Supreme Court Rules Against Tenants

By Jorge Casuso

August 15 -- Santa Monica renters will likely see little fallout from a state Supreme Court decision last week that landlords intending to remove their properties from the rental market can evict tenants who claim retaliation.

Monday's divided court ruling -- which applies only to landlords going out of the rental business under the state Ellis Act -- comes at a time when the number of buildings being "Ellised" has dwindled considerably, according to a report released by the Rent Control Board on Wednesday.

Ruling in the five-year-old case, the court was forced to balance competing laws. While the 1986 Ellis Act allows a landlord to evict tenants if the property is withdrawn from the rental market, a different state law allows tenants to mount a defense claiming that the eviction is in retaliation for asserting their rights or complaining about their unit's condition.

In the end, four of the seven justices sided with the landlords, holding that the right of a property owner to go out of the rental business overrides a tenant's ability to avoid eviction if the landlord can show intent to stop renting.

"Where a landlord has complied with the Ellis Act and has instituted an action for unlawful detainer, and the tenant has asserted the statutory defense of retaliatory eviction, the landlord may overcome the defense by demonstrating a bona fide intent to withdraw the property from the market," read the opinion written by Justice Marvin R. Baxter.

"If the tenant controverts the landlord's bona fide intent to withdraw the property, the landlord has the burden to establish its truth at the hearing by a preponderance of the evidence," Baxter wrote.

The decision reverses a ruling by the 1st District Court of Appeal and remands the case to the San Francisco Superior Court for further proceedings.

Local landlord representatives acknowledged the decision will likely have little impact, but contend that it sends a strong message.

“It puts the City and tenants on notice that they can’t drag people through the courts,” said Robert Sullivan, president of Sullivan-Dituri Realtors and past president of the Apartment Association of Greater Los Angeles.

“It is a big victory for landlords,” said landlod attorney Rosario Perry, who has handled numerous Ellis cases. But he added, “With the changes in Ellis, this decision loses a lot of its importance.”

The ruling, landlord attorneys noted, would have only limited impact because a state law that kicked in on January 1 requires that landlords who Ellis a building then change their minds and return to the rental market must charge the rent-controlled rate for five years.

In additon, the 1995 Costa-Hawkins rental act already had removed the key incentive for Ellising, since the law allows landlords to raise the rent to market rates if a unit is voluntarily vacated or the tenant is evicted for non-payment of rent.

As a result tearing down a rent-controlled building and replacing it with condominiums has replaced the prospect of higher rents as the main reason to Ellis, experts contend.

The new law, Perry said, “is not going to encorage people to Ellis, it just protects (landlords) who want to demolish” their buildings. Using a retaliatory defense “was the last big hope for the tenants to stop demolitions,” Perry added.

A report released by the Rent Control Board this month found that “Rental units withdrawn under the Ellis Act have, in large part been replaced by market rate condominiums and rental units not afordable to low or moderate income households.”

In addition, the report found that the passage of Costa-Hawkins “prompted a surge in withdrawn units returning to residentil rental use.”

According to the report, 390 Ellis withdrawals, affecting 1,869 units, were completed between the inception of the law in July 1986 and June 30, 2003. Of those properties 309 (representing 1,467 units) remain withdrawn from the rental housing market and 81 (representing 402 units) have returned to the housing market under rent control.

“Much of the Ellis activity occurred in the first few years of the law’s existence,” according to the report.

After decreasing during the 1990s, Ellis activity picked up in 1998, with 166 withdrawals affecting 817 untis filed between May 1998 and December 31, 2002.

By comparison, only 9 properties totalling 38 units have been withdrawn during the first six months of this year after the state law went into effect freezing rents for Ellised buildings that are returned to the market.

In the case decided by the Supreme Court Monday, Joel Drouet, the owner of a two-unit building in San Francisco, began Eliis Act proceedings after tenant Jim Broustis told him he would deduct from his rent the garbage bill Drouet failed to pay.

At around the same time, Broustis complained about a leaking sewage drain and shower. When Drouet filed for Ellis, Broustis and his roommate offered a defense of retaliatory eviction.

The dissenting judges argue that the ruling would encourage retaliatory evictions.

"I would not hold, as does the majority, 'that a landlord's bona fide intent to withdraw the property from the rental market under the Ellis Act will defeat the statutory defense of retaliatory eviction,'" wrote Justice Carlos R. Moreno. "In my view, the Ellis Act was not intended to permit a landlord to evict a tenant for a retaliatory purpose.

"The majority's holding will permit landlords to threaten tenants if they complain about the condition of their residence or exercise their rights under Civil Code section 1942." he wrote. "The majority opinion thus violates the public policy of this state by encouraging retaliatory eviction."