Judges Rewrite Ellis Act

By Dean Preston

This week, appellate judges re-wrote California's Ellis Act to find that a landlord cannot waive its rights under the Ellis Act. The Case is Embassy LLC v. City of Santa Monica.

The Legislature is supposed to make the law which the courts then apply. When it comes to California's Ellis Act, however, we have two legislative bodies: The elected legislature that enacted the law and the judiciary that rewrites the Act to benefit landlords.

Here's what happened in the Santa Monica case. The City and landlord Embassy LLC entered into a settlement agreement ten years ago in which the landlord expressly waived its right to withdraw the rental units under California's Ellis Act. Subsequently, in August 2008, the same landlord sought to withdraw the units and evict the tenants under the Ellis Act. The City rejected the filing based on the landlord's waiver of the right to invoke the Ellis Act in the earlier settlement agreement.

The landlord sued to compel the city to allow it to withdraw the units from the rental market, notwithstanding the fact that the landlord had given up the right to invoke Ellis. The landlord asserted that the waiver it had signed was unenforceable as a matter of law. The trial court correctly threw out the landlord's lawsuit. The landlord appealed.

Earlier this week, the Court of Appeal sided with the landlord. The court reached the remarkable conclusion that "the Ellis Act provides that a contractual waiver is unenforceable."

Of course, the Ellis Act says no such thing. The Act says nothing about contractual waivers. Nor would there be any reason for the Act to address waivers by a landlord. The point of the Act was to give a landlord who complies with the Act a way out of the rental market, not empower landlords who falsely promise to stay in the rental market the ability to violate their written agreements.

When the legislature wants to provide that rights are nonwaivable, it knows how to do it. There are California statutes that specify that tenants cannot waive certain rights such as the right to jury trial, the right to proper notice of eviction and the right to habitable living conditions. This reflects the determination of the legislature that tenants usually have little bargaining power and should not be held to contractual provisions that require them to waive statutory rights.

There is no similar "nonwaiver" provision in California law for landlords, and certainly not one in the Ellis Act. At least there wasn't until the Court of Appeal created one this week without legislative approval.

The City of Santa Monica will now decide whether to petition the California Supreme Court for review of this obviously incorrect decision.