Opinion ID: 1193965
Heading Depth: 1
Heading Rank: 5

Heading: Constitutional Deficiencies in Charter Amendment's Provisions for Fixing Maximum Rents

Text: Having sustained defendant's power to limit residential rents within the city for the purposes stated in the charter amendment, we now consider the constitutionality of the means provided by the amendment for fixing and adjusting permissible rents. As already stated these means are within the police power if they are reasonably related to the legislative purpose. Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty. ( Nebbia v. New York, supra, 291 U.S. 502, 539 [78 L.Ed. 940, 958]; accord, Permian Basin Area Rate Cases (1968) 390 U.S. 747, 769-770 [20 L.Ed.2d 312, 337-338, 88 S.Ct. 1344].) The charter amendment declares that its rent control provisions are intended to counteract the ill effects of rapidly rising and exorbitant rents exploiting [the housing] shortage. (§ 1.) The provisions are within the police power if they are reasonably calculated to eliminate excessive rents and at the same time provide landlords with a just and reasonable return on their property. However, if it is apparent from the face of the provisions that their effect will necessarily be to lower rents more than could reasonably be considered to be required for the measure's stated purpose, they are unconstitutionally confiscatory. ( Power Comm'n v. Pipeline Co. (1942) 315 U.S. 575, 585-586 [86 L.Ed. 1037, 1049-1050, 62 S.Ct. 736]; Hutton Park Gardens v. Town Council, supra, 68 N.J. 543, 565-571 [350 A.2d 1, 13-16].) Defendant and interveners contend that any present consideration of the possible confiscatory effect of the charter amendment is premature until the amendment has been allowed to become operative and the actual rent ceilings imposed under it can be measured against constitutional standards. It is true that whether a regulation of prices is reasonable or confiscatory depends ultimately on the result reached. ( Power Comm'n v. Hope Gas. Co. (1944) 320 U.S. 591, 602 [88 L.Ed. 333, 344-345, 64 S.Ct. 281].) However, such a regulation may be invalid on its face when its terms will not permit those who administer it to avoid confiscatory results in its application to the complaining parties. ( City of Miami Beach v. Forte Towers, Inc. (Fla. 1974) 305 So.2d 764, 768; see Mora v. Mejias (1st Cir.1955) 223 F.2d 814.) It is to the possibility of such facial invalidity that our present inquiry is directed. As heretofore explained the charter amendment establishes the maximum rent chargeable for each housing unit by fixing the unit's base rent and providing for subsequent upward or downward adjustments on a unit-by-unit basis. We consider first the base rent provision. The base rent is stated to be the rent in effect on August 15, 1971 or any rent in effect subsequent to this date if it was less. If no rent was in effect on August 15, 1971, ... the base rent shall be established by the [Rent Control] Board based on the generally prevailing rents for comparable units in the City of Berkeley. (§ 4.) Rent control enactments typically use the rent charged on a prior date as a starting point for the fixing of maximum rents on the theory that it approximates the rent that would be paid in an open market without the upward pressures that the imposition of rent control is intended to counteract. (See Delaware Valley Apt. House Own. Ass'n. v. United States (E.D.Pa. 1972) 350 F. Supp. 1144, aff'd, 482 F.2d 1400; Chatlos v. Brown (Em.App. 1943) 136 F.2d 490, 493.) The prior date is set early enough to avoid incorporating last-minute increases made by landlords in anticipation of the controls. (See Marshal House, Inc. v. Rent Control Board (1971) 358 Mass. 686, 701 [266 N.E.2d 876].) (18) Selection of August 15, 1971, as the key date for determination of base rents under the charter amendment was appropriate and reasonable. The possibility of rent controls in Berkeley arose at least as early as March 1971 when controls were recommended in a minority report of the city council's rental housing committee. (See fn. 3, ante. ) On August 15, 1971, the President of the United States, acting pursuant to the Economic Stabilization Act of 1970 (Pub. L. No. 91-379, 84 Stat. 799), ordered all rents frozen for 90 days at their highest level during the 30-day period prior to August 15, 1971. (Exec. Order No. 11615, 36 Fed. Reg. 15727.) Subsequent rent controls under the act used August 15, 1971, as the primary base date for calculating maximum rents. (See 6 C.F.R., pt. 301, 37 Fed. Reg. 13226 (July 4, 1972).) [30] Thus the advantages of selecting August 15, 1971, as the key date for base rents under the charter amendment were that (1) it marked the latest time at which rents had been set in an unregulated market and (2) the importance of the date under the federal regulatory scheme greatly increased the probability that landlords would have records concerning rents on that date readily available. The charter amendment provides that the rollback of rents to base levels is to take effect 90 days after election of the rent control board. (§ 4.) This election was held on January 23, 1973, but the rollback was enjoined by preliminary injunction on April 26, 1973, and enforcement of the entire charter amendment was thereafter enjoined by the present judgment on June 22, 1973. Plaintiffs contend that marked rises in property taxes, utility rates, and the costs of goods and services since 1973 have eliminated any reasonable grounds which then existed for using August 15, 1971, as a rollback date and have made it highly probable if not certain that the present imposition of such a rollback would reduce rents to confiscatorily low levels pending individual upward adjustments. Interveners reply to this contention by pointing out that the present litigation has caused at least a three-year postponement in the charter amendment's operation which was not contemplated by those who selected the rollback date. Interveners propose that we remedy the problem created by the postponement by setting a new rollback date or by ordering that appropriate relief be provided upon remand. Such action on our part is unnecessary in view of our hereinafter explained conclusion that the charter amendment's provisions for adjusting maximum rents are constitutionally insufficient to relieve landlords from confiscatory rent levels even if the base rents were keyed to a more current date. To eliminate any issue of the propriety of using August 15, 1971, as the date for fixing base rents under section 4, we assume for purposes of the remaining discussion that the date used for this purpose would be the date this opinion is filed. We turn to the charter amendment's provisions for adjustment of maximum rents. Plaintiffs contend that these provisions fail to provide sufficient standards for the guidance of the rent control board in acting upon petitions for increases or decreases in maximum rents and thereby constitute an unlawful delegation of legislative power. (19) A municipal legislative body is constitutionally prohibited from delegating the formulation of legislative policy but may declare a policy, fix a primary standard, and authorize executive or administrative officers to prescribe subsidiary rules and regulations that implement the policy and standard and to determine the application of the policy or standard to the facts of particular cases. ( Kugler v. Yocum (1968) 69 Cal.2d 371, 375-376 [71 Cal. Rptr. 687, 445 P.2d 303].) The charter amendment provides that [i]n reviewing ... petitions for [rent] adjustments, the Board shall consider relevant factors including but not limited to the following: (a) increases or decreases in property taxes; (b) unavoidable increases or decreases in operating and maintenance expenses; (c) capital improvement of the rent-controlled unit, as distinguished from ordinary repair, replacement and maintenance; (d) increases or decreases in living space, furniture, furnishings or equipment; (e) substantial deterioration of the rent-controlled unit other than as a result of ordinary wear and tear; and (f) failure on the part of the landlord to provide adequate housing services. (§ 5.) It is argued that this listing of factors does not adequately inform either the Board or a court reviewing the Board's actions just how the presence of the factors under particular circumstances is to be translated into dollar increases or decreases in rent. Another criticism is the omission of factors that might have prevented the base rent from reflecting general market conditions such as a seasonal fluctuation in the demand for the kind of housing involved or the existence of a special relationship between landlord and tenant resulting in an undercharging of rent. (See Hillcrest Terrace Corp. v. Brown (Em.App. 1943) 137 F.2d 663.) However, section 5 provides that the foregoing factors which it lists are not exclusive but illustrative of the relevant factors to be considered by the Board. Moreover, the Board is given other significant guidance by the charter amendment's statement of purpose in section 1. (20) Standards sufficient for administrative application of a statute can be implied by the statutory purpose. ( In re Marks (1969) 71 Cal.2d 31, 51 [77 Cal. Rptr. 1, 453 P.2d 441]; In re Petersen, supra, 51 Cal.2d 177, 185-186.) Here the charter amendment's purpose of counteracting the ill effects of rapidly rising and exorbitant rents exploiting [the housing] shortage (§ 1.) implies a standard of fixing maximum rent levels at a point that permits the landlord to charge a just and reasonable rent and no more. ( Hutton Park Gardens v. Town Council, supra, 68 N.J. 543 [350 A.2d 1, 16].) Indeed section 3, subdivision (g), directs the Board to issue and follow such rules and regulations, including those which are contained in this Article, as will further the purposes of this Article.  (Italics supplied.) The rule that the statute must provide a yardstick to define the powers of the executive or administrative officer is easy to state but rather hard to apply. Probably the best that can be done is to state that the yardstick must be as definite as the exigencies of the particular problem permit. ( Cal. State Auto. etc. Bureau v. Downey (1950) 96 Cal. App.2d 876, 902 [216 P.2d 882].) By stating its purpose and providing a nonexclusive illustrative list of relevant factors to be considered, the charter amendment provides constitutionally sufficient legislative guidance to the Board for its determination of petitions for adjustments of maximum rents. However, legislative guidance by way of policy and primary standards is not enough if the Legislature fail[s] to establish an effective mechanism to assure the proper implementation of its policy decisions. ( Kugler v. Yocum, supra, 69 Cal.2d 371, 376-377.) The need is usually not for standards but for safeguards.... When statutes delegate power with inadequate protection against unfairness or favoritism, and when such protection can easily be provided, the reviewing courts may well either insist upon such protection or invalidate the legislation. (Italics supplied.) (1 Davis, Administrative Law Treatise (1958) § 2.15; see Kugler v. Yocum, supra, 69 Cal.2d at p. 381.) (21) Here the charter amendment drastically and unnecessarily restricts the rent control board's power to adjust rents, thereby making inevitable the arbitrary imposition of unreasonably low rent ceilings. It is clear that if the base rent for all controlled units were to remain as the maximum rent for an indefinite period many or most rent ceilings would be or become confiscatory. For such rent ceilings of indefinite duration an adjustment mechanism is constitutionally necessary to provide for changes in circumstances and also provide for the previously mentioned situations in which the base rent cannot reasonably be deemed to reflect general market conditions. The mechanism is sufficient for the required purpose only if it is capable of providing adjustments in maximum rents without a substantially greater incidence and degree of delay than is practically necessary. Property may be as effectively taken by long-continued and unreasonable delay in putting an end to confiscatory rates as by an express affirmance of them.... ( Smith v. Illinois Bell Tel. Co. (1926) 270 U.S. 587, 591 [70 L.Ed. 747, 749, 46 S.Ct. 408] (enjoining enforcement of telephone rates because of unreasonable delay in acting upon application for rate increase).) The charter amendment is constitutionally deficient in that it withholds powers by which the rent control board could adjust maximum rents without unreasonable delays and instead requires the Board to follow an adjustment procedure which would make such delays inevitable. The provisions of the charter amendment in which those delays inhere must be examined in relation to the magnitude of the job to be done. The amended complaint alleges that Berkeley has some 30,000 rental units of which 22,000 are subject to rent control under the charter amendment. Although this allegation is denied for lack of sufficient information or belief and the findings do not directly resolve the issue, they do state that the city's population is 116,000 of whom 63 percent, or 73,080, are tenants. The findings also indicate that the city has at least 16,000 rental units, and the trial court's memorandum opinion indicates there are over 17,000 apartment rental units. [31] The Board has no power to adjust rent ceilings on any one of these thousands of units until it has received a separate petition for that unit and considered the petition at an adjustment hearing. (§ 5, 1st. par.; § 6, subd. (a); see fn. 7, ante. ) A landlord may not file a petition without simultaneously filing a certificate from the city building inspection service that the premises comply with state and city codes based upon an inspection made within the preceding six months. (§ 5, 3d par.) [32] Consolidation of petitions for hearing is permitted only if they relate to units in the same building and then only with the written consent of a majority of the tenants. (§ 6, subd. (h).) [33] Any rent adjustment must be supported by the preponderance of the evidence submitted at the hearing. (§ 6, subd. (g).) The public hearing record must include all exhibits, papers and documents required to be filed or accepted into evidence during the proceeding; a list of all participants present; a summary of all testimony accepted in the proceeding; a statement of all materials officially noticed; all findings of fact; the ruling on each exception or objection, if any are presented; all recommended decisions, orders or rulings; all final decisions and/or orders; and the reasons for each recommended and each final decision, order or ruling. (§ 6, subd. (f).) Moreover, the Board is precluded from delegating the holding of hearings to a staff person or even to one or a panel of its members. No adjustment can be granted until after the Board considers the petition at an adjustment hearing.  (Italics supplied.) (§ 6, subd. (a).) Of the five members of the Board (§ 3, subd. (a)) three constitute a quorum and [t]hree affirmative votes are required for a decision, including all motions, orders, and rulings of the Board. (§ 3, subd. (i).) Yet Board members are not compensated as full-time officials. Each member is to be paid $50 per meeting but is limited to a maximum annual compensation of $2,400. (§ 3, subd. (k).) These provisions put the Board in a procedural strait jacket. It cannot order general rental adjustments for all or any class of rental units based on generally applicable factors such as property taxes. [34] It cannot terminate controls over any housing. It cannot consider a landlord's petition that is not accompanied by a current building inspection certificate of code compliance. It cannot dispense with a full-blown hearing on each adjustment petition even though all nonpetitioning parties are given ample notice and none requests to be heard. It cannot accept petitions pertaining to more than one unit or consolidate petitions pertaining to individual units for hearing even in the absence of objection except when the majority of the tenants in a building give written consent to consolidation of the petitions relating to that building. [35] It cannot delegate the holding of hearings to a hearing officer or a member of the Board. In short, it is denied the means of reducing its job to manageable proportions through the formulation and application of general rules, the appropriate delegation of responsibility, and the focusing of the adjudicative process upon issues which cannot fairly be resolved in any other way. The impracticability of regulating an enormous number of highly varied transactions wholly on a case-by-case basis has frequently led to regulation by means of rules and schedules derived from evidence typical of the members of the regulated group, subject to the right of any member to make a showing of sufficient deviation from the norm to warrant special treatment. One of the important reasons that hearings on the circumstances of each individual's situation are not constitutionally required for the imposition of regulation in such cases is that such individual treatment would be impracticable. ( Permian Basin Area Rate Cases, supra, 390 U.S. 747, 756-758, 768-770 [20 L.Ed.2d 312, 329-331, 336-338]; Chicago & N.W.R. Co. v. A., T. & S.F.R. Co. (1967) 387 U.S. 326, 340-343 [18 L.Ed.2d 803, 813-816, 87 S.Ct. 1585]; New England Divisions Case (1923) 261 U.S. 184, 196-199 [67 L.Ed. 605, 612-614, 43 S.Ct. 270]; Wilson v. Brown (Em.App. 1943) 137 F.2d 348, 352-354; Amalgamated Meat Cutters & Butcher Work. v. Connally (D.D.C. 1971) 337 F. Supp. 737, 758.) In the present case the imposition of rent ceilings in the form of a rollback to base rents is virtually automatic. Thereafter, regardless of how inequitable any rent ceiling may be under all the circumstances, it cannot be adjusted except by a procedure that inherently and unnecessarily precludes reasonably prompt action except perhaps for a lucky few. Defendant and interveners argue that any concern over whether maximum rents will be adjusted with a constitutional minimum of promptitude is speculative and premature because it must be presumed that the Board will not deliberately deprive landlords of their constitutional rights. They refer us to Butterworth v. Boyd (1938) 12 Cal.2d 140, 149 [82 P.2d 434, 126 A.L.R. 838], where we said: It is to be presumed that the board will exercise its powers in conformity with the requirements of the Constitution; and if it does act unfairly, the fault lies with the board and not the statute.  (Italics supplied.) The delays in rent adjustment with which we are concerned stem not from any anticipated dereliction of duty on the part of the rent control board but from defects in the charter amendment itself. [36] A different question would be presented if the delays inherent in the charter amendment's requirement that rents be adjusted only on the basis of unit-by-unit hearings before a single tribunal were essential to its purpose. Clearly the Board's powers could be broadened so as to ameliorate the delays sufficiently while preserving the rights of all concerned. Nor do we preclude the possibility of other legislative solutions to the problem. But under the charter amendment as it now stands the combination of the rollback to base rents and the inexcusably cumbersome rent adjustment procedure is not reasonably related to the amendment's stated purpose of preventing excessive rents and so would deprive the plaintiff landlords of due process of law if permitted to take effect. Finally there appears no way of severing the invalid limitations on the Board's powers to adjust maximum rents from the remainder of the charter amendment. The constitutional defect cannot be cured simply by excision but only by additional provisions that are beyond our power to provide. ( Dillon v. Municipal Court (1971) 4 Cal.3d 860, 871 [94 Cal. Rptr. 777, 484 P.2d 945].) Moreover, the argument in support of the charter amendment distributed to the electors who voted on its adoption assured them that the measure establishes an elected five member Rent Control Board to regulate rents ... and evictions in Berkeley on a case by case basis.... [T]he plan proposed here is extremely flexible [ sic ], with each case handled individually by the Board. Thus it is by no means clear that the electorate would have approved the measure if the Board had been given broader rental adjustment powers. (See Methodist Hosp. of Sacramento v. Saylor (1971) 5 Cal.3d 685, 695 [97 Cal. Rptr. 1, 488 P.2d 161]; Carter v. Seaboard Finance Co. (1949) 33 Cal.2d 564, 580-582 [203 P.2d 758].) The judgment is affirmed.