Sea Castle Apartments, Ltd. v. Santa Monica Rent Control Board

Opinion

DEVICH, J. Plaintiff and cross-defendant Sea Castle Apartments, Ltd. (Sea Castle), and defendant and cross-complainant Santa Monica Rent Control Board (Board) each appeal from a judgment entered following an order granting Board’s motion for summary judgment. In the published portion of this opinion, we determine that, where the maximum allowable rental rates established by local ordinance have been preempted by the United States Department of Housing and Urban Development (HUD) on the basis the property involved is financed with a mortgage insured by HUD, the rates revert to those established by local ordinance upon extinguishment of the HUD-insured mortgage.

[1543]Background

This case involves a 178-unit residential apartment complex in Santa Monica, California, built around 1925 (the property). The property was rehabilitated in 1973, utilizing a loan insured by HUD. From 1976 through 1980, HUD managed the property as the mortgagee in possession.

In April 1979, the City of Santa Monica adopted city charter article XVIII (Rent Control Law), which established a comprehensive system of rent control. Under the provisions of Rent Control Law, all rents were rolled back to their April 1978 levels, but annual general adjustments and individual rent increases were permitted where warranted by the circumstances.

In December 1980, Monica Apartments Investment Company (Monica) purchased and took possession of the property. On July 20, 1981, Monica sought an individual rent increase by filing petition No. 1-0528 with Board. On October 1, 1981, Board approved the petition in part, and ordered that the maximum allowable rents on the property be increased to a yield of $519,954 per annum.

Thereafter, pursuant to HUD regulations, Monica requested that HUD preempt the rates Board had authorized in petition No. 1-0528.1 In October 1981, the request was granted, and HUD set rental rates at a maximum annual yield of $579,191.

On March 7, 1983, Monica filed a petition for rent increase with Board (No. 1-0669), seeking rental increases greater than those granted by HUD in 1981. On April 7, 1983, Board permitted rents to be raised to an annual yield of $604,848.

Monica again requested that HUD preempt Board’s decision. In August 1983, the request was granted, and HUD set rental rates at a maximum annual yield of $743,212.2