By Jonathan Friedman
Lookout Staff

June 16, 2010 -- The Embassy Hotel Apartments on Third Street off Washington Avenue has the right under state law to cease its apartment operation and become a full-fledged hotel, a California Court of Appeal panel ruled on Monday.

As part of a deal with the City in 2000 to settle a tax dispute, the Embassy agreed to exempt itself from the Ellis Act, the 1986 State law that prohibits local governments from requiring landlords to stay in the rental business. Also included in the settlement was the Embassy’s agreement to separate its 38 units into two classes, with half becoming hotel spaces exempt from Santa Monica’s rent control law and the other half becoming apartments subject to it. But the three-judge panel from the Court of Appeal’s Second District voided this agreement, writing in its decision, “the Ellis Act provides that a contractual waiver is unenforceable.”

The issue was brought to the courtroom in 2008 after the Embassy told the City it wanted to remove the 19 rental units from the housing market. The City refused to allow this. Los Angeles Superior Court Judge James C. Chalfant sided with the City.

The appellate court decision was written by Justice Orville A. Armstrong and signed by Justices Paul Turner and Sandy R. Kriegler.

Armstrong wrote, “Public entities, at least some of which have been unenthusiastic about the Ellis Act, cannot avoid its prohibitions by acting through contract, rather than through regulation. As appellants argued in the trial court, another reading would, for instance, allow a public agency to condition issuance of a necessary permit on a contract which included an Ellis Act waiver, thus avoiding the Act.”

Tony Oliva, attorney for the Embassy, said he was pleased with the ruling, which was certified for publication. He said it could affect others in addition to his client.

“That prohibition (of the Ellis Act) extends to contractual agreements … That is important to people who might have that contractual agreement,” Oliva said.

Santa Monica’s City Attorney’s Office could not be reached for comment. Stephen Lewis, spokesperson for the City’s Rent Control Agency, said the Agency “obviously disagrees with the court’s decision, and we’re disappointed about it.”

“We’re always concerned whenever there is a loss of controlled units,” he said. “Right now, these are controlled units with real people living in them with real lives and they’re obviously going to be affected by the loss of those units and the protections that the rent control law provides for them.”

The Lookout News could not determine how many people are still living in the Embassy’s rent controlled units. No decision has been reached by City officials whether they will petition the Supreme Court to hear the case.