Kavanau v. Santa Monica Rent Control Bd

In Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal. 4th 761, an apartment house owner incurred expenses improving the property and applied for a rent increase. The Santa Monica Rent Control Board granted an increase but required that the rent be increased gradually over an eight-year period subject to the board's rule that total increases not exceed 12 percent a year. In a prior action, the Court of Appeal had concluded that the 12 percent limit deprived Kavanau of a fair return and ordered the board not to apply the limit to his application for rent increases. (Kavanau v. Santa Monica Rent Control Bd., supra, 19 Cal. App. 4th at p. 736.) Subsequently, Kavanau filed this action to recover damages stemming from the temporary application of the limitation. He alleged causes of action for inverse condemnation and for a deprivation of due process (section 1983). The trial court granted the board's demurrer. (Kavanau, supra, 16 Cal. 4th at pp. 766-768.) The Supreme Court questioned the appellate court's reasoning that application of the 12 percent limit to Kavanau's petition for rent increases violated his due process rights. However, the judgment in that case was final so the court accepted as true the conclusion that application of the limit deprived Kavanau of a fair return and thus violated his right to due process. (Kavanau, supra, 16 Cal. 4th at pp. 777-779, 781.) Kavanau abandoned his section 1983 claim for damages on appeal, choosing to focus on his claim for inverse condemnation damages. (Kavanau, 16 Cal. 4th at p. 780.) The Kavanau court concluded it need not decide whether a rent regulation that violates a property owner's right to due process also constitutes a regulatory taking. Assuming it might, the availability of an adequate remedy for the due process violation obviated the taking. The adequate remedy was a valuable benefit that satisfied the takings clause. (Kavanau, supra, 16 Cal. 4th at p. 782.) The court reasoned, since due process required that future rent increases must enable the owner to achieve a fair return, the rent board, when setting rent ceilings, had to consider the cost to Kavanau of any confiscatory rent ceilings the board had previously imposed. Thus, "irrespective of whether section 1983 would have afforded Kavanau a remedy for the due process violation, his continuing right to an adjustment of future rents can provide an adequate remedy." (16 Cal. 4th at p. 783.) This remedy placed the cost of compensating Kavanau on the tenants who benefited from the unconstitutionally low rents and avoided imposing a burden on the court to determine appropriate rent in order to measure damages. (Id. at p. 784.) The court noted, if the landlord promptly challenged the confiscatory rent setting, and sought a stay of that order during litigation, lost rents, and thus any future rent adjustments, were likely to be relatively small. On the other hand, a landlord who permitted large losses to accumulate could not complain if market forces prevented him from recouping those losses. (Kavanau, supra, 16 Cal. 4th at p. 785.) The court did not decide what alternative remedy might be appropriate if a landlord established that future rent adjustments were unavailable. But, the court held, before a landlord could allege such unavailability, he must petition for those adjustments, the rent board must determine, subject to judicial review, their appropriate amount, and he must attempt to impose them. (Ibid.)