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Proposed Bill Closes Ellis "Loophole"

By Jorge Casuso

April 21 -- In an effort to curb a trend renters' rights advocates say is displacing Santa Monica tenants, State Senator Sheila Kuehl has introduced a bill to deter landlords from temporarily going out of the rental business in order to jack up rents.

The bill -- which was approved by the Senate Judiciary Committee earlier this month -- requires property owners who empty out buildings under the state Ellis Act to wait five years after filing a notice of intent to withdraw the building from the rental market before charging market rates.

"Tenants must be protected from evictions, based on trickery, that are designed simply to further inflate the out-of-control cost of rent," Kuehl said.

The law -- which would apply to all new tenancies occurring after December 31, 2002 -- also would require a landlord to give a tenant 24-hours written notice before entering a unit.

The bill allows California cities the option of implementing these two provisions, along with three other tenant protections already in place under a pilot program in Santa Monica, Los Angeles and West Hollywood.

The bill's key provision, tenant advocates contend, is necessary because landlords have found an easy way around a "loophole" in the current Ellis Act, which allows landlords to return to the rental business after leaving the building empty for two years.

"With the tight housing market in California rent control areas, the economic benefit of renting the unit without rent control restrictions greatly outweighs the loss in revenue of just two years," according to a summary of Kuehl's bill.

A change in the law which required property owners to wait two years, instead of one, before going back into business, has failed to deter Ellis applications, Rent Board officials said.

Since the two-year wait kicked in on Jan.1, 2000, 60 Ellis Applications have been filed,affecting 300 units. In 1998 and 1999 (under the one year wait), there were 75 properties removed from the rental market, totalling 360 units.

According to Rent Board officials, many of the property owners who Ellised their properties before 2000 have returned to the rental business. It is still too early to tell if many of those who removed their properties under the two-year wait will re-rent the units.

"Landlords go through the (Ellis) process, then back down after they vacate the units," said Michael Tarbet, a tenant organizer for Santa Monicans for Renters' Rights. "This is trying to close that type of tricky behavior. This is a big deal in Santa Monica and San Francisco. It would inhibit those Ellisers who will sneak around.

"The proposed law also deters landlords from skirting around an Ellis provision that requires a landlord who reenters the rental business to rent the units at the old rent-control rates, with preference given to the former tenant.

Many landlords, Tarbet said, are renting their units to temporary tenants -- often friends or relatives -- who then move out, clearing the way for a market-rate tenant willing to pay double or triple the old rate.

A landlord who turns down a former tenant must pay the tenant six times the equivalent of a month's old rent, an amount that has failed to deter the practice, Tarbet said.

"We know of only one landlord who has allowed an old tenant back in," Tarbet said. "They have a lot of techniques. One technique is to rent to short termers."

Landlord representatives contend that the law is a way to punish landlords and keep them out of the rental business.

"In their funny way of thinking, they would rather have no one living on the property at all, rather than to have a tenant pay market rate," said Jim Jacobson, who often represents landlords before the Rent Control Board. "This is a way to keep owners out of the business for five years."

Jacobson predicts that the law will backfire, with small property owners opting to sell their buildings to large companies that can afford the five-year wait, rather than continuing to collect greatly deflated rent-control rates.

"The mom and pop owners are getting more discouraged all the time and selling out to rich professionals who can afford to let their properties sit vacant," Jacobson said. "They're bringing in the landlords who really have a lot of power."

If the bill passes, local landlord attorneys have said they would contemplate a lawsuit.

"This new bill is a threat to property ownership rights and the constitutionally guaranteed right to an income from property that belongs to an owner," said local landlord attorney Gordon P. Gitlen. "Sheila Kuehl is trying to whittle away Costa Hawkins with every action that she takes."

Since the Costa Hawkins state rental bill went into full effect five years ago, state and local legislation has been passed to protect tenants from harassment by landlords eager to cash in on market rates when a unit is voluntarily vacated or the tenant is evicted for non-payment of rent. (Under the state law, the new market rate is then subject to rent control.)

In addition to closing the Ellis "loophole," Kuehl's bill adds a provision requiring landlords to provide written notice before non-emergency entries of units.

"Conflicts arise between landlords and tenants when a verbal message is left on an answering machine or with a non-tenant visitor and the tenant is later caught off-guard at the landlord's entry," according to Kuehl's summary of the bill. "By requiring written notice, such mix-ups would be prevented."

But local property managers say that they already follow that rule. In fact, the Apartment Association of Greater Los Angeles has been providing landlords with a notice form for 20 years, said Joseph Fitzsimmons, of Sullivan-Dituri Realtors, one of the city's largest property managers.

"If we have to go in for any reason, we give written notice anyway," Fitzsimmons said. "We always have. I don't think the new law would affect us."

The bill's three other provisions, which are already in place in Santa Monica, West Hollywood and Los Angeles would:

  • Give local governments the option of requiring a total of 60 days notice when tenants are evicted through no fault of their own, compared with the current 30 days.

  • Clarify current law by clearly providing that judges have the ability to order landlords to permit tenants to stay in a unit after an eviction action has begun, if all rent and costs have been paid by the tenant to the landlord.

  • Repeal an obsolete section of the Civil Code that allowed landlords who prevail in a rent control proceeding to pass costs on to tenants. The passage of Costa-Hawkins, which requires vacancy decontrol in areas with rent control, made this section obsolete, Kuehl said.

"Californians are experiencing a housing crunch of extreme dimensions," Kuehl said. "People who are forced to quickly and unexpectedly find a new apartment through no fault of their own need more time to find housing they can afford that is safe and comfortable for their families."

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