The Landlord Who Could Neither Exit Nor Remain in the Rental Business: The Hobson’s Choice of the Recent Barrington Plaza Case

California’s Ellis Act was enacted in 1985 to enable landlords who find themselves in financially or otherwise unmanageable situations to exit the rental business. It came about as a response to a particular Santa Monica landlord’s desire to demolish his rental building, which had become difficult and emotionally taxing to operate. Santa Monica denied that landlord the necessary permits to complete the demolition, effectively compelling him to remain in business. Shortly thereafter, the Ellis Act was passed, and a landlord’s ‘unfettered right’ to exit the business became the law of the State. That ‘unfettered right’ has been confirmed in many cases before the State’s higher courts since that time.

In a case recently tried in the Los Angeles Superior Court, Barrington Plaza Tenant Association v. Douglas Emmett, et al., the meaning of the landlord’s ‘unfettered right’ was tested. Over time, the apartment buildings at issue in that case had become unsafe, and in need of important, extensive, and expensive upgrades. The need had become so dire, apparently, as to cause multiple fires onsite and at least one fatality. The landlord sought to rectify this in a manner that was least disruptive to the tenants, with an eye towards ultimately allowing them to return. However, along the way, it became apparent that the tenants would resist such efforts, insofar as the landlord would require the tenants to temporarily move out of the property for a period of years. As facing that resistance became more and more time-consuming and expensive itself, including the threat of appeals by the tenants leading the resistance, the landlord looked to the Ellis Act. After trial, the court concluded the Ellis Act was unavailable to that particular landlord, who it found did not have the required intent to exit the rental business permanently. It is too early to know whether that decision will be appealed, or if so, what that may ultimately mean for future and other landlords in California. However, a few observations about the case are immediately apparent.

One, if a landlord is guaranteed an ‘unfettered right’ to exit the rental business, then that guarantee must be meaningful. There is no use of the word ‘permanent’ in the Ellis Act. Rather, the Ellis Act imposes severe penalties upon a landlord who re-rents a property within a certain time of completing the process, including punitive damages. It also imposes onerous re-rental restrictions for up to 10 years thereafter, which are recorded against the title to the property. Those are the proper deterrents to dissuade a landlord from exiting the rental business without sufficient ‘permanency,’ and they have proven adequate for nearly 40 years now.

And two, if a city maintains an independent desire to see landlords remain in business, thereby minimizing the use of the Ellis Act, it runs counter to that intent to make it difficult or unduly expensive for landlords to operate as landlords. Without question, landlords who seek to temporarily displace their tenants for important work to their property should be obligated to notify the tenants of that intent, and to compensate them for doing so, within reason. But on the flipside, permitting tenants to stand in the way of the landlord’s legitimate desire to improve their buildings – as was on display in the Barrington Plaza case – threatens to yield a variety of undesirable results. For when tenants are permitted to challenge those legitimate efforts via extensive appeals before local rent boards and/or permitting agencies, the landlord’s already diminished return for the effort goes to zero. It is imperative that these processes be streamlined, and modified such that they serve only to validate the legitimate need for the work. As with the Ellis Act re-rental restrictions, there is ample protection elsewhere in the law against landlords who misuse the process of temporarily relocating their tenants for construction. The review processes initiated by building occupants should not be permitted to act as swords, to be wielded upon landlords attempting to legitimately protect others’ safety and well-being.

The Barrington Plaza case may ultimately have great, or no, bearing on the application of the Ellis Act in the State. But the predicament it considers is one that courts and municipalities alike should consider nonetheless, particularly in this era where there is reduced availability of insurance to help protect against the risk it imposes.

For assistance with issues related to the Ellis Act or relocation of tenants during a construction project, you may contact Scott A. Freedman at Zacks & Freedman, PC for guidance. Contact us at your convenience to request a consultation.

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