A City of Los Angeles ordinance that subjects replacement rental units to the city's rent control scheme has been upheld by the Second District Court of Appeal.

The city's law provides that if a landlord demolishes a residential property that is subject to the city's rent stabilization ordinance, and then builds new residential rental units on the same property within five years, the new units are also subject to the rent stabilization ordinance. The Apartment Association of Los Angeles County challenged the law as prohibited by the Costa-Hawkins Act, which exempts newly constructed units from local rent control measures. The court, however, disagreed with the association's reading of state law.

For years, Los Angeles has had a rent stabilization ordinance that limits the amount landlords may charge for certain residential units. The ordinance applies to an estimated 700,000 apartments. In 2007, the city adopted a new ordinance that applies the rent control provisions to replacement units built within five years of demolition of the rent-controlled units. The apartment owners group sued, and Los Angeles County Superior Court Judge Elizabeth Grimes ruled for the city. The apartment owners then appealed.

At issue in the litigation was interpretations of the Ellis Act and the Costa-Hawkins Act. In general, the Ellis Act (Government Code � 7060 et seq.) permits the owner of a rental property to evict the tenants and go out of business. However, the Ellis Act contains recontrol provisions intended to prohibit bogus evictions. If a landlord begins renting a property again after evicting tenants, local rent control measures still apply. In addition, local governments may impose rent control on replacement units under the Ellis Act.

The Ellis Act was passed in 1985. Ten year later, lawmakers passed Costa-Hawkins (Civil Code � 1954.50 et seq.), which prohibits the application of local rent control ordinances to units built after February 1, 1995, and which establishes "vacancy decontrol" that permits a landlord to reset rent levels when a tenant has voluntarily vacated, abandoned or been legally evicted. The Apartment Association argued the Costa-Hawkins prohibition on rent control of newly built units repealed the Ellis Act provisions regarding replacement units. A unanimous three-judge panel of the Second District, Division Three, disagreed.

The court examined the legislative history of the Ellis Act and found that the original bill was amended to include recontrol provisions after concern arose that landlords would evict tenants under the pretext of going out of business. Specifically at issue here was Government Code � 7060.2, subdivision (d), which applies to demolished rent controlled units that are replaced within five years.

"[T]he legislative history of � 7060.2, subdivision (d), clearly indicates that the statute was enacted to authorize local public entities to promulgate ordinances that discourage landlords from evicting their tenants under the false pretense of going out of business pursuant to the Ellis Act," Justice Patti Kitching wrote for the court. Los Angeles adopted the ordinance in question pursuant to this statute.

Costa-Hawkins repealed portions of the Health and Safety Code related to housing, but did not repeal the Ellis Act, the court noted. Specifically, Costa-Hawkins did not affect the authority of local government to "regulate or monitor the basis for eviction" as provided in Ellis Act provisions against bogus evictions. Moreover, lawmakers amended the Ellis Act in 1999 and 2002, the later time specifically to make nonsubstantive amendments to the recontrol provision.

"The 2002 amendment to the Ellis Act shows that after Costa-Hawkins was enacted, the Legislature continued to regard � 7060.2, subdivision (d), as the law of this state," Kitching wrote. "This amendment conclusively rebuts [the Apartment Association's] position regarding the alleged implied repeal of � 7060.2, subdivision (d). The Legislature would not have amended section 7060.2, subdivision (d), in 2002 if it had repealed the statute with Costa-Hawkins in 1995. We cannot presume the Legislature engaged in an idle act."

Rather, the court ruled, the statutes "should be interpreted to work together."

The Case:
Apartment Association of Los Angeles County, Inc. v. City of Los Angeles, No. B204334, 09 C.D.O.S. 4583, 2009 DJDAR 5455. Filed April 17, 2009.

The Lawyers:
For the Apartment Association: Trevor A. Grimm, California Apartment Law Information Foundation, (213) 380-0303.
For the city: Gerald Sato, city attorney's office, (213) 485-5417.