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Party Challenging New Rent Control Law Fails To Show Facial Constitutional Violation—C.A.
Opinion Says Judge Erred in Granting Motion for Judgment on Pleadings Based on Findings That Section Violates Due Process by Capping Maximum Increase With No Mechanism for Adjustment
By a MetNews Staff Writer
Div. Three of the Fourth District Court of Appeal has held yesterday that a trailer park owner failed to establish that a 2022 law providing for state-wide rent control for tenants living in certain mobile home communities facially violates the Due Process Clause of the Constitution by not providing for a mechanism for adjusting the statutory ceiling in the event of economic changes.
In a memorandum opinion, authored by Justice Thomas A. Delaney, the court acknowledged that the California Supreme Court has held that such a procedural mechanism may be necessary to remedy some unconstitutional rent control measures that amount to a taking by not allowing for the recovery of a fair return on the property, but that the plaintiff did not establish that the law in question, due to expire in 2030, is confiscatory in nature.
Delaney wrote:
“[The plaintiff] asserts the California Supreme Court has held in at least four published cases that a price control statute must have an individualized rate adjustment mechanism to be constitutional. [The party] misinterprets the relevant legal precedents. The mere fact that no rent control law has been upheld where there was no fair return adjustment mechanism in the law does not mean that a fair return adjustment mechanism is required for a rent control law to pass constitutional muster.”
Acting Presiding Justice Eileen C. Moore and Justice Martha K. Gooding joined in yesterday’s opinion, which overturns an order granting judgment on the pleadings in favor of the mobile home park owner.
Sec. 798.30.5
At issue is Civil Code §798.30.5, enacted in 2022 to help address what the Legislature described as “a severe housing crisis” by regulating trailer parks that are not otherwise subject to rent control measures. The section provides:
“[M]anagement shall not, over the course of any 12-month period, increase the gross rental rate for a tenancy in a qualified mobilehome park more than 3 percent plus the percentage change in the cost of living, or 5 percent, whichever is lower, of the lowest gross rental rate charged for a tenancy at any time during the 12 months prior to the effective date of the increase.”
Subdivision (b) specifies:
“If the same homeowner maintains a tenancy over any 12-month period, the gross rental rate for the tenancy shall not be increased in more than two increments over that 12-month period, subject to the other restrictions of this subdivision governing gross rental rate increase.”
A “qualified mobilehome park” is defined as one “that is located within and governed by the jurisdictions of two or more incorporated cities.”
Allegations in Complaint
In February 2023, Anaheim Mobile Estates LLC (“AME”)—the owner of a trailer park that straddles the cities of Anaheim and Stranton—filed a complaint against the State of California seeking a declaratory judgment that the statute is unconstitutional on its face. In the operative complaint, the plaintiff asserted:
“[There is no provision within Section 798.30.5…which provides the qualified mobilehome park owner…the opportunity to apply for an additional rent increase in order to obtain a ‘just and reasonable’ return on the owner’s property in order to prevent a confiscatory result when the [law]…does not provide a fair return on the…property, such as where unexpected increase in operating costs (maintenance, repairs, capital improvements, property tax increases, etc.) renders the [statutory increase] insufficient….”
AME continued:
“Since Section 798.30.5 provides for no Fair Return Rent Adjustment Mechanism whatsoever, Section 798.30.5 is unconstitutional on its face. Rent control measures, such as Civil Code § 798.30.5, must allow members of the regulated class…to make a showing of the need for a rent increase larger than that allowed by the [statute] where the annual automatic rent increase does not achieve a fair return, with a confiscatory result. As such, the rent control measure results in a taking for an impermissible private use or purpose.”
After the state filed an answer generally denying the allegations in the pleading, AME filed a motion for judgment on the pleadings. Orange Superior Court Judge Richard Lee granted the plaintiff’s request. Lee noted the “ever-changing cost of living expenses,” and said:
“[The statute] does not provide any mechanism or recourse for obtaining an adjustment of a fair return if the 5 percent annual increase maximum is insufficient. For this reason, the Court finds that the statute violates due process.”
Judgment on Pleadings
Delaney concluded that AME failed to show that “(1) it has stated a cause of action and (2) the State’s answer does not suggest a defense to the cause of action,” as required to prevail on a motion for judgment on the pleadings.
AME cited the 1976 California Supreme Court case of Birkenfeld v. City of Berkeley, in which the court found a rent control provision to be unconstitutional and opined:
“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.”
Addressing Birkenfeld, and the three other subsequent high court cases cited by the plaintiff, Delaney wrote:
“[T]he relevant legal precedents hold that a procedural mechanism may be necessary to remedy a constitutionally infirm rent control law, but is not a necessary component of an otherwise constitutional rent control law. AME has not shown that section 798.30.5 is confiscatory in all cases or in the majority of cases. Section 798.30.5 does not indefinitely freeze the gross rental rate. Rather, it is operative for an eight-year period, from January 1, 2022 until January 1, 2030, and it permits annual increases of 3 percent plus the cost of living or 5 percent, whichever is lower.”
Continuing, the jurist remarked:
“AME has alleged no facts and there is no judicially noticed evidence suggesting this rent control scheme is or would become confiscatory in all or a majority of cases. Without establishing the confiscatory nature of the rent control scheme set forth in section 798.30.5, AME has not shown it has stated a viable claim that the lack of a fair return adjustment mechanism in section 798.30.5, by itself, renders the statute facially unconstitutional.”
Delaney added:
“As a separate and independent basis for reversing the trial court’s order granting the motion for judgment on the pleadings, we conclude the State’s general denial placed AME’s standing to sue at issue, which warrants denial of the motion.”
Saying that standing to sue is a “material allegation” essential to the claim, the judge opined that the state’s answer was sufficient to withstand a motion for judgment on the pleadings.
The case is Anaheim Mobile Home Estates LLC v. State of California, G063421.
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