SANTA MONICA PROPERTIES v. SANTA MONICA RENT CONTROL BD. No. B227868.
203 Cal.App.4th 739 (2012)
137 Cal. Rptr. 3d 802
SANTA MONICA PROPERTIES, Plaintiff and Appellant, v. SANTA MONICA RENT CONTROL BOARD, Defendant and Respondent.
Court of Appeals of California, Second District, Division Eight.
February 16, 2012.
Law Offices of David R. Akin and David R. Akin for Plaintiff and Appellant.
Michaelyn Jones and Amy J. Regalado for Defendant and Respondent.
After taking more than a year to issue a final decision, the Santa Monica Rent Control Board (RCB) decreased two tenants' rents because their landlord, Santa Monica Properties (SMP), lowered the temperature on a hot tub during workday hours, heating it only during evening hours, and altered a sauna's timer knob so that the sauna heated for one-half hour at a turn instead of the previous one hour. SMP filed a petition for writ of administrative mandate challenging the rent decrease decision. In the same pleading, SMP sought a petition for writ of traditional mandate to compel RCB to adopt regulations establishing administrative remedies to be applied in the event RCB fails, as it did here, to issue a final decision in a rent adjustment proceeding within 120 days as required by the Santa Monica City Charter, article XVIII, section 1800 et seq., Rent Control Charter Amendment, hereafter the rent control law (RCL).
The Rent Decrease Proceeding
SMP owns a 32-unit apartment building that is subject to RCB's jurisdiction pursuant to the RCL. Under section 1805(a) and (b), RCB is empowered to make general adjustments, annually or upon a noticed public hearing, of the "rent ceiling"—the "maximum allowable rent which a landlord may charge on any controlled rental unit." (§ 1801(k).) Under section 1805(c), RCB may, upon a tenant's petition, decrease the "maximum rent of individual controlled rental units."
On January 31, 2008, a tenant in SMP's apartment building, R. Liza Salvatore, filed a "Petition for Rent Decrease" with RCB. (No. D-4392.) The petition alleged that a decrease in her monthly rent (then $1,214.25 for a two-bedroom, two-bathroom, 1,200-square-foot unit) was justified because SMP had reduced housing services by changing the hours that the property's Jacuzzi was heated, from 9:00 a.m. to 9:00 p.m., down to 5:00 p.m. to 9:00 p.m.; and by installing a sauna timer that "reduced greatly" the length of time
On July 8, 2008, and July 31, 2008, an RCB hearing examiner heard evidence on the consolidated rent decrease petitions. The following witnesses testified at the hearing: tenants Rosskam and Salvatore; SMP's manager; and the RCB hearing investigator. On October 14, 2008, the hearing examiner issued a 99-page decision ordering a decrease in rent of $48 per month to tenant Salvatore, beginning effective December 1, 2008, and measured as follows: a $3-per-month decrease because SMP had removed the name of Salvatore's business from the building's directory, a $25-per-month decrease related to the hot tub ("reduction of hours Jacuzzi heated"); and a $20-per-month decrease related to the sauna ("defective timer/inadequate heat"). The hearing examiner granted a rent decrease of $25 per month to tenant Rosskam effective beginning December 1, 2008, related to the hot tub ("reduction in hours for heat").
The hearing examiner's rent reduction decision set forth 58 separate "Findings of Fact and Conclusions of Law," including the following:
"54. [Tenants Salvatore and Rosskam] are entitled to a rent decrease based upon the landlord's failure to remedy the conditions set forth below. The landlord's failure to remedy these conditions represents a failure to provide adequate housing services which were included in the base rent. The following monthly decreases are granted:
"[Tenant Salvatore] " Condition Amount"1. Removal of tenant's company name from Building directory $3 "2. Reduced housing services "A. Recreational facilities "1. Jacuzzi (reduction of hours jacuzzi heated) $25 "2. Sauna (defective timer/inadequate heat) $20 ___ Total $48 "[Tenant Rosskam] " Condition Amount"1. Reduced housing services"A. Recreational facilities "1. Jacuzzi (reduction in hours for heat) $25
"55. The amounts of $48 [(as to tenant Salvatore)] and $25 [(as to tenant Rosskam)] are reasonable decreases to accomplish the purposes of the [RCL], including providing owners no more than a fair return on their properties and providing effective remedies for violations of the [RCL] ...." (Italics added.)
On October 17, 2008, SMP tenant Salvatore filed an administrative appeal to RCB, challenging the hearing examiner's decision not to reduce her rent further based on SMP's shutoff of gas for her decorative fireplace. (See fn. 3, ante.) On October 27, 2008, SMP filed an administrative appeal to RCB, challenging the rent decreases which the hearing examiner had ordered. The appeals were eventually set on calendar for hearing at the meeting of RCB scheduled for April 23, 2009. On April 9, 2009, RCB's legal department issued a "Staff Report On Appeal" to RCB, recommending that the hearing examiner's decision be affirmed, with the exception of the $3-per-month reduction in rent ordered for removing the name of Salvatore's business from the property's directory.
On April 23, 2009, Salvatore and SMP argued their respective appeals to RCB. During the hearing, there were significant exchanges between different board members and SMP's manager on whether a timer could be placed on the hot tub so that it could be heated in an hour, and not heated continuously between 9:00 a.m. and 5:00 p.m. SMP agreed that this could be done. At the end of the hearing, RCB voted to affirm the hearing examiner's decision, except for the rent decrease of $3 per month ordered for removing the name of Salvatore's business from the property's directory.
"59. In determining compliance for the Jacuzzi ... and sauna ..., the hearing officer will consider alternative means of achieving base-date levels of service."
Shortly after the decision of RCB on appeal, SMP installed a timer on the hot tub. On May 19, 2009, SMP filed a request with the hearing examiner for a decision on SMP's compliance with his rent reduction decision, as modified by RCB. Pared down to its core, SMP's request included a showing that it had installed a timer on the hot tub that would enable tenants to heat the water in an hour so that it could be used between the hours of 9:00 a.m. and 9:00 p.m. as it was prior to SMP's decision not to heat the hot tub during working hours. As to the sauna, SMP stated it had not returned the timer to its prior one-hour setting because it still had concerns that it was not safe for a person to be in the sauna for more than 15 minutes; SMP indicated it would keep the timer set for one-half hour. On June 26, 2009, the hearing examiner issued a decision finding SMP to be in partial compliance with the rent reduction decision based on its showing that it had installed a timer on the hot tub allowing it to be used by tenants Salvatore and Rosskam as before. The hearing examiner's compliance decision reinstated the rent that was ordered decreased related to the hot tub, effective June 1, 2009. The $20 rent reduction granted to tenant Salvatore related to the sauna remained in effect.
On July 1, 2009, SMP filed a request with the hearing examiner for a hearing on his compliance decision. SMP objected to the reinstatement of prior rents only as of June 1, 2009, arguing that the decrease in rents which had been ordered in the hearing examiner's October 2008 decision "should be removed entirely" from the decision pursuant to section 1805(d)(11).
The Writ Proceeding in the Trial Court
On July 21, 2009, SMP filed a petition for writ of administrative mandate to review RCB's final rent decrease decision. SMP's pleading also included a petition for writ of traditional mandate to compel RCB to comply with section 1805(d)(12), which requires that RCB adopt regulations which "shall provide for final action on any individual rent adjustment petition within ... (120) days ...." Although not a model pleading, it appears that SMP prayed for a traditional writ of mandate commanding RCB to adopt regulations establishing administrative remedies, e.g., a loss of jurisdiction, when RCB fails to issue a final decision in a rent reduction proceeding within the 120-day time limit prescribed in section 1805(d)(12).
On June 28, 2010, the trial court issued a tentative ruling in favor of RCB on both of SMP's writ petitions. On June 29, 2010, the court heard arguments, following which it adopted its tentative ruling as its final order. On July 21, 2010, the trial court entered judgment in favor of RCB in accord with the court's final order.
SMP filed a timely notice of appeal.
I. The Standard of Judicial Review in the Trial Court
SMP contends the judgment as to its petition for writ of administrative mandate must be reversed because the trial court erred by limiting the scope of judicial review to an examination of whether substantial evidence in the administrative record supported the factual findings set forth in RCB's final administrative decision. It is SMP's position that the trial court should have addressed and determined whether RCB failed to "proceed in the manner required by law." Stated differently, SMP argues the trial court should have
SMP argues the trial court, in ruling on SMP's petition for writ of administrative mandate, erred by circumscribing its consideration of the petition to an application of the substantial evidence standard of review to RCB's factual findings. Although we agree with SMP that there is significant language in the court's written decision showing the court's focus on the evidence that supported RCB's factual findings, we reject SMP's position that the record demonstrates the court addressed SMP's petition solely as a matter involving the substantial evidence standard of judicial review. The trial court's written decision also includes language showing that the court considered SMP's legal claim that RCB's final administrative decision was "based on an incorrect interpretation of the [RCL]." In other words, the trial court's written decision shows it addressed SMP's petition on two fronts: (1) whether the administrative record disclosed substantial evidence supporting RCB's factual findings and (2) whether RCB correctly interpreted and applied the law in ordering a decrease in rents. Accordingly, we decline to reverse the judgment based on SMP's claim that the trial court erred by applying an incorrect standard of judicial review in addressing SMP's petition.
II. Statutory Interpretation
SMP contends the judgment as to its petition for writ of administrative mandate must be reversed because the trial court misinterpreted section 1805(e), and Sterling v. Santa Monica Rent Control Bd. (1985) 168 Cal.App.3d 176 [214 Cal.Rptr. 71] (Sterling), in confirming RCB's decision to decrease rents. We agree.
Section 1800 provides: "Statement of purpose. [¶] A growing shortage of [rental] housing units resulting in a low vacancy rate and rapidly rising rents
Section 1805 governs "Individual and general adjustments of ceilings on allowable rents." Section 1805(e) prescribes various factors, in the form of both a mandatory nature, and a nonexhaustive, illustrative nature, to be considered in making a rent adjustment; it provides: "In making individual and general adjustment[s] of the rent ceiling, the Board shall consider the purposes of this Article and the requirements of law. The Board may adopt as its fair return standard any lawful formula, including but not limited to one based on investment or net operating income. The Board shall consider all factors relevant to the formula it employs; such factors may include: [(1)] increases or decreases in operating and maintenance expenses, [(2)] the extent of utilities paid by the landlord, [(3)] necessary and reasonable capital improvement of the controlled rental unit as distinguished from normal repair, replacement and maintenance, [(4)] increases or decreases in living space, furniture, furnishings, equipment, or services, [(5)] substantial deterioration of the controlled rental unit other than as a result of ordinary wear and tear, [(6)] failure on the part of the landlord to provide adequate housing services or to comply substantially with applicable housing, health and safety codes, [(7)] Federal and State income tax benefits, [(8)] the speculative nature of the investment, whether or not the property was acquired or is held as a long term or short term investment, [(9)] the landlord's rate of return on investment, [(10)] the landlord's current and base date Net Operating Income, and [(11)] any other factor deemed relevant by [RCB] in providing the landlord a fair return." (Italics & brackets added.)
In Sterling, supra, 168 Cal.App.3d 176, Division One of our court reviewed and reversed a judgment granting peremptory writs of prohibition and mandate. The thrust of the judgment prohibited RCB from adjusting maximum allowable rents downward except in accord with the purposes of the RCL as specified in section 1800, and based only on one factor listed in section 1805(e), namely, the "`failure on the part of the landlord to provide
Division One reversed the judgment, ruling the trial court had unduly limited the authority vested in RCB under the RCL: "[T]he superior court erred in concluding that conditions amounting to substantial deterioration (i.e., breach of the implied warranty of habitability) or violations of housing, health and safety codes may not be considered as a basis for rent decreases. These represent nothing more than relevant indicators of the [landlord's] comparative return on [his or her] investment rather than an attempt at ... `enforcement' of [tenants'] rights. The superior court further erred in excluding from the enumeration of [the RCL's] `proper purposes' for which maximum allowable rents may be decreased `decreases in operating and maintenance expenses.' Any and all factors indicating a decrease in operating or maintenance expenses, including a reduction in the frequency of painting or the failure to make minor repairs which were made formerly, properly may be considered." (Sterling, supra, 168 Cal.App.3d at p. 186.)
In ruling that the RCL empowered RCB to decrease rents based on the factors listed in section 1805(e), Division One offered this reasoning: "If no condition has changed except [a] decrease in maintenance expenses or [a] reduction in services, the rent presently being charged has become excessive, returning to the landlord a higher profit than had been previously adjudged fair." (Sterling, supra, 168 Cal.App.3d at pp. 183-184.) And, in the same vein: "Since a landlord may increase his rate of return ... by failing to make repairs or to correct defective conditions, by reducing services, space or equipment or by permitting deterioration of the unit, the stated purpose of [the RCL] is broad enough to justify decreasing rents for the existence of any of these conditions." (Id. at pp. 185-186.)
The Trial Court's Ruling
In denying SMP's petition for writ of administrative mandate, the trial court first noted that section 1805(e) governs RCB's authority to decrease a tenant's rent. We agree that RCB's authority to decrease rents is a settled
The trial court rejected the interpretation proffered by SMP for the following reasons: "[A]s noted by [RCB] in the opposition, any amount of reduction of services is a factor to be considered under Sterling; the case does not carve out an exception for `minimal' reductions in services. As set forth in Sterling: [¶] `If no condition has changed except the decrease in maintenance or reduction in services, the rent presently being charged has become excessive, returning to the landlord a higher profit than had been previously adjudged fair.' [(Sterling, supra, 168 Cal.App.3d at pp. 183-184.)]" Read from a different angle, the trial court implicitly interpreted section 1805(e) to mean that RCB may decrease a tenant's rent whenever there is a decrease in any service, even a luxury, adult recreational service, no matter how slight.
In the current rent decrease proceeding, the hearing examiner found that SMP's changes to the hot tub and sauna from the previously available temperature and timing levels "represent[ed] a failure to provide adequate housing services which were included in the base rent...."
Regulation 4200(f) provides a nonexclusive list of amenities which, if decreased, justify a rent decrease. Under regulation 4200(f), a rent decrease based upon a decrease in "recreational facilities" shall be within the limits of $10 to $120. Here, the RCB hearing examiner assigned a rent decrease value of $25 to tenants Rosskam and Salvatore for their diminished enjoyment of the hot tub recreational facility (not heated during working hours) and $20 to tenant Salvatore for her diminished enjoyment of the sauna recreational facility (would not stay heated for more than one-half hour without turning the knob for another one-half hour). The record does not show how the hearing examiner came to fix the specified amounts of the rent decrease.
The administrative record demonstrates that the RCB hearing examiner recognized these principles. The hearing examiner's decision granting the rent
On SMP's petition for writ of administrative mandate, the trial court construed the RCL and Sterling, supra, 168 Cal.App.3d 176 for the proposition that the showing on SMP's decrease in services, i.e., the timing and temperature changes to the hot tub and sauna, resulted—as a matter of law—in SMP increasing its return. Because we find this interpretation of the RCL to be incorrect, it necessarily follows that the judgment on SMP's writ of administrative mandate must be reversed.
To overcome this result, RCB argues that a "decrease in operating expenses is presumed" whenever a landlord reduces a service that costs money to provide, such as a heated hot tub or sauna. We do not see language in the RCL establishing or supporting such a presumption, and RCB's reliance on Ocean Park, supra, 114 Cal.App.4th 1050 in this vein is not persuasive. Ocean Park did not address the issue of evidentiary presumptions under the RCL. In Ocean Park, a landlord who acted under the "guise" of doing construction work "simply tore out existing facilities and left them in a dilapidated, unsafe, and unusable condition" for a period of "well over two years."
III. Reinstatement of Rents
SMP contends the RCB hearing examiner's compliance decision demonstrates a failure to proceed in the manner required by the RCL. More specifically, SMP argues the hearing examiner violated section 1805(d)(11) when he reinstated rents effective only as of June 2009. Because we have found SMP's petition for writ of administrative mandate should have been granted, we find that all decreases in rents ordered by the hearing examiner's decision should be retroactively paid to SMP. No rent decreases should have been ordered on the evidence presented at the administrative hearing in this case.
IV. Traditional Mandate
Section 1803(g) provides: "[RCB] shall issue and follow such rules and regulations, including those which are contained in [the RCL], as will further the purposes of the [RCL] ...." Section 1805(d)(12) provides: "The rules and regulations adopted by [RCB] shall provide for final action on any individual rent adjustment petition within ... (120) days ...." On appeal, SMP contends the judgment as to its petition for writ of traditional mandate must be reversed because the RCL imposes a mandatory duty on RCB to adopt regulations establishing administrative remedies, for example, the loss of jurisdiction and a return to the prepetition status quo, when RCB fails to take final action on a tenant's petition for a rent decrease within 120 days as required under section 1805(d)(12). We disagree.
RCB's Mandatory Duties Under the RCL
We also understand sections 1803(g) and 1805(d)(12) to impose a mandatory duty on RCB to issue and follow such rules and regulations "as will further the purposes of the [RCL]." So, if RCB had done nothing to implement the RCL, then we again assume without deciding that it could be compelled to initiate the rule-making process. But it is undisputed that RCB has issued rules and regulations governing petitions for rent adjustments. We will discuss some of those regulations more fully below. The issue raised by SMP's petition for writ of traditional mandate is whether the RCL imposes a mandatory duty on RCB to adopt specific regulations establishing administrative remedies which would give "teeth" to its mandatory duty to issue a final decision within 120 days. SMP's arguments on appeal, when considered in light of the record before us, do not persuade us that RCB has a mandatory duty to issue the type of specific remedial rule or regulation sought by SMP's petition for writ of traditional mandate. Accordingly, the trial court's judgment will not be reversed.
As noted above, RCB has issued regulations governing "Individual Rent Adjustments." Among these regulations, regulation 4007 provides: "As soon as practicable after the filing of a petition, and in no event later than 60 days from the date of filing, a hearing examiner shall hold a hearing as hereinafter provided to determine whether to grant or deny the petition for a rent adjustment." Regulation 4010A addresses continuances of a rent adjustment hearing.
Regulation 4019 provides: "Within  days after the date of the filing of the petition, the hearing examiner shall render a written decision, supported by findings of fact and conclusions of law...." The regulation provides that this deadline may be extended under a specified framework.
Regulation 4021 provides: "Within  days after the date of the decision of the hearing examiner, any person aggrieved by the decision of the hearing examiner may appeal to the Board...."
The judgment as to SMP's petition for writ of administrative mandate is reversed and the cause is remanded to the trial court to issue a new and different judgment granting the petition. The judgment as to SMP's petition for writ of traditional mandate is affirmed. Each party to bear its own costs on appeal.
Flier, J., and Grimes, J., concurred.
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