such as landlords have other avenues to recover their losses, the court found that their property has not been taken by government and thus they are barred from collecting compensation in a lawsuit.

“Courts are in no position to determine the appropriate rent ceiling for an apartment as a means of assessing damages,” Justice Ming W. Chin wrote for the majority.

The decision came as a relief to city officials across the state. They had feared that a victory for landlords might leave local governments vulnerable whenever a mistake was made in a rent control or land-use decision. About 80 cities joined a petition before the court urging it to rule in favor of the Santa Monica rent board.

The ruling stemmed from a lawsuit filed by Santa Monica landlord Earl W. Kavanau, who bought a 10-unit apartment building in 1988 and invested heavily in new carpets, improved plumbing and electricity, heaters and doors.

The Santa Monica rent board found

that Kavanau was entitled to recover most of his investment but decided that he could do so only within a 12% annual rent hike. A state Court of Appeal in Los Angeles later ruled in favor of Kavanau, holding that the rental curb as applied to him was unconstitutional. Kavanau subsequently raised his rents by 70% to 85%.

The landlord, who also is a lawyer, then filed a so-called “takings” lawsuit, charging that Santa Monica had effectively confiscated his property because he had been unable to raise rents during the four years of litigation. He wanted to be reimbursed for about $140,000--the rent that he would have earned during those years with interest--and his legal costs.

The appeals court that reviewed his case decided that an unconstitutional confiscation of property can occur only if a governmental regulation completely strips a property of its use or value.

The Supreme Court, giving property rights activists a partial victory, ruled instead that a “taking” can occur even if the regulation leaves the owner with some economic value in the property.

But the court said Santa Monica’s action did not amount to a confiscation. The court noted that the landlord had voluntarily made costly improvements to his building, had not proven that he suffered a substantial financial hardship and still had the remedy of asking the city rent board for higher rents in the future.

“This remedy, as opposed to an award of damages against the rent board, places the cost of compensating Kavanau roughly on those tenants who benefited from unconstitutionally low rents,” Chin wrote.

But Kavanau said that appealing to the rent board for another hike would take too much time and money.

“How can a landlord continually fight government?” Kavanau asked. “I am tired already. This has been going on for eight years, and what do I have for it?”

The court’s reasoning that he can recoup his costs through future rent hikes “and getting it out of the rent board are two completely different things,” he said.

David Pettit, an attorney for the rent board, said the board refuses to consider capital improvements as expenses recoverable in a single sweep. Pettit, however, did not rule out that the board would allow Kavanau another hike.

Attorney Rochelle Browne, who represented an association of about 80 cities before the court, said most of them do not have rent control but feared a ruling in favor of Kavanau would punish cities every time they made a mistake in applying a regulation.