Written By: Kayo Manson-Tompkins
California has approximately eleven cities subject to a Rent Control Ordinance and five cities subject to an Eviction Control Ordinance. The Rent Control cities are Berkeley, Beverly Hills, East Palo Alto, Hayward, Los Angeles, Oakland, Palm Springs, San Francisco, San Jose, Santa Monica, and West Hollywood. The primary purpose of rent control ordinances is to limit or prohibit rent increases; however, a large portion of these cities also limit the grounds to evict tenants. There are, of course, other requirements in some of the cities such as registering rental units, special notices, or a business license. A case can be further complicated by California habitability statutes when there are abatement orders issued by the city for violations of building codes and/or occupancy of illegal units. For example, Los Angeles evictions are further complicated if the existing tenants are paying rent into the Rent Escrow Account Program (“REAP”), codified by Los Angeles Municipal Code §§ 162.00 et al, while repairs are completed pursuant to an abatement notice of some kind.
In California, in order for lenders to evict after a foreclosure sale they must follow the requirements of California Code of Civil Procedure 1161a(b)(3), 1161b and 1161c. However, these statutes do not preempt Rent Control or Eviction Control ordinances. Where evictions are concerned, California law specifically states, “Nothing in this section is intended to affect any local just cause eviction ordinance. This section does not, and shall not be construed to affect the authority of a public entity that otherwise exists to regulate or monitor the basis for eviction”. (Cal Code Civ Proc § 1161b). This statement allows eviction controls to still function. Rent Control in and of itself is not an issue in most post foreclosure cases, because the owner is usually not renting. The restriction of rent is not considered a taking, because each ordinance generally has a provision allowing for a just and reasonable rent increase. There have been other cases where a local rent control has been found unconstitutional for a specific reason, but the ordinance is usually amended to reflect a change that would allow the regulatory scheme to continue. The greater issue in a post foreclosure unlawful detainer is eviction control, which was created to prevent Landlords from evicting a tenant without cause in order to decontrol a unit.
The initial intent of eviction control was to prevent a landlord from evicting a tenant in good standing, in order to place a new tenant in the unit and charge a higher monthly rent. (Birkenfeld v. Berkeley, (1976) 17 Cal. 3d 129). To further this ideal, various cities enacted eviction control ordinances, some stricter than others that would set forth the grounds where an eviction can proceed, or where the landlord has a “just cause” to evict. Here, the question shifts from rent control to eviction control. Are these ordinances considered a “taking” by state or federal law?
California Rent Control provisions are a valid exercise of a city’s police power within that city’s own jurisdiction pursuant to the California Constitution, which states “A county or city may make and enforce within its limits all local, police, sanitary, and other ordinances and regulations not in conflict with general laws”. (Cal Const, Art. XI § 7). The scope of this police power is subject to displacement by general state law where the charter or ordinance purports to regulate a field fully occupied by state law. (Birkenfeld v. Berkeley, (1976) 17 Cal. 3d 129). For example, the Costa-Hawkins rental Housing Act preempts rent control provisions purporting to restrict the rental rates for dwelling units where the property has a certificate of occupancy issued after February 1, 1995, where the dwelling unit is already exempt pursuant to a local exemption, or where title of the dwelling unit is separate and alienable from the title to any other unit. (Cal Civ Code § 1954.52). As such, some condos, single family residences, and newly constructed properties are not subject to rent controls. Costa-Hawkins does not regulate evictions, nor does it purport to exempt any dwelling unit from eviction controls.
As of this article, rent control and eviction control continues to operate with a few exceptions and have not been found unconstitutional under federal law. For example, one distinction would be if an Indian Reservation is on land which is exclusively regulated by the federal government, in which case that land would be exempt from local rent control or just cause ordinances. (25 USC Section 415(a); 25 CFR Section 1.4). Another federal exemption from rent control would be federally assisted housing such as a HUD-insured mortgage where federal regulations empower HUD to preempt a municipal ordinance’s rent ceiling, (24 CFR Section 246.5 et seq) but only if it jeopardizes HUD’s economic interest. Sea Castle Apartment, Ltd. v. Santa Monica Rent Control Board (1991) 228 CA3d 1540, 1546, 279 CR 672, 675.
For the time being, these rent control and eviction control ordinances do impact the lender’s ability to proceed with a normal post-foreclosure eviction within the limited amount of cities having these ordinances. They are viewed as a valid exercise of a City’s police powers within its jurisdiction. Rent control is not considered a “taking” nor is it considered an unauthorized exercise of judicial power; therefore, except as indicated above, rent control is not preempted by either State or Federal law.
Although eviction control continues to operate as a valid exercise of police power, California law states “[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful”. (Cal Civ Code § 1636). California courts have held that in accordance with the foregoing, there is an implied covenant in every contract barring the parties from acting in such a way that would deprive a party of the benefits of a contract. (Floystrup v. City of Berkeley Rent Stabilization Bd., (1990) 219 Cal. App. 3d 1309, 1318). So why then are lease agreements renewed in perpetuity by eviction control ordinances in these limited California cities allowed to exist?
This article is not intended to be an extensive or exhaustive review of all the nuances of each City’s rent or just cause eviction ordinance, but rather an overview of what it is and how it affects the ability of a lender to proceed with a normal post-foreclosure eviction. For more information on a particular city, please contact Kayo Manson-Tompkins at kayo.manson-tompkins@wolffirm.com.