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City's Legal War with Major Developer Flares Again

Bob Kronovetrealty
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Santa Monica

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By Jorge Casuso

October 6, 2021 -- The City fired its latest volley in an ongoing legal battle with Santa Monica's largest market-rate developer last week charging it turned what was once a 10-unit rent control building into vacation rentals.

In a lawsuit filed September 28, the City and Rent Control Board allege that since 2018, NMS Properties, Inc. and its affiliates have been violating State and local laws at their building at 1242 10th Street.

The suit alleges that after buying the building in 2015 the owners "started renovations with the purpose of upgrading the units for future market rate rentals," according to officials from the City Attorneys office.

"The dangerous conditions created by the extensive construction drove many tenants out of the building," officials said, citing allegations made in the lawsuit.

When the last three tenants refused to leave or be bought-out, the owners invoked the Ellis Act, a 1986 State law that allows landlords to evict tenants in order to get out of the rental business, the suit alleges.

After completing renovations -- which included modern kitchen appliances, in-unit washer and dryers and smart technologies -- the units were advertised on popular online rental sites as fully furnished, according to the lawsuit.

"The plaintiffs are seeking a wide range of remedies, including monetary and injunctive relief," City officials said.

In a statement issued Tuesday, attorneys for the defendant called the the City's lawsuit "baseless and retaliatory" and said the City has been known to "reach out to alleged violators to attempt resolution of disputed matters."

"The City’s allegations are strange indeed," said Rosario Perry, a longtime Santa Monica real estate attorney who represents the defendant. "We have always complied with the law.

"Naturally, when the City of Santa Monica writes laws, they are always confusing, hard to understand, and usually contradictory to other laws on the books," Perry said.

"The City has no respect for state laws, or our City Charter (adopted by the voters) or the Constitution."

Perry added that NMS and its affiliates have entitled or built some 6,000 apartment units in Santa Monica, 400 of them affordable.

The battle between the City and the defendant flared in December 2016 following a judge's ruling against NMS that included allegations of forgery and perjury in a civil dispute with another developer that was unrelated to any of the company's properties in Santa Monica.

Former Council member Kevin McKeown placed an item on the agenda calling for a review of the developer's various properties for "possible misstatements and their consequences" ("Court Dispute Between Developers Spills into Santa Monica City Council Chambers," December 2, 2016).

"While we have no particular indication at this time that any of the City's agreements and contracts with NMS contain false information, it's only prudent for us now to review all those documents," McKeown told The Lookout at the time.

The battle escalated in 2019, when WS Communities, one of the developer's affiliates, threatened to sue the City over its policy barring single-room occupancy units.

Under a settlement agreement approved by the City Council, six market-rate SRO developments Downtown totaling 361 "micro-units" received the go-ahead.

The settlement released the City of all claims by the developer and set guidelines for the units ("Market Rate SROs Get Go-ahead Under Settlement Agreement," July 1, 2019).

In December 2020, NMS and WS Communities filed a lawsuit in federal court challenging the City's new restrictions on residential leases, which required them to be at least one year ("Apartment Owners Sue City Over Leasing Requirements," December 16, 2020).

Less than two months later, a legal skirmish broke out when the City sued WS and one of its affiliates for allegedly raising a tenant's rent during a State of emergency by more than the allowed 10 percent ("City Charges Major Landlord with Illegally Raising Tenant's Rent During Wildfire Emergency," February 8, 2021).

An attorney for the developer also called that lawsuit “baseless and retaliatory.”

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