August 26, John White, Legislative Assistant Housing, Community, and Economic Development Committee

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1 Los RENT STABILIZATION DIVISION - ADMINISTRATIVE SUPPORT Ji:~fjment Antonio R. Villaraigosa. Mayor Mercedes Marquez. General Manager 1200 W. 7th Street Bth FL. Los Angeles, CA RENT HOTLINE: I fax 213.BORBBIB Council File: V' 0 l-0593-s25 Ol-0593-S26 Ol-0593-S27 Ol-0593-S28 0 l-0593-s29 Ol-0593-S30 Ol-0593-S31 Ol-0593-S32 Ol-0593-S33 Ol-0593-S34 C. D.: C. D.: C.D.: C. D.: C.D.: C. D.: C.D.: C.D.: C.D.: C.D.: Contact Persons: Ken Simmons 213/ Agnes Lung-Tam 213/ James Hildebrandt 213/ Honorable Members of the City Council City of Los Angeles 200 North Spring Street Los Angeles, CA Attention: John White, Legislative Assistant Housing, Community, and Economic Development Committee CITY COUNCIL TRANSMITTAL: REQUEST TO TAKE ACTION ON HARDSHIP EXEMPTION APPLICATIONS FROM THE MORATORIUM ON EVICTIONS FOR THE PURPOSES OF MAJOR REHABILITATION SUMMARY At the request of City Council, the Los Angeles Housing Department (LAHD) has reviewed 10 applications for hardship exemptions from the major rehabilitation moratorium. LAHD recommends the denial of alll 0 applications because they do not clearly meet the major rehabilitation provisions of the Rent Stabilization Ordinance (RSO), they do not demonstrate substantial non-recoverable costs to date, the proposed work can be realized without the eviction of the tenant, and/or they were submitted after the City Council approved the replacement of the Major Rehabilitation Program with the Primary Renovation Program. An Equal Opportunity Affirmative Action Employer

2 Council Transmittal: Major Rehabihtarion Hardship Exemptions Page2 RECOMMENDATIONS The General Manager, LARD, requests that this matter be scheduled for consideration by the appropriate City Council committee(s) at the earliest possible meeting(s) and forwarded to the City Council for review and approval immediately thereafter. The General Manager, LARD, further respectfully recommends that the City Council, acting under its legislative capacity, find that extreme hardship has not been duly established and deny exemptions to the provisions of the major rehabilitation moratorium ordinance in the following cases: II"J\ /2 E h Street (C.F S25; CD 14); B W. Adams Boulevard (C.F S26; CD 8); C Matteson Avenue (C.F S27; CD 11); D /2 S. Grand Avenue (C.F S28; CD 9); E Sherbourne Drive (C.F S29; CD 10); F E. 33rd Street (C.F S30; CD 9); G Barton Avenue (C.F S31; CD 13); H /2 Barton Avenue (C.F S32; CD 13); I W. 17th Street (C.F S33; CD 1); and J South Burnside Ave. (C.F S34; CD 10). BACKGROUND Prior to May 2, 2005, Section A.9.b ofthe Los Angeles Municipal Code (LAMC) allowed a landlord to bring an action to recover possession of a rental unit in order to perform work on the building housing that rental unit provided that all of the following conditions were met: (1) such work cost not less than $10,000 per unit; (2) the primary work to be undertaken cost not less than $9,000 per unit; and (3) the primary work necessitated the eviction of the tenant because the work would render the rental unit uninhabitable for not less than 45 calendar days. Following the completion of such work, pursuant to LAMC Sec C and Sec A.7, the landlord could re-rent such units at market rents, subject to the restriction of rents to pre-rehabilitation levels on 25% of the rehabilitated units in buildings where four units were vacated by eviction for major rehabilitation. Effective July 30, 2002 the Council imposed a moratorium on evictions due to major rehabilitation that continued until May 2, 2005, the date that the Primary Renovation Program became effective and the Municipal Code provisions relating to evictions for major rehabilitation (and subsequent re-rentals) were repealed. However, each of the series of interim control ordinances implementing the moratorium provided the following hardship exemption from the moratorium: "The City Council, acting in its legislative capacity and by resolution, may grant an exemption from the provisions of this Ordinance in cases of extreme hardship duly established to the satisfaction of the City Council."

3 Council Transmittal: Major Rehabilit.. uon Hardship Exemptions Page 3 Applications for hardship exemptions have been received by the City Clerk and referred to the Housing, Community and Economic Development Committee for consideration. The chair of that Committee has requested that LARD review these applications and provide the Committee with a report and recommendations for action. In January 2003, the Los Angeles Housing Department (LARD) transmitted recommendations regarding the first six applications submitted for hardship exemption from the moratorium (C.F S3 through C.F SS). Since the Ordinance did not specify any evaluation criteria for finding extreme hardship, the Department used the following criteria in making its recommendations: (a) Whether the non-recoverable expenses were significant; (b) The length of time the project was already in process; and (c) Alternatives to eviction of the tenants. On this basis, LARD recommended that Council approve three hardship applications and disapproval of the remaining three applications. Following the receipt of additional information regarding one of these properties, City Council acted to approve four of the six applications. In each of the instances where a hardship application was approved, Council found that the applicant had detrimentally relied on the existing RSO language by making significant expenditures (e.g., for plans, professional services, materials) prior to the enactment of the moratorium. As a result of considering this first round of hardship applications, City Council instructed LARD to incorporate a more complete evaluation in considering "Extreme Hardship" for subsequent applications which would include the following factors: (1) detrimental reliance and the reasonableness of the property owner's reliance; (2) the tenant's hardship; (3) the availability of affordable, comparable housing within the same neighborhood; ( 4) alternatives to permanent displacement through temporary relocation and/or the staging of construction; and (5) the public interest in preventing displacement of long term residents and preserving existing affordable housing. In February 2004, the Los Angeles Housing Department transmitted its second round of recommendations on 16 additional applications for hardship exemption from the major rehabilitation moratorium (C.F S9 through S24). LARD recommended denial of all 16 applications because they did not clearly meet the Major Rehabilitation provisions of the Rent Stabilization Ordinance, did not demonstrate substantial non-recoverable costs, and the proposed work could be realized without eviction of the tenant. City Council adopted the Department's recommendation and denied all16 applications. Subsequently, an additional10 applications have been forwarded to LARD for review and recommendation. LARD has completed its review and evaluation of all 10 applications referred to the Department and provides the following analysis. DISCUSSION Ordinance No. 176,544 went into effect May 2, This ordinance replaced the Major Rehabilitation Program with the Primary Renovation Program. Since the Major Rehabilitation Program no longer exist, the subject Hardship Exemption Applications could be considered

4 Council Transmittal: Major Rehabilit<1non Hardship Exemptions Page4 moot, and the owners could apply to do the desired/necessary work under the Primary Renovation Program. The Primary Renovation Program provides tenants with additional relocation options and needed protection when rehabilitation work is done with tenants in place and establishes a new cost recovery program for owners. /A ~ EAST 15TH STREET (C.F S25; CD 14) (4 existing units, rehabilitation of 4 units, vacation ofunits 1365, 1365Yz, 1367, & ) Applicant: Express Financial Services Background: The owner was cited for Housing Code violations on February 11, On April 27, 2004, the owner applied for a hardship waiver seeking to evict tenants in order to correct those code violations. The owner's contractor stated that it was impossible to complete this work while the units were still occupied. Investigation: The ordered repair work was completed without evicting the tenants and the property was sold in April2005. Discussion: No basis remains for an eviction action under major rehabilitation. B WEST ADAMS BOULEY ARD (C.F S26; CD 8) (4 existing units, rehabilitation of 4 units, vacation ofunits 1865 & 1867) Applicant: K.A.R. Properties, Inc. Background: A Notice of Substandard Condition was recorded against this property in 2002 and is still open. Also in 2002, the previous owner paid for building permits to create an additional bedroom and bath for all four units without increasing the buildings square footage. A Declaration of Intent to Evict for Major Rehabilitation was processed by LARD in 2002 but later rescinded because the owner could not evict the tenants within 60 days of the approval of the moratorium. In 2003, the property was purchased by the current owners who then filed a Declaration of Intent to Evict for Owner-Occupancy of units 1867 and {The tenant in unit 1867 was able to successful challenge this eviction in court). Subsequently, the owners filed an application for hardship exemption and paid for building permits. Investigation: An LARD inspector conducted a site visit and concluded that the proposed rehabilitation work could not be accomplished with the tenants in their units and would be more efficiently accomplished if all units were vacated at the same time. LARD sent query letters to both tenants who would be subject to eviction and received one response from a

5 Page 5 senior tenant who indicated an inability to afford the $ rents for a comparable unit in the area. Discussion: Given that (a) the previous owner had not incurred significant non-recoverable costs prior to the imposition of the moratorium and (b) the property was sold to a new owner after the moratorium was in place, there is no basis for asserting that the owner detrimentally relied on the major rehabilitation eviction provisions ofthe Municipal Code. At least one of the tenants that would be vacated under an eviction for major rehabilitation is a senior who would face the hardship of a significant rent increase in comparable alternative housing. The proposed work is of a scale supportable by the Primary Renovation Program, and could be facilitated by the existence of a vacant unit at the site. For these reasons, the Department recommends that Council find that no instance of extreme hardship exists and deny the application. C MATTESON AVENUE (C.F. Ol-0593-S27; CD 11) (8 existing units, rehabilitation of 4 units, vacation of Units 3, 5, & 6) Applicant: KMK Management Background: The current owner purchased this property in November The application for hardship exemption was received on May 26, The applicant sought to evict tenants in four units (1,3,5, and 6); however, Unit #1 was voluntarily vacated after the application was received. These units are located in a two- story, 8-unit apartment building, Units 1 and 3 on the bottom and units 5 and 6 on top. Unit 5 and 6 share a common wall, and unit 6 is on top of unit 3. The proposed work would make the units more functional and change the layout of units to be the same as other units in the building that have already been remodeled. The owner would like to renovate all three units at the same time in order to realize time and cost savings. The common walls between unit 3, 5, and 6 would make renovating the units separately difficult. According to the owner, Unit #1 was voluntarily vacated in September 2004 by the tenant after coming to terms with the owner and was re-rented in December 2004 for $1375/month after undergoing $10,000- $15,000 in rehabilitation. (Note. The cost estimate submitted in October 2004 indicated that it would cost $25,410 to rehabilitate each unit.) The owner stated that the reason for major rehabilitation of the units is to bring the rents up to the fair market value. The rent for three of the units to be vacated ranged from $359 to $431, with the fourth unit renting for $1060. The rents for the other 4 units in the building, which were recently renovated, ranged from $1250 to $1350. The owner also stated that the rents paid by the tenants in the units to be vacated are below the fair market rents recognized by Federal government for subsidized housing and that tenants in unit 1, 3, and 5 do not live there full-time because they have other housing.

6 Page 6 Investigation: LARD inspected this property in 2003 under the Systematic Code Enforcement Program (SCEP). Eight minor deficiencies were found which were all subsequently corrected. The inspector who reviewed the hardship application concurred with the owner that the proposed work would make the affected units uninhabitable for over 45 days, but thought that the proposed cost of $25,450 per unit was possibly excessive. LARD sent query letters to the three tenants who would be subject to eviction, and all three responded. Of the two tenant households with rents substantially below market, one includes a senior on a fixed income of less than $780/month who has resided at the property for over 10 years and two minor children among a five- person household; the owner alleges that this tenant owns 19 properties including several condominiums in Santa Monica and would suffer no significant hardship if displaced. The other tenant household with below market rent is comprised of one person who has lived in the building for 29 years; the owner alleges that this tenant drives a new Range Rover and therefore has financial resources that would mitigate any hardship if displaced. The third tenant household consists of a 61-year old individual. Discussion: Given that the property was purchased in 2003 after the moratorium was in place, there is no basis for asserting that the owner detrimentally relied on the major rehabilitation eviction provisions of the Municipal Code. If tenants were to be permanently displaced from the property as the result of a major rehabilitation eviction, there would be at least some level of hardship, although to what degree is in dispute. The purpose of the proposed major rehabilitation of the subject units appears to be primarily to reposition the units in the market place rather than to make necessary improvements that would extend the useful life of the building, and existing cost recovery programs- primary renovation, capital improvement, and possibly just & reasonable - can provide the landlord with some level of compensation that would support investment on the proposed scale. For these reasons, the Department recommends that Council find that no instance of extreme hardship exists and deny the application. D Y2 SOUTH GRAND AVENUE (C.F ; CD 9) (2 existing legal units, rehabilitation of2 units, vacation ofunits 2800Y2 & 2802Y2) Applicant: David D. Won, Esq. Background: The current owner purchased the property in January 2004 and submitted an application for hardship exemption on July 1, The property was built before 1905 and is a mixed use - commercial, industrial, and residential - with two legal rental units upstairs. The owner claims that the condition of the building poses a serious health and safety issue to the tenants and may expose the owner to potential lawsuits. The estimated cost for renovation is well over the required amount for primary and collateral work required for major rehabilitation evictions. Subsequent to the filing of the hardship application, the tenant in Unit 2800Y2 voluntarily vacated the property.

7 Page 7 The residential units at this property were inspected by LARD Code Enforcement in October 2004 and were found to be in very poor condition - 16 owner deficiencies were identified and have not been corrected. The property has since been referred to the Property Management Training Program and accepted into the Rent Escrow Account Program. Investigation: The inspector reviewing the hardship application judged that to accomplish the proposed work, the remaining occupied unit would likely be uninhabitable due to exposure to the elements, security, and lead-based paint issues once work commences. The work that needs to be undertaken at this site is deemed to be substantial and would meet the cost thresholds for a major rehabilitation eviction; however, the conditions do not pose such an immediate threat to the tenants health and safety that would mandate an immediate vacation. LARD sent a query letter to the remaining tenant who would be subject to eviction; that tenant responded that an eviction would be a hardship because she is low-income, has lived in the unit for 14 years, could not find a replacement unit at comparable rent, and has a 14- year old daughter who would most likely be forced to change schools, disrupting her studies. Discussion: Given that the property was purchased in 2004 after the moratorium was in place, there is no basis for asserting that the owner detrimentally relied on the major rehabilitation eviction provisions of the Municipal Code. Given the situation of the tenant household, the allowance of an eviction for major rehabilitation would impose a definite an severe hardship on these occupants. The availability of a vacant unit should facilitate the rehabilitation of the residential units at this property under the Tenant Habitability Program without permanently displacing the remaining tenant household. For these reasons, the Department recommends that Council find that no instance of extreme hardship exists and deny the application. E % SHERBOURNE DRIVE (C.F ; CD 10) (4 existing units, rehabilitation of 4 units, vacation of3 units) Applicant: Guy and Michelle Grimberg Background: The Hardship Exemption application was submitted on October 26, Investigation: On May 20, 2005, the owner stated that all of the tenants had moved out, that most of the repair/remodeling work had been completed, and that the units would be rerented at market rents. Discussion: No basis remains for an eviction action under major rehabilitation.

8 Page 8 F E. 33rd STREET (C.F ; CD 9) (3 existing unit, rehabilitation of 3 units, vacation of 3 units) Applicant: Laputh Manigat Background: This property consists ofthree units: a duplex built in 1909 and a single-family dwelling built in The current owner purchased this property in The application for a hardship exemption was filed on December 2, 2004 and referenced proposed remodeling work in all three units. Investigation: LARD issued a Notice to Comply to correct 26 deficiencies on November 10, These were all corrected and the case was closed in April2005. From the contractor estimates submitted with the application, the work to be done would not have met the $9,000 per unit threshold for primary work required to allow an eviction for major rehabilitation. In May 2005 the applicant reported that two tenants had voluntarily vacated the property and that almost all of the rehabilitation work for these two units had been nearly completed. The applicant further indicated that she does not want to move the remaining tenant into one of the newly rehabilitated unit but plans to make less major repairs in the unit by working around the tenant. Discussion: No basis exists for an eviction action under major rehabilitation. G BARTON A VENUE (C.F ; CD 13) ( 5 existing units, rehabilitation of 5 units, vacation of three units) Applicant: Mariela Arias and Andy Perer Background: The current owner acquired this property in December 2004 and filed an application for hardship exemption on January 13, Five units plus a garage structure are on the property. There is a duplex in the front (5922 & ), a duplex in the middle (5924 & 5924Yz [vacant]), and a single family dwelling in the rear (5926 [vacant]). The owner seeks to rehabilitate all five units and evict the three tenant households still in residence. The owner proposes to install new roofing, plumbing, and electrical for all five units in addition to painting, doors and windows, and appliances for all units. The total cost for this work is estimated at $204,790 (or roughly $41,000 per unit) and is well over the $10,000 per unit threshold needed to qualify for Major Rehabilitation. The contractor for the owner estimated that it would take 20 weeks to complete all work and that much of the work could not be performed with the tenants living on the premises.

9 Page 9 This property was inspected in May 2004 under SCEP; 27 violations were found and corrected by August In January 2005, the County Health Department cited the property for violations in the common areas (primarily accumulated cast-off items) and at Unit LARD subsequently has issued a July 18, 2005 Notice to Comply regarding all of the units at this property, with the major components involving the repair or replacement of structural supports at Unit 5924Yz and roofmembers at the garage, the replacement or repair of the roof at Units 5922 & 5922Yz, the removal or legalization of an unapproved kitchen at Unit 5926, the repair or replacement of improper wiring extending from on building to another, and the repair or replacement of approved heating appliances in all units. Investigation: The units at this property are in need of substantial improvements. However the conditions are not so serious as to constitute an "extreme and immediate hazard" that would necessitate the City acting to vacate the units. LARD inspectors have concluded that the proposed work would be most efficiently undertaken with all units vacant, but that the work could be phased to take advantage of existing vacancies. LARD contacted all three tenants, each of whom provided a letter describing the hardship an eviction from their homes would entail. Two of the three tenants have lived on the property for over 27 years, all three stated that it would be a hardship to pay significantly more rent which they would have to pay if forced to move, and all three noted that the present location was convenient because they had children who attended a nearby school or because they worked nearby. All three tenants suggested that the landlord rehabilitate the two vacant units first so they could move into the newly rehabilitated units prior to vacating their current unit. (The owner states that she needs to evict the tenants to make needed repair and save her property because of recent changes in her financial/life situation.) Discussion: Given that the property was purchased in 2004 after the moratorium was in place, there is no basis for asserting that the owner detrimentally relied on the major rehabilitation eviction provisions of the Municipal Code. The eviction of tenants would cause a substantial hardship on the remaining tenants, and the work could be accomplished by moving tenants within the existing units rather than by undertaking permanent evictions. For these reasons, the Department recommends that Council find that no instance of extreme hardship exists and deny the application. H Yl BARTON A VENUE (C.F ; CD 13) (8 existing units, rehabilitation of 8 units, vacation of 6 units) Applicant: L & C Properties Background: This property consists of two duplexes and one fourplex, all built in The current owners purchased this property in June 2004 and submitted an application for a hardship exemption on February 18, 2005.

10 Page 10 The owner seeks to rehabilitate 8 units and evict 6 tenants- two of the units are already vacant. More specifically, the owner proposes to (1) demolish all existing drywall, tubs, showers, flooring, cabinets, doors, windows, electrical and plumbing, (2) treat the exposed framing with an anti-fungal coating to abate mold, and (3) reconstruct the entire structure. The estimated total cost of the rehabilitation work for 8 units is approximately $542,708 (or $67,838 per unit) and the estimated timeframe for completion is months. Current tenant rents range from $288 to $465 per month, all less than half of the $950 per month market rate estimated by the owner. Investigation: LARD has inspected units at this property 6 times between 2000 and 2005 in response to tenant complaints, and all cases have been closed. The County Health Department cited the property in 2004 for a number of violations, most significantly dealing with vermin infestation. At the same time, County Health also cited one of the units for mold, although the degree of contamination was categorized as minor. Discussion: Given that the property was purchased in 2004 after the moratorium was in place, there is no basis for asserting that the owner detrimentally relied on the major rehabilitation eviction provisions ofthe Municipal Code. The eviction of tenants would cause a substantial hardship on the remaining tenants, given the current rents paid at the occupied units. The existence of two vacancies would allow for some of the work to be accomplished by moving tenants within the existing units rather than by undertaking permanent evictions. Neither the primary renovation or capital improvement programs would provide rent increases that would support the proposed level of rehabilitation work; however, the need for that level of work is not clearly established. And if the level of rehabilitation work undertaken results in the owner taking a loss versus the documented return on the property at an earlier period of time, the owner is entitled to seek a rent increase to cover that loss under the City's Just and Reasonable program. For these reasons, the Department recommends that Council find that no instance of extreme hardship exists and deny the application. I % W. 17th STREET (C.F. Ol-0593-S33, CD 1) ( 4 existing units, rehabilitation of 4 units, vacation of 2 units) Applicant: Sam Jadtar Background and Investigation: This property consists of four units, built in 1925, and purchased by the current owners in November In June 2004, three of the four units were inspected through the Systematic Code Enforcement Program; 26 deficiencies were noted and a Notice to Comply was issued with an effective date of July 8, On August 2, 2004, the owner filed a Declaration of Intent to Evict tenants from all four units in order to comply with a government order. This action was withdrawn after the housing

11 Page 11 inspector issuing the Notice to Comply indicated that the order did not necessitate the vacating of any rental units. On February 9, 2005, the applicant filed a new Landlord Intent to Evict for Permanent Removal for this property. In the declaration, the owner's agent indicated "economic feasibility'' as a reason for that the owner was withdrawing the units from the market, further stating "owner wishes to exit the rental housing market in order to replace existing investment with something more lucrative." At that time three of the four units were occupied. On April 6, 2005, the owner submitted an application for a hardship exemption from the moratorium on evictions for major rehabilitation. The proposed work includes both repairs to correct deficiencies cited by LARD and more extensive rehabilitation work including the removal of asbestos and lead-based paint. Per the applicant's estimate, the total cost of rehabilitation would be $190,000; costs to respond just to LARD mandated repairs are estimated at nearly $50,000. The applicant further indicates that the building will be demolished ifthe hardship application is not approved. Tenant rents in the occupied units ranged from $445 to $701; projected post-rehabilitation rents range from $950 to $1,200. The property was referred to the Rent Escrow Account Program following a failure to comply with the inspection order. The acceptance into REAP has been appealed and is scheduled for a General Manager's hearing in September Discussion: This application was submitted after the Council and Mayor had acted to eliminate major rehabilitation as a ground for legal eviction; accordingly, there is no basis for asserting that the owner detrimentally relied on the major rehabilitation eviction provisions of the Municipal Code. Further, the existence of two vacant units would allow the proposed work to be undertaken without permanently displacing the existing tenants. Neither the primary renovation or capital improvement programs would provide rent increases that would support the proposed level of rehabilitation work; however, the need for that level of work is not clearly established. And ifthe level of rehabilitation work undertaken results in the owner taking a loss versus the documented return on the property at an earlier period of time, the owner is entitled to seek a rent increase to cover that loss under the City's Just and Reasonable program. For these reasons, the Department recommends that Council find that no instance of extreme hardship exists and deny the application. J S. BURNSIDE AVENUE (C.F ) (3 existing units, rehabilitation of 1 unit, vacation of 1 unit) Applicant: Mable A. Israel Recommendation: Receive and file this application. Background: This property consists of four units built in The current owner purchased the property in The hardship exemption application, submitted on May 18, 2005, seeks

12 Page 12 to evict one tenant to replace the flooring in one unit, repair some water damage to the property exterior, and undertake routine maintenance. Investigation: The proposed work would not meet the major rehabilitation threshold of $9,000 in primary work and would not require the vacation of the tenant. Discussion: This application was submitted after the effective date of the ordinance repealing major rehabilitation as a ground for eviction. The interim ordinance is no longer in effect and therefore hardship applications are no longer available. Prepared by: R~ KEN SIMMONS Assistant General Manager Approved by: MERCEDES MARQ General Manager Cc: The Honorable Antonio R. Villaraigosa, Mayor ALT:JH:JL jh doc