ITEM 11-A

SANTA MONICA RENT CONTROL BOARD ADMINISTRATION MEMORANDUM

 

DATE: January 12, 1999

TO: Rent Control Board

FROM: Staff

FOR BOARD

MEETING OF: January 14, 1999

RE: Report on Ellis Activity

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Because of the recent upsurge in Ellis activity, this reports reviews the activities of properties withdrawn under the Ellis Act, including re-rental and redevelopment. The report also summarizes the procedural requirements for Ellis withdrawal.

As of December 31, 1998, 230 properties remain withdrawn from the residential rental housing market by way of the Ellis Act. This represents the withdrawal of 1,102 units. Four properties with a total of 20 units have filed the Intent to Withdraw, and are expected to complete the process by the end of February 1999.

Thirty-nine formerly withdrawn properties, comprised of 193 units, have returned to the rental housing market under rent control. Two properties with a total of 12 units are expected to return to the controlled rental housing market by the end of January.

By the end of February, once the pending withdrawals and re-rentals are completed, a total of 232 properties with 1,110 will have been withdrawn.

Based on 44 properties which have obtained Certificates of Occupancy since their Ellis withdrawals, 220 controlled rental units, most of which had been affordable to low and moderate income households have been replaced with 250 condominiums units and two single family dwellings. Only seven of the replacement units are restricted for use by low income households and 18 are restricted for moderate income households. This represents a net loss of 195 affordable housing units.

Among the 19 properties that filed for withdrawal beginning in May 1998, eleven have begun re-development activity.

These numbers are a clear indication of the future for units which have been withdrawn under Ellis. Withdrawn units, some of which were the most affordable units for very low income households, are being replaced by high end condominiums units, not affordable to low or moderate income households.

 

 

Birth of the Ellis Act

In the late 1970's, Santa Monica experienced what came to be called a "demolition derby." During a 15 month period, over 1,300 residential rental units were razed, and hundreds of others were converted to condominiums. It has been estimated that 5% of the City's residents were displaced as a result.

Partly in response to this "demolition derby," in April 1979 the voters of Santa Monica passed the Rent Control Law. Among other provisions, that law prohibits landlords from removing rental units (by demolition, conversion, or other means) unless they obtain a removal permit from the Rent Control Board. The law also prohibits landlords from evicting tenants without just cause.

In 1978, Jerome Nash, a 17 year old student, acquired an apartment building in Santa Monica. Nash brought a lawsuit against the City in which he challenged the removal permit requirement. In that suit, Nash admitted that his property provided a fair return on investment. However, he contended that the removal permit requirement interfered with his constitutional right to "go out of business." Although Nash did not identify any particular constitutional provision, he asserted that the right to go out of business was a fundamental aspect of personal liberty.

In 1984, the California Supreme Court rejected Nash's claim. The court recognized that the removal permit requirement implicates personal liberty interests deserving a high degree of constitutional protection. However, it found that the actual limitation imposed on a property owner by the removal permit requirement was minimal, and not significantly different from other governmental limitations on the use of private property.

The Court pointed out that Nash could go out of business simply by selling his property. It also noted that he could minimize his personal duties as a landlord by hiring a property manager. Finally, the court emphasized that the City's government had an extremely important--perhaps even a constitutionally "compelling"-- interest in protecting the housing supply and preventing evictions.

Nash appealed this decision to the Supreme Court of the United States. In 1985, the Court dismissed the appeal for want of a substantial federal question.

At the behest of the real estate lobby, State Senator Ellis introduced a bill in the state senate which was designed to legislatively override the California Supreme Court's decision in Nash. It was ultimately adopted and codified at Government Code Section 7060 et seq. The "Ellis Act" became effective on July 1, 1986.

The Ellis Act gives landlords the right to "go out of business" by evicting all of their tenants. This process is commonly called "withdrawal" of a property from rent or lease.

 

 

The Ellis Procedure

Details of this procedure were mandated by the Ellis Act and incorporated into the Board's regulations.

Prior to filing the Ellis withdrawal, the owner must:

• Complete and sign a Notice of Intention to Withdraw Accommodations from Rent or Lease (called the Notice of Intent) and a Memorandum Summarizing Non-Confidential Terms of Notice of Intention to Withdraw Accommodations from Rent or Lease (called Memorandum).

• Have signatures on the Memorandum notarized and have the Memorandum recorded by the County Recorder.

 

The filing occurs when the owner:

• Submits the original Notice of Intent and a conformed copy of the recorded Memorandum to the Rent Control Office.

Once the withdrawal has been filed, the owner must complete all other procedures within 30 days and terminate all tenancies within 60 days.

Within 30 days of filing, the owner must:

• Serve all tenants with a completed Notice to Tenants of Pending Withdrawal.

• Serve Notices of Termination of Tenancy on all tenants. Prior to serving the notice, the owner must determine if the tenant is entitled to relocation assistance under the Santa Monica Relocation Assistance Ordinance passed by the City Council. The Notices of Termination of Tenancy must indicate whether or not the owner believes the tenant is eligible for relocation assistance.

• Serve on the Rent Control Board a Certification that Actions Have Been Commenced to Terminate Tenancies.

During the completion process, Rent Control staff contacts all the affected tenants and works with them to answer questions and resolve any problems that can be helped. Staff also conducts a title search on the property. If the chain of title is unclear, the process may be delayed.

Staff may also visit the property to make sure that all tenants have actually left.

 

The Board then records a Notice of Application of Restrictions in the chain of title. This gives notice to and binds future owners. The restrictions include:

1. Liability for monetary damages if the property is re-rented within one year;

2. Right of first refusal for displaced tenants if the property is re-rented within ten years;

3. If the units are ever re-rented, they are subject to the Rent Control Law just as if they had never been withdrawn;

4. If the units are demolished, and new accommodations are built and rented within 5 years, they will be subject to rent control.

Attached is a complete packet of information given to landlords who are interested in withdrawing their properties. The information packet includes details of:

• which rental units can be withdrawn;

• the requirement that all "accommodations" be withdrawn;

• a summary of tenant rights;

• monetary damages and the right to re-rent within one year --monetary damages are specified as actual damages as a result of displacement and punitive damages not to exceed six months rent.

 

Changes in Withdrawal Activity Over Time

The greatest amount of Ellis activity occurred in the first few years of the law's existence. By June 30, 1990, 174 properties comprised of 853 units had withdrawn or were expected to complete withdrawal.

The highest fiscal year was 1989/90 when 86 properties with 368 units withdrew. Eighteen of those properties with 73 units later re-rented again under rent control, and two more properties with 12 units will be re-rentals by January 1999.

Between July 1993 and May 1998, the number of withdrawals dropped dramatically. The number increased significantly again in 1998/99 when 19 properties filed for withdrawal in just 8 months, between May and December.

 

 

The graph below shows the pattern of withdrawals and re-rentals by units over the years the Ellis Act has been in effect. Note that in 1992/93 and 1993/94, more units returned to rent control than were withdrawn.

The chart below shows the number and percentage of units that remain withdrawn by Area of the city. By way of comparison, the first left-hand column shows the percentage breakdown of controlled units city-wide.

Area % of Rental Withdrawn Units Re-Rented Units
Units in City
(%)
Number
(1,102)
Percent Number
(193)
Percent
A 17 144 13 22 11
B 12 58 5 18 9
C 5 224 20 5 3
D 10 17 2 4 2
E 18 300 27 62 32
F 17 100 9 34 18
G 21 259 24 48 25

 

As shown by the charts, withdrawals represent a much lower percentage than units in areas B, D and F, while withdrawals are proportionately much higher in areas C, E and G. Of the 19 properties which completed or are pending withdrawal since May, 1998, three are in area E and nine in area G.

 

Re-Rental

Thirty-nine properties with 193 units have elected to re-enter the controlled housing stock, at least temporarily.

To re-rent withdrawn units, the owner must file a Notice of Intent to Re-Rent Units. An owner whose property has been withdrawn less than one year must notify the evicted tenants of their right to return to the unit. When the property has been withdrawn more than one year, the Rent Control office notifies the tenants.

Six of the re-rentals later went through the TORCA (Tenant Ownership Rights Charter Amendment) procedure to convert the property to condominiums. This was the case for many of the earliest re-rentals. The option was severely restricted when the TORCA law was amended in November 1990. Only properties that were withdrawn before 1989 and returned to rent control before 1993 converted to condominiums through TORCA. Had the TORCA law not been changed, it is likely that many more properties would have taken this option.

At least five other properties had taken some steps in the City's permit process toward condominium development during the time the property was withdrawn. It is likely that the downturn in the economy in the early and mid-90's discouraged these and other owners from completing their projects.

In spite of the fact that re-rentals are not entitled to Costa-Hawkins increases upon return to the housing market, there are indications to suggest that some owners have withdrawn properties recently with the intention of immediately gaining market rents, even at the cost of paying a penalty of six times the MAR to the evicted tenants to prevent them from returning.

 

Post-Ellis Activity

According to City records, forty of the properties withdrawn under Ellis have received Certificates of Occupancy for new housing developments.

Two properties (one which had four rental units and one with one rental unit) are now single family dwellings. Two properties are now exclusively non-controlled rental units with deed restrictions for low-income (2 units) and moderate-income (15 units) tenancies. The remaining 36 properties are condominium developments, two of which include deed restrictions for a total of three moderate-income tenancies.

Four other properties have permits for commercial uses including office buildings and parking lots.

The net result of this activity is that 220 controlled rental units, most of which had been affordable to low and moderate income households have been replaced with 250 condominiums units and two single family dwellings. Only seven of the replacement units are restricted for use by low income households and 18 are restricted for moderate income households. This represents a net loss of 195 affordable housing units.

These numbers are a clear indication of the future for units which have been withdrawn under Ellis. Withdrawn units, some of which were the most affordable units for very low income households, are being replaced by high end condominiums units, not affordable to low or moderate income households.

Staff is monitoring development activity on withdrawn properties and will issue a detailed report in the near future.

 

Recent Upsurge in Ellis Activity

In May 1998 the number of Ellis filings dramatically increased. Since May 1 withdrawals have been filed for 19 properties consisting of 90 units. The months with the highest number of filings were May (6) and August (5).

These properties are:

Filing
Date
Address Area Units Evictions Development
Activity
5/5/98 811 18th Street G 4 4
5/14/98 2126 3rd Street A 7 6 remodel/combine units
5/15/98 2712 2nd Street A 1 0 demo permit pending
5/18/98 1724 Washington Ave. G 4 3 substantial remodel pending
5/26/98 911 7th Street G 2 0 demo permit pending
5/28/98 2726 Montana Ave. G 4 1 CUP pending - 5 unit condo
6/29/98 1252 Euclid Street E 4 4 demo permit pending
7/6/98 911 California Ave. G 4 3 remodel
7/8/98 1315 Lincoln Blvd. E 4 0 demo permit pending
7/30/98 838 19th Street G 5 4
8/11/98 2226 Wilshire Blvd. E 1 1
8/18/98 1719 Ocean Front Walk C 13 12
8/20/98 1411 Cloverfield Blvd. E 3 0
8/21/98 844 3rd Street F 4 3 CUP/demo pending - 5 unit condo
8/21/98 933 15th Street G 5 4 CUP/demo pending - 5 unit condo
10/2/98 823 5th Street G 10 10
10/15/98 2021 Montana Ave. G 5 5
12/21/98 420 Palisades Ave. F 4 4
12/21/98 1111 10th St. G 5 5 CUP pending - 5 unit condo

Among the 19 properties that filed for withdrawal beginning in May 1998, eleven have begun re-development activity.

1997-98 Annual Report