Ellis Act Brief

SUBJECT: The Ellis Act (SB 505), 1985

DATE: August 25, 2005

PREPARED BY: Jan Book, 310/578-7508

Jan@JanBook.com

ISSUE: Landlord is abusing the Ellis Act (Gov. Code Section 7060) to remove rent controlled apartments in Los Angeles and to side step land use regulations. The City of Los Angeles' municipal codes (LAMC Chapter XV, Rent Stabilization Ordinance, Section 151) is improperly worded so as to permit landlords to evict tenants without cause but to not be going out of business. The City Attorney's office refuses to enforce the Ellis Act to prevent these illegal evictions.

On March 18, 2005, AIMCO, one of the largest owners of apartments in the nation, filed a notice with the LA Housing Department invoking Gov. Code Section 7060 to permanently remove from the rental market 696 accommodations located in Venice, CA. The property, known as Lincoln Place Apartments, has over 170 units which are presently occupied. The tenants are fighting the illegal evictions on the ground that AIMCO cannot use the Ellis Act to evict the tenants because AIMCO is not going out of the rental business.

In addition, two tenants stepped forward and filed a Complaint for Declaratory Relief on July 15, 2005, Frieda Marlin et al vs. AIMCO Venezia, LLC et al, Case number BC336635, Superior Court of California, County of Los Angeles.

PRAYER: We respectfully ask that the Attorney General file an amicus brief at this time.

SYNOPSIS: The Ellis Act simply stated enables a landlord who is going out of business to evict the tenants without fault and withdraw from the rental market all of the accommodations which he owns.

Under the Ellis Act, "going out of business", as clearly discussed in the 1985 Committee Reports, means "changing occupations" or "cease to do business as a landlord". The purpose of the Ellis Act was to allow a landlord, who did not want the personal burdens of being a landlord and didn't want to be a landlord anymore, to evict the tenants without cause and withdraw all of the accommodations he owned.

Therefore, only landlords who are going completely out of the residential rental business can use the Ellis Act.

PROBLEM: Today, landlords are using the Ellis Act to enable them to "go out of business" on a parcel by parcel basis or by an apartment by apartment basis. This misinterpretation of the Ellis Act is rapidly reducing the amount of affordable rental housing in Los Angeles, and allowing landlords to side step the land use laws.

RE: Brief History of the Ellis Act and Review of the Related Committee Reports of 1985 (SB505)

According to the Gov. Code Section 7060 (a), no public entity shall compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease. Accommodations are defined as "residential rental units in any detached physical structure containing four or more residential rental units".

Government Code Section 7060.7 states that it is the intent of the Legislature in enacting the Ellis Act to supersede any holding or portion of any holding in Nash v. City of Santa Monica, 37 Cal. 3d 97 (hereto after "Nash case") to the extent that the holding, or portion of the holding, conflicts with the Ellis Act, so as to permit landlords to go out of business. However, the Ellis Act is not otherwise intended to permit an owner to withdraw from rent or lease less than all of the accommodations.

The Ellis Act was the direct result of the California Supreme Court decision in 1984 known as the Nash v. City of Santa Monica. To understand the Ellis Act, one must first begin with this case.

Analysis of Nash v. City of Santa Monica

In the 1984 case, Nash v. City of Santa Monica, 37 Cal. 3d 97 (hereto after "Nash case"), the owner of a single apartment building in Santa Monica wanted to stop being a landlord because it was too burdensome for him. He therefore decided to evict the tenants and apply for a demolition permit. However, the City of Santa Monica was concerned about providing enough rental units for their citizens and required a Removal Permit before Nash could obtain a demolition permit. Since Nash did not meet the requirements for a Removal Permit, he was forced to remain in the rental business and sued the City of Santa Monica claiming "that there must be limitations upon the power of the state to compel a person to pursue a particular business or occupation against his will." Nash, supra 103. (emphasis added)

The California Supreme Court agreed stating that the Thirteenth Amendment to the United States Constitution prohibits involuntary servitude. However, the Court determined that as long as there were tenants remaining in his apartment units, and so long as he continued to receive a fair return on his investment, he may not evict them without cause. "Nash was free to minimize his personal involvement by delegating responsibility for rent collection and maintenance to a property manager." He may also withhold rental units from the market as they become vacant, and he can sell his property and reinvest the proceeds elsewhere. But Nash wanted none of these options. He wanted to demolish the building and hold the raw land as an investment. And Nash believed he had an absolute right to do so as the owner of the property.

"'[I]t is thoroughly established in this country that the rights preserved to the individual by these constitutional provisions are held in subordination to the rights of society. Although one owns property, he may not do so with it as he pleases any more than he may act in accordance with his personal desires." (Miller v. Board of Public Works (1925) 195 Cal. 477, 488 [234 P. 381, 38 A.L.R. 1479].) Thus, an ordinance restrictive of property use will be upheld, against due process attack, unless its provisions "are clearly arbitrary and unreasonable, having no substantial relation to the public health, safety, morals, or general welfare." (Euclid v. Ambler Co. (1926) 272 U.S. 365, 395 [71 L.Ed.303, 314, 47 S.Ct. 114, 54 A.L.R. 1016])

Nash attempted to "elevate the standard of constitutional review form the "rational relationship" test normally used in appraising the validity of property regulation to a more restrictive "strict scrutiny" test, on the grounds that the Santa Monica ordinance implicates his "fundamental right" to cease doing business as a landlord. Nash, supra, 104. (emphasis added)

While the Court rejected this theory by saying that there is a compelling governmental interest in the preservation of scarce rental housing against destruction, it further held that it was not necessary to reach that level of analysis. All regulation of property entails some limitations upon the liberty of the owner. The existence of legal and de facto limitations upon the choices available to a property owner does not operate to subject the property regulation to a strict scrutiny test, under modern legal principles. Nash, supra, 105.

Senate Bill 505 - The Ellis Act

The Nash case was decided on October 25, 1984. On December 7, 1984, the Legislative Steering Committee considered the Nash decision and recommended that the California Association of Realtors (hereafter known as "CAR") "begin development of legislation to reverse or modify the holding in the court case of Nash v. City of Santa Monica. This legislation will be designed to protect the right of property owners to cease operation as rental property, and will be submitted to the Legislative Committee for consideration in January. A "spot bill" will be introduced to preserve CAR options during 1985 on this subject." CAR January 9, 1985 Background Paper to the Legislative Committee, page two.

On January 9, 1985, the CAR did submit a Background Paper (hereinafter known as the "Background Paper") to the Legislative Committee which was intended "for study only and has not been approved by the Legislative Committee, the Executive Committee or the Board of Directors". The Background Paper, authored by Dugald Gillies, Vice President of Governmental Relations for CAR, was organized, in part, into two sections.

The first section discussed the Judicial history of Nash v. City of Santa Monica. Namely, that Nash applied to the Superior Court for a writ of mandate in anticipation of being denied a Removal Permit by the Santa Monica Rental Board. The court found that the provision in the Santa Monica ordinance was unconstitutional because it deprived Nash of property without due process of law, and that the result was a taking of his property without just compensation. (Actually Nash expressly disclaimed any contention that the city's ordinance effects a "taking" of his property in violation of federal or state Constitutions, notwithstanding the trial court's alternative ruling.)

The City appealed and the appellate court in a unanimous decision upheld the trial court. The City again appealed and the Supreme Court reversed on what in effect was a five to two holding. "[T]hat while the challenged provision may be said to implicate the interests which are entitled to a high degree of constitutional protection...including one's choice whether to remain in a particular business or occupation... the actual limitation upon those interests posed by the challenged provision is minimal and not significantly different from other, constitutionally permissible, limitations upon the use of private property imposed by government regulation. At the same time, the provision, by protecting existing tenants from eviction and the scarce supply of residential housing in Santa Monica against further erosion, clearly serves important public objectives." (emphasis added)

The second section discussed what legislative action to take on the C.A.R recommendation. "There are actually several elements involved here. There is the issue of prohibiting a person by law from withdrawing from the rental housing business, or, to state the matter affirmatively, the matter of requiring by law that a person engage in a particular business or specifically offer real property for the purpose of resential (sic) rental occupancy. An examination of the discussion of the issue by the court (particularly in the dissent) and of the cited cases by the dissent. It would appear that the affirmative approach may be preferable." (emphasis added)

"A separate, and perhaps, distinct issue is whether there should be an absolute right to a demolition permit. In the absence of an ordinance such as Santa Monica's, the issuance of a demolition permit (which is a form of building permit) is a ministerial act and the issuance could be mandated if the applicant for the permit abided by its conditios (sic) with respect to the manner of demolition. There is, of course, also the possible exception for historical structures and other exceptions which have not come to mind."

The statute which will eventually become known as the Ellis Act is now beginning to be formed. There is a definitive reaction to the decision held in the Nash case, and the Legislature is interested in doing something about it. The balance between a landlord's right to go out of business and the public entity's right to regulate land use is going to be re-examined. And as stated above, the CAR was going to be the group to examine in more detail the position taken by the court in the Nash case, and in particular, the position taken by the dissent. The person assigned to do this job was Dugald Gilles, Vice President, Governmental Relations for the California Association of Realtors.

Discussion of Dissent in Nash Case

At this time, it is important to understand what the dissent held in the Nash case. The justice writing for the minority was Justice Mosk, and his opening sentence was "[a]s Justice Frankenfurter wrote in Bay Ridge Co. V. Aaron ... 'On the question you ask depends the answer you get.'" The real question to Justice Mosk was "whether the city may compel a landlord to remain in business against his will, and give him only the alternative of a forced sale, the answer is: not in a democratic society." (emphasis added)

In the 1965 United States Supreme Court decision in Textile Workers v. Darlington Co. 380 U.S. 263, 270 [13 L.Ed.2d 827, 834, 85 S.Ct. 994], Justice Harlan wrote for a unanimous court: "A proposition that a single businessman cannot choose to go out of business if he wants to would represent such a startling innovation that is should not be entertained without the clearest manifestation of legislative intent or unequivocal judicial precedent." This is followed by the opinion in Robinson v. Diamond Housing Corporation (D.C. Cir. 1972) 463 F.2d 853, 867: "None of this is to say that the landlord may not go out of business entirely if he wishes to do so...There would be severe constitutional problems with a rule of law which required an entrepreneur to remain in business against his will." (emphasis added)

Justice Mosk has a dramatically different view than the majority of the duties and responsibilities of a landlord: "The majority appear to adopt a simplistic view of the rental business, ie., that it stems easily and inexorably from the ownership of property and involves a mere passive investment. Landlords undoubtedly wish that were so, but the realities of the economic world require them to perform numerous personal services and assume onerous obligations and serious potential liability." Mosk goes on to point out "being a landlord entails active and vigilant management. Thus when the city compels one to remain a landlord against his will, it is not merely freezing an investment, it is requiring him to perform constant personal services." (emphasis added)

Mosk found the unanimous opinion of the Court of Appeal to be both persuasive and in keeping with his own views, he therefore included their opinion in full within the body of his dissenting opinion. By so doing, Mosk has raised the decision of an Appellate Court to that of a dissenting Supreme Court decision.

The Appellate Court determined that the standard of review was strict scrutiny and that the Santa Monica Removal Permit violated the due process clause of the United States Constitution. In reaching this conclusion, the court had to examine the nature of "the right to go out of business". (emphasis added)

"The right to cease operating a business has not been widely discussed, hence its contours and boundaries are not clear...Generally speaking, it is the right of the individual to stop working in a given occupation or the operation of a given business...Although the right does not restrict the state's power to regulate the conduct of a business voluntarily engaged in, it restricts the government's ability to force the individual to participate in a particular enterprise. Because it touches the individual's ability to make a choice which greatly affects his or her life style, the right to go out of business is a personal freedom. Its title, which makes it sound like an economic right, is therefore deceptive." (emphasis added)

"There exists an undefined yet real notion of freedom which is violated by the idea of compelling an individual to work in a given business. This freedom is protected from the most egregious infringements by the Thirteenth Amendment of the United States Constitution. Yet the degree to which the individual is restricted need not rise to the level of involuntary servitude before it offends this notion of personal liberty...The right to cease to operate a business, impacting as it does on the work efforts of the proprietor, is one aspect of this more general freedom." And finally, "[t]he right of an individual not to work in a certain occupation is closely analogous to the 'right to work for a living in the common occupations of the community'. (Sail'er Inn, Inc. v. Kirby (1971) 5 Cal.3d 1, 17 [95 Cal.Rptr. 329, 485 P.2d 529, 46 A.L.R.3d 351]; Purdy & Fitzpatrick v. State of California (1969) 71 Cal.2d 566, 576 [79 Cal.Rptr. 77, 456 P.2d 645, 38 A.L.R.3d 1194] (emphasis added)

"Like the right to enter an occupation, the right to terminate a business involves a personal decision concerning the individual's role in the economy. Both protect the individual's ability to use his or her talents and resources in the manner best suited to bring life satisfaction and economic security." Nash, supra 37 Cal.3d 119. This paragraph will soon become the heart and sole of the CAR' s reason for supporting the Ellis Act (SB 505).

Senate Committee on Judiciary Analysis

On April 18, May 6 and May 15, 1985, Bill Lockyer, Chairman of the Senate Committee on Judiciary, prepared Analyses of Senate Bill No. 505, Residential Real Property. Each Analysis gives the Legislative History, and lists the parties who have voiced their opinion either in favor of or are opposed to SB 505. In addition, each Analysis states the Key Issue, gives the Purpose, and then has a Comment section which addresses the issues covered by the bill, addresses questions raised by Opponents and attempts to address their concerns and provide possible solutions.

In reviewing the first Analysis, the Purpose of the bill is described as:

"Existing law contains many provisions regulating the rental or lease of real property. Case law, Nash v. City of Santa Monica (1984) 37 Ca.3d 97, upholds the power of a city, in the context of a land use ordinance, to require a residential real property owner to obtain a removal permit under specified criteria before the owner may demolish his rental property and cause its removal from the marketplace."

"This bill would prohibit any public entity or agency from enacting or implementing any law to compel a residential real property owner to offer or continue to offer, the property for lease or rent."

"The purpose of this bill is to overturn Nash and to provide landlords the unfettered right to remove rental units from the marketplace." (This paragraph is frequently quoted in case law.) (emphasis added)

However, it if worthy to note that this paragraph is replaced in the second and third Analysis with:

"The purpose of this bill is to preempt local ordinances which prohibit landlords from removing rental units from the marketplace."

While there are many issues of interest in the Comment section, the one we want to focus on, and one which did not change from the first to the final Analysis, concerns Item #3:

Right to cease operations.

"This bill would preempt any local ordinance that prohibits landlords from removing a rental unit from the marketplace. The California Association of Realtors, source of this bill, asserts that a property owner should have the right to conduct his personal affairs and cease rental operations without restriction when he no longer wishes to bear the responsibilities of being a landlord. In many cases, CAR writes, the rental of property involves not only the very considerable potential of personal liability, but also the continued expenditure of time and resources in the management of property."

In item #4, Safeguards against short term or bad faith removal, "in response to concerns that the bill could permit property owners to evade rent control and other laws by ceasing to rent under the guise of going out of business, the bill has been amended to provide some safeguards against abuse, such as (a) No diminishment of state protections, (b) Sanctions permitted for removal of one year or less, (c) More than one year, (c) Demolition and reconstruction, (e) Applicable to successors in interest, (f) No effect on local permits process, (g) Legislative intent language, and (h) No preemption by AB 483 (Costa Act).

Within these subsections, the concerns expressed by Mr. Lockyer and others were that "the potential for liability for displacement damages would not deter landlords from engaging in oppressive practices. Such an expense, they note, can simply be written off as a business cost." Mr. Lockyer proposes "Should a displaced tenant also have a statutory cause of action for a bad-faith removal, with punitive damages available if the landlord's conduct was malicious, oppressive, or fraudulent?"

Concern about the effect on the local permits process was swayed with "thus, removal of the property from rental would not automatically enable the owner to demolish the units or convert them into condominiums. The owner would still be required to obtain the necessary permits from local authorities."

And finally, the Legislative intent section was added to SB 505 "to ensure that the bill does not create an exclusive list":

"Legislative intent language as set forth in proposed Section 7060.5 would state as intent to supersede Nash, so as to permit landlords to go out of business. It also would expressly state that the act is not otherwise intended to:

(1) Interfere with local governmental authority over land use, including regulation of the conversion of existing housing to condominiums or other subdivided interests.

(2) Override procedural protections designed to prevent abuse of the right to evict tenants."

Additional concerns expressed by Mr. Lockyer were:

(1) Should local entities have discretion to prohit removals in cases of critical shortages of affordable housing, e.g., less than 1% vacancy factor?

In the final Analysis, there were several amendments added to the bill which were intended to respond "to the concerns expressed by Senate members to protect against possible abuses by landlords". However, even with these amendments, Opponents still were concerned that "the bill would 'back-door' local rent control ordinances by preempting just cause eviction standards and measures to preserve housing. Opponents state that eviction protections are a frequently used, reasonable, and effective legislative response to housing shortages, and that when a severe housing shortage exists, a city is best able to meet its obligations by preserving existing housing and prohibiting arbitrary evictions, demolitions, and conversions."

"Opponents predict that passage of this bill would result in numerous rental units being taken off the market in a situation where there is already a critical shortage of affordable housing. They argue that a city should remain able to address such problems by local controls on property uses." (emphasis added)

"Opponents assert that Nash is a sound decision which properly balanced the police powers of public entities to regulate land use and the rights of individuals affected by that regulation. Opponents also note that the United States Supreme Court recently dismissed Mr. Nash's appeal to hear the case."

Role of Dugald Gillies in SB 505 and the Legislative Process

From January 9, 1985 until September 13, 1985, when SB 505 was submitted by Senator Jim Ellis to Governor Deukmejian for signature, Dugald Gillies, Vice President of Government Relations for CAR, was actively working to create, mold and finalize the Ellis Act. The archival records for SB 505 contain written documents generated by Mr. Gillies, such as the Background Paper mentioned above, three Statements of Support, one Assembly Floor Explanation, one Floor Statement on Conference Report, requests to speak before both the Senate Committee on Judiciary and Assembly Committee on Judiciary, several amendment changes drafted by Gilles and adopted into the bill, and evidence of speeches Gillies made before both Legislative bodies. Contrasting this with the fact that there are only three Analyses written by the Senate Committee on Judiciary Analyses, three Digests written by the Assembly Committee on Judiciary, one Assembly Office of Research Conference Committee report, and a handful of other assorted paperwork, it becomes apparent that to understand the true meaning and intent of the Ellis Act, we must examine the documents prepared by Dugald Gillies.

On April 19, 1985, Dugald Gillies submitted a Statement of Support by the California Association of Realtors (hereinafter referred to as "Statement") titled "Right to Cease Business as a Landlord of Residential Property" to the Senate Committee on Judiciary. Gillies divides his three page Statement into four sections. They are The Background, What the Bill Does, What the Bill Does Not Do, and Reasons for Support. The following is a brief discussion of the April 19 Statement.

The Background: In 1979, the City of Santa Monica enacted a rent control ordinance which included a provision: "that any landlord who desires to remove a controlled rental unit form the rental market by demolition, conversion or other means is required to obtain a permit from the (Rent Control) prior to such removal from the rental housing market in accordance with the rules and regulations promulgated by the Board."

In 1984, in the case of Nash v. City of Santa Monica, supra, the California Supreme Court held that the provision of the Santa Monica ordinance is "not constitutionally infirm". The decision was rendered by four justices, with one concurring and dissenting opinion, and two justices in dissent.

What the Bill Does: "Makes a very simple fundamental declaration: that government may not compel the owner of any residential real property to offer, or to continue to offer, accommodations in such property for rent or lease."

What the Bill Does Not Do: "It does not permit the owner to change the property to another use...SB 505 does not abrogate the right of local government to require a permit by an affirmative act of local government to demolish a structure... Conversion of the property to commercial or other purposes could occur only if the appropriately adopted local zoning and general plan permitted such use... Does not exempt any housing unit from rent control which may exist in any local community. If a rental unit is withdrawn from the rental market and is subsequently offered again for rent, it would be subject to the existing rent control ordinance...."

Reasons for Support: "Requiring a person to continue to offer his or her residential real property for rent is a requirement that a person (landlord) continue in a business or occupation (emphasis added) which involves very considerable personal liability (including, in some cases, strict liability) as established by the courts, and a continued devotion of personal services inherent in the management of rental property including the very considerable psychological demands of the provisions of those services, as evidenced by the pressures of tenant relations, and is contrary to sound public policy affecting a personal freedom which may approach or comprise involuntary servitude. SB 505 asserts that personal freedom within narrow and defined limits."

In addition, "the right to terminate a business involves a personal decision concerning the individual's ability to use his or her talents and resources in a manner best suited to bring reasonable satisfaction to that individual in the application and utilization of that person's time and efforts, and a determination by them of their economic security." (NOTE: This is in part a direct quote from the dissent in the Nash case.)

On May 21, SB 505 was heard before the Senate Rules Committee and the bill was ordered transmitted to the Assembly. As stated in the May 30th Amended report, "[t]he California Association of Realtors, source of this bill, asserts that a property owner should have the right to conduct his personal affairs and cease rental operations without restriction when he no longer wishes to bear the responsibilities of being a landlord. In many cases, CAR writes, the rental of property involves not only the very considerable potential of personal liability, but also the continued expenditure of time and resources in the management of the property." (emphasis added)

On page 3, "[t]his bill would not affect the right of any public entity to grant or deny any entitlement to use of real property, including planning, zoning, and subdivision map approvals. Thus, removal of the property from rental would not automatically enable the owner to demolish the units or convert them into condominiums. The owner would still be required to obtain the necessary permits from local authorities, according to the Senate Judiciary Committee analysis." (emphasis added)

On May 23, 1985, Gilles prepared another Statement which was again titled "Right to Cease Business as a Landlord of Residential Property" and he presented it to the Assembly Judiciary Committee on July 16 in support of SB 505. This Statement contained the same information as in the April 19 Statement and the Reason for Support was that it was against sound public policy to require a landlord to "continue in a business or occupation which involves... continued devotion of personal services inherent in the management of rental property..." And that this bill "does not permit the owner to change the property to another use." (emphasis added)

The Statement was accompanied by a July 9, 1985, cover letter addressed to Elihu Harris, the Chairman of the Assembly Judiciary Committee, which reads in part:

"The thrust of the bill is very simple: It reverses a California Supreme Court decision upholding a Santa Monica ordinance. The Court said that a landlord may not go out of business without the consent of government, this bill says a landlord may. (emphasis added)

"During the time this bill was under consideration in the Senate, a series of clarifying amendments were developed and have been placed in the bill. They do not in any way change the thrust of the bill but do clarify in greater detail the fact that giving a landlord the right to go out of business does not give him any other rights." (emphasis added)

According to the July 16 Hearing of the Assembly Committee on Judiciary report, page 1 in the section titled the Digest, "this bill prohibits any public entity from enacting or implementing any law to compel a residential real property owner to offer, or continue to offer, accommodations in the property for rent or lease. Further, the bill: ...

2) Expressly permits a local entity to provide a statute or ordinance for the reimposition of rental controls on any accommodations which are offered for rent if they had been subject to those controls at the time they were withdrawn. If accommodations were offered for rent within one year after withdrawal...

3) Provides that if rental units are withdrawn and demolished, and new rental units are constructed in their place within five years of withdrawal, the new units shall be subject to the local rent controls...

4) Permits local entity to apply provisions #2 and #2 above, to successors in interest ....

5) Does not affect the right of any public entity to grant or deny any entitlement to use of real property, including but not limited to, planning, zoning, and subdivision map approvals.

6) States that the legislative intent to supersede the holding in Nash, so as to permit landlords to go out of business.

7) States that the act is not otherwise intended to:

a) Interfere with local governmental authority over land use, including regulation of conversion of existing housing to condominiums or other subdivided interests.

c) Permit an owner to withdraw from rent or lease less than all the units..." ...

In the Comments section of the report, "The California Association of Realtors (CAR) is the source of SB 505. CAR has stated the following arguments in support of this bill:

a) Requiring a person to continue to offer his or her residential real property for rent approaches or compromises involuntary servitude.

b) Offering real property for rent involves considerable personal liability and the management of real property includes considerable psychological demands, as evidenced by the pressure of tenant relations.

c) The right to terminate a business involves a personal decision concerning the individual's ability to use his or her talents and resources in a manner best suited to bring reasonable satisfaction to that individual.

d) Housing is not a public utility ... it enjoys neither a monopoly nor a guaranteed rate of return. Rather "it is a high risk business requiring not only a personal investment of economic resources but an extraordinary devotion of personal attention to management and broad liability."

And on page 4, item 3, "This bill contains several provisions designed to prevent landlords from using its provisions to evade rent control and other laws by ceasing to rent under the guise of going out of business. [See Digest, 1) through 9)] ... Opponents contend that the potential liability for displaced damages would not deter landlords from engaging in oppressive practices since such an expense can be written off as a business cost. Should a displaced tenant also have a statutory cause of action for a bad-faith removal, with punitive damages available if the landlord's conduct was malicious, oppressive, or fraudulent? Should the local government entity also have standing to proceed against a violating landlord?" (emphasis added)

And on page 6, item (c), "Even though SB 505 imposes all pre-existing controls when a person seeks to re-establish use after having withdrawn units from the market, the leverage that can be brought by having had the property vacant may create political and legal problems for local governments seeking to enforce the controls." (emphasis added)

The Struggle to Prevent Abuse

The concerns addressed above on both page 4 and page 6 of the Digest will continue to be voiced by the Legislators until the very end when they believed that the structure they had set up would prevent such an abuse. Namely, SB 505 (Ellis Act) would allow the landlord the right "to go out of business or occupation" and evict the tenants without cause, however, at the same time SB 505 would be re-affirming the right of the public entity to have control over what use the property would thereafter be used, and thus the land use regulations would act as a sufficient deterrence to prevent a landlord from using SB 505 unwisely or in bad faith. As an added deterrence to the landlord, a series of amendments were added to SB 505 prior to going to the Governor which reinstated rent control regulations in the event the landlord re-entered the residential rental business. (As noted above in items 2-7 of the Digest section.)

Prior to the August 20th hearing before the Assembly Committee on Judiciary, Gillies once again submitted another CAR Statement, this one dated August 16, in support of SB 505 (Ellis) titled "Right to Cease Business as a Landlord. The Statement is identical to the May 23rd Statement as noted above and once again reaffirms the reasons to support SB 505. "SB 505 fundamentally and simply permits the owner to cease offering property for rent. It does not permit the owner to change the property to another use. Requiring a person to continue to offer his or her residential real property for rent is a requirement that a person (landlord) continue in a business or occupation which involves very considerable personal liability" and to provide otherwise would be "contrary to sound public policy affecting personal freedom which may approach or comprise involuntary servitude." (emphasis added)

The August 20th hearings as documented in the August 28th Amended report differs from the July 16 hearing report dated May 30 very little except for the definition of "accommodations" which was changed to read, "Accommodations are defined as:

(1 The residential rental within any detached physical structure containing four or more units.

(2) With respect to a detached physical structure containing three or fewer residential rental units, the residential rental units in that structure and in any other structure located on the same parcel of land."

On August 28, the Assembly had the Third Reading of SB 505 (Ellis Act), after which it moved to the Conference Committee where the bill was again amended. The report of the Committee on Conference provided a Digest of SB 505, a brief outline of the bill as passed by the Senate, amendments made by the Assembly, Conference Committee amendments, Fiscal Effect and Comments. The five amendments added to SB 505 are as follows: (See page 3 of Assembly Office of Research, Conference Committee No. 1 As Amended: September 10, 1985.)

"The Conference Committee amendments, among other things:

(1) Specifically authorize the award of punitive damages to displaced tenants under specified circumstances.

(2) Permit a public entity to institute an action for exemplary damages against an owner who reoffers accommodations for rent within a year after withdrawal.

(3) Require any owner who reoffers accommodations for rent to give the displaced tenant the right of to re-rent the unit.

(4) Prescribe that failure of an owner to comply with the bill's provisions is a defense in an unlawful detainer action.

(5) Provide that the bill's provisions are severable: the invalidity of any of its provisions shall not affect the provisions which can be given effect without the invalid provision(s).

On September 4, Gillies spoke before on the Assembly Floor explaining SB 505 and urging that the members vote "AYE" on the bill. Here is an excerpt from this speech made by Gillies which was found in the archival materials located with SB 505.

"This bill quite simply says that no government agency can compel an owner of residential real property to offer it for rent. In other words, it allows a landlord to go out of business... (emphasis added)

"During the very extensive consideration of this bill, I don't recall that any Legislator had expressed any opposition to the thought that a landlord should be able to go out of business when he or she is convinced that they are no longer willing to devote the time, accept the frustrations, expose themselves to the liability and other factors of continuing to be a landlord. (emphasis added)

"All of the consideration, and it has been extensive, has been how to assure that a landlord would not use this arbitrarily and abusively. I believe that the amendments which have been added to this bill during its very careful consideration have eliminated the opportunities for abuse."

On September 12, the report from the Committee on Conference was presented by Senator Ellis to the Senate Floor for vote where it passed. (See Senate Rules Committee, Office of Senate Floor Analyses, Amended Conference Report No. 1, 9/10/85) The main point of interest is a sentence which will be quoted in future cases which reads as follows (page three):

"This bill would preempt any local ordinance that prohibits landlords from removing a rental unit from the marketplace."

However, this sentence should be viewed in light of the entire paragraph within which it is found. The entire paragraph reads as follows:

" This bill would preempt any local ordinance that prohibits landlords from removing a rental unit from the marketplace. The California Association of Realtors, source of this bill, asserts that a property owner should have the right to conduct his personal affairs and cease rental operations without restriction when he no longer wishes to bear the responsibilities of being a landlord. In many cases, CAR writes, the rental of property involves not only the very considerable potential of personal liability, but also the continued expenditure of time and resources in the management of the property." (emphasis added)

Thus, the first sentence seems to imply that if a landlord wants to remove a rental unit from the marketplace, the landlord has an automatic right to do so. But then when read in context of the entire paragraph, the landlord is defined narrowly to be a landlord who "no longer wishes" to be a landlord, ie, the landlord is going completely out of the rental business. This understanding of the statute changes the landscape of the bill.

In addition, future court cases will misinterpret the Ellis Act to allow a landlord to evict tenants without cause and instead of just withdrawing the rental units from the marketplace, the landlords were permitted to immediately demolish the buildings. This also was a misreading of the SB 505, as further stated in the Senate Rules Committee Analyses, page 4 which read:

"This bill would not affect the right of any public entity to grant or deny any entitlement to use of real property, including planning, zoning, and subdivision map approvals."

"Thus, removal of the property from rental would not automatically enable the owner to demolish the units or convert them into condominiums. The owner would still be required to obtain the necessary permits from local authorities, according to the Senate Judiciary Committee analysis."

The Last Stage - SB 505 Becomes "The Ellis Act"

And on September 13, the bill was submitted to Governor George Deukmejian for signature. In a cover letter, Senator Ellis again reiterated his support for the bill:

"Very simply, the bill states that a public entity may not compel the owner of any residential real property to offer, or to continue to offer, accommodations in such property for rent or lease...During progress of the measure through the Legislature, a large number of amendments were added to deal with such situations as if a landlord were to go temporarily out of business and then again offered his units for rental...and, declaring that the bill only extended the right to go out of business and not any further right which the owner did not already possess...Despite the many amendments, the original thrust has been maintained: the good faith right to make a personal decision to go out of business for whatever reason, including potential liability, frustration with a personal service aspect of this business, psychological demands, or investment decisions..." (emphasis added)

In the Enrolled Bill Report are various forms from different departments summarizing SB 505. The following wording is worth noting from the Finance Department, dated September 19:

"Summary of Reasons for Signature:

This bill specifically seeks to overturn a decision of the California Supreme Court which held that a local ordinance could prevent a landlord from evicting tenants in order to end his responsibility as a landlord... (emphasis added)

"Analysis - Specific Findings:

"This bill is specifically aimed at overturning the findings in Nash. It would not give landlords carte blanche to do whatever they may wish with regard to their rental property...In summary, this bill appears to seek reasonable compromise between the rights of landlords..., and on the other hand the desires of some communities to retain residential units in order to achieve particular community goals." (emphasis added)

And from the Housing and Community Development Department dated September 23,

"SB 505 would overturn a portion of the Nash decision by establishing that, under certain circumstances, and subject to certain local governments and tenant protections, local governments may not require that a residential rental property owner continue to offer the units for rent. Both the specific standards and procedures as well as the extensive legislative intent set forth in the bill result in a very narrow authorization of unilateral landlord action (and consequent overruling of Nash) and a general preservation of broad local government authority to regulate the use of rental housing. (emphasis added)

"SB 505 ...would apply only to rental properties on which there are at least four housing units, and would not permit the withdrawal of only a portion of the rental units on a piece of property." (emphasis added)

"SB 505 is carefully drafted to avoid infringing on any local government powers except the power to force a property owner to function as a landlord against his or her will. (emphasis added)

"SB 505 specifically provides and confirms authority for local governments to protect tenants who may be displaced when a property owner exercises the right to cease operating as a landlord and to continue to regulate the use of the rental housing except in narrow circumstances." (emphasis added)

CONCLUSION

Our legal position is that the Ellis Act was intended for Mom & Pop landlords who found that being a landlord demanded too much of their personal time and energy and that they really wanted to change occupations. Thus the Ellis Act requires the landlord to go completely out of the rental market, not parcel by parcel or apartment complex by apartment complex. Furthermore, the Ellis Act was a balance between a landlord who wanted to go out of the rental market and the public entities need to provide adequate housing for the community. Therefore, the Ellis Act was not intended for large corporate career landlords because to permit such landlords to withdraw a large quantity of rental units from the housing market would have a detrimental impact on the police powers of public entities to regulate land use for planning, zoning, and subdivision map approvals. The impact when a small landlord withdraws all their rental units from the housing supply would not be as detrimental to the community, and thus not a violation of the public entities police powers.