Golden State Ventures, LLC v. City of Oakland Rent Board – (Unpublished) Clarity on the “Sold Separately” Requirement for Condominium Decontrol under Costa-Hawkins

“The Rent Board contends the “sold separately” exception does apply under our facts because plaintiff “admits that it has control of and owns the entire building at 840 55th Street, Oakland, California.” The Rent Board also notes the building’s four units are all connected within the structure, there are no units in the building that were not converted to condominiums, plaintiff negotiated to purchase all the units together, none of the units were sold to new occupants, and the complaining tenants continued to reside in their units just as they had prior to the conversion. Essentially, the Rent Board asserts plaintiff did not meet the “sold separately” requirement because it purchased the entire apartment building, regardless of how the transaction was structured. Plaintiff counters that the “sold separately” exception “applies rent control only to condominium subdividers [like Kolevzon], not to subsequent purchasers like Golden State.” Plaintiff is correct.”

In Golden State Ventures, LLC v. City of Oakland Rent Board, a landlord purchased four out of four of the condominium units in a single building in Oakland, and then increased the tenants’ rents by 125%. Apparently quite proud of this purchase, “In a blog posting discussing the acquisition of the building, plaintiff’s principal, Arlen Chou, stated: ‘The best part of the property is that as they are condominiums, they are EXEMPT from rent control! I will soon own a little island of rent control free property in a rising neighborhood in Oakland. Who said there are no deals in the Bay Area???’.”

However, while Costa-Hawkins decontrols “separately alienable” units (like single family homes) from rent control, a 2002 amendment “closed the loophole” where condominium subdividers obtained final map approval for sale, but then kept entire buildings – formerly apartments – as rent-control-exempt property, exalting form over function. As noted by the court in Golden State Ventures, LLC, “Such conduct was entirely legal at that time”, until the 2002 amendment required that the units be “sold separately to a bona fide purchaser” before decontrol applied.

The question in this case was whether a condominium can be considered “sold separately”, when more than one (or even all) of the units are sold “separately” to the same purchaser. The court found that the amended requirements applied to “subdividers” specifically, not to “owners” generally (like a subsequent owner) who purchases one (or more) units separately. In other words, the number of units sold is not material, as long as they are separately sold.

Of course, looking only to that issue would make this provision susceptible to the same abusive loophole as existed prior to the amendment, which is why the amendment also requires the purchase to be “bona fide”. (This phrase is not defined in Costa-Hawkins. The court interpreted it in the context of land sale priorities generally, i.e., a “bona fide purchaser” is one who pays value in good faith without notice of another’s rights. This is somewhat a clunky fit in this context, but it will have to do for now.) Bona fide means that an owner/subdivider cannot simply sell to an LLC that they created to avoid rent control.

The record does not show whether these purchases were for value, in good faith, etc., having found the argument waived at the administrative level with the Oakland Rent Board. For now, Golden State Ventures, LLC is unpublished in any event, but only time will tell how appellate courts measure the sufficiency of value paid to subsequent owners following condominium subdivision.