An association of apartment owners is considering a lawsuit that would challenge an extension of the city's rent stabilization ordinance.

In a controversial move, the Los Angeles City Council on May 22 extended the city's rent-control ordinance to include new apartment units built to replace old, rent-controlled units.

The unanimous council vote was intended to close a potential loophole in existing law that allows landlords to evict long-time tenants by saying they intend to tear down the structure to build condominiums and then renege on those plans and fill the old rent-controlled units with new tenants who pay higher market-rate rents.

Jim Clarke, manager of government relations for the Apartment Association of Greater Los Angeles, said that his group is writing letters to Mayor Antonio Villaraigosa urging him to veto the legislation and is considering whether to proceed with a lawsuit challenging the ordinance on the grounds that it is an illegal extension of the original rent stabilization law.

"We are trying to persuade the mayor to not rubber stamp it and instead veto it," Clarke said. "Hopefully they will find it is bad policy. Expecting that he probably will sign it, we discussed the possibility of pursuing this in the courts."

Clarke said that the extension of the ordinance violates the state's Costa-Hawkins Rental Housing Act, which states that a property owner "may establish the initial and all subsequent rental rates" for a unit if it has already been "exempt from the residential rent control ordinance."

The apartment group met with attorneys on May 23 to discuss a legal strategy.

"This ordinance lowers the value of older apartment buildings and disincentivizes new construction on former rent-stabilized properties," said Clarke. "We want to explain to the mayor that this will have an adverse affect on the housing crisis."

At the center of the controversy is the city's 29-year-old rent stabilization ordinance, which allows landlords of pre-1979 buildings to set vacant units at market rate but then limits rent increases for occupied units; the annual rent increase is now set at 4 percent. As overall rental rates and land prices have skyrocketed, landlords of these older buildings have chafed at this ordinance, which they claim restricts their ability to realize a fair rate of return.

As some landlords have evicted long-time tenants on the grounds that they are converting their buildings to condominiums, the issue of maintaining a stock of affordable apartment units has become a priority for city policymakers. That was the primary motivation for L.A. City Council President Eric Garcetti to craft the ordinance.

"We need to protect this type of housing in our overall mix," said David Gershwin, spokesman for Garcetti.

At least one observer said he expects a lawsuit from the apartment owners.

"Renters are not well organized in the city of L.A., but property owners are very well organized and capitalized so I would imagine there would be a lawsuit," said David Casper, a senior investment advisor for Hendricks & Partners Inc., a multifamily property real estate brokerage.

Councilman Bernard Parks, a longtime ally of the apartment owners, opposed the initial ordinance. Just before the May 22 council debate, Parks was able to insert amendments exempting owner-occupied buildings of four units or less, to protect what he termed "mom-and-pop" landlords.

Parks also convinced the Council to allow rent-stabilized units in new buildings to count toward density bonuses that grant developers the right to build more total units in exchange for creating some more affordable units.

If the Apartment Association were to file suit, it would be the third lawsuit filed by a business group against City Council ordinances in the last 18 months. The first lawsuit was filed by the California Grocers Association in late 2005 and seeks to overturn the Council's grocery worker retention ordinance. That lawsuit is still working its way through the courts.

The second lawsuit was filed in February by the Los Angeles Hotel Association; it challenges the Council's living wage ordinance for airport area hotels. Earlier this month, a Los Angeles Superior Court Judge sided with the hotels and threw out the ordinance; the city is now considering whether to appeal or put the original ordinance to a referendum vote.

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