640 Octavia, LLC v. Pieper delivers a long overdue analysis of an owner’s “bona fide intent to withdraw” in the context of Ellis Act evictions. The Ellis Act was enacted in 1985 in response to the Supreme Court decision Nash v. City of Santa Monica (1984) 37 Cal.3d 97, which found that a city’s police power permitted it to eliminate the ability of landlords to terminate a tenancy in conjunction with exiting the rental market, unless the city permitted it. In that case, Santa Monica would only issue a demolition permit if “(1) the building is not occupied by persons of low or moderate income, (2) cannot be afforded by persons of low or moderate income, (3) removal will not adversely affect the housing supply and (4) the owner cannot make a reasonable return on his investment.”
The California legislature was quick to respond by enacting the Ellis Act to alleviate the plight of landlords and guarantee a “fundamental right” to cease doing business as a landlord. However, it took nearly two decades before the Supreme Court dictated the rubric for use of the Ellis Act in the context of a tenant’s defense of retaliation. In Drouet v. Superior Court (2003) 31 Cal. 4th 583, the Supreme Court determined that a landlord was permitted to retaliate, so long as they had a bona fide intent to exit the rental market. (As a practical example, “mom and pop” landlords should be permitted to exit the rental market even though their tenants complain about housing defects. (In fact, they can exit because of those complaints.)
Drouet set the framework for entry of judgment for the landlord as a matter of law, but remanded to the trial court to determine whether the particular case met the standard. It took another two decades to put that standard into practice.
In 640 Octavia, the Court rejected the evidentiary significance of two themes of arguments by the tenants. First, the Court clarified the primacy of a plaintiff’s establishing a bona fide intent to withdraw in the face of a retaliation defense under Drouet. Essentially, there is no “retaliatory withdrawal defense” when a landlord seeks to go out of business.
With respect to the landlord’s past skirmishes with the tenants, the decision concluded that it was consistent with the Ellis Act to seek damages for lost rents (from other units) because of the nuisance behavior of Appellants at a time before Respondent invoked the Ellis Act. It also recognized that the past conflict – whether it resonated as an exercise of tenant’s rights under the anti-retaliation statute (Cal. Civ., §1942.5) or not – did not itself contravene the landlord’s bona fide intent to withdraw.
Taken together, this determination illustrates that the bona fide intent to withdraw is prospective – in other words, a landlord may spontaneously decide to stop being a landlord and cannot be haunted by the fact that he once wanted to be a landlord in the past.
This is not to say that a tenant may never challenge prospective conduct of a withdrawing landlord, and 640 Octavia expresses wisdom on this topic as well. Withdrawing property owners have wide discretion in the occupancy of their property, provided they do not re-rent it. This includes scenarios where a beneficial owner provides consideration to an entity owner-of-record to occupy the property (Santa Monica Rent Control Bd. v. Bluvshtein (1991) 230 Cal. App. 3d 308) without that exchange being deemed a tenancy.
A withdrawing property owner must be able to use his property in a manner consistent with the Ellis Act (i.e., other than leasing to a tenant), and there must be bright line rules where an owner can, for instance, let a dear friend non-exclusively occupy a unit via a license without trading success on a summary judgment motion to achieve it. 640 Octavia’s analysis does not expand the rights of a property owner to do anything the Ellis Act does not otherwise allow. It merely creates a rubric for a good faith, withdrawing owner to actually use his property without a tenant’s “whataboutism” and speculation frustrating his right to summary judgment.
The decision was initially filed unpublished, but the Court of Appeal published the decision upon request of the Small Property Owners of San Francisco and the San Francisco Apartment Association.
