Kavanau

The issue in this case is whether the City of Santa Monica Rent Control Board’s absolute limitation on annual rental increases is constitutional as applied. Our answer is that it is not.

Facts

A.

In 1979, the City of Santa Monica adopted a rent control charter amendment and created an elected Rent Control Board “empowered to regulate rentals ... so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return.” Pursuant to the charter amendment, the Board adopted Regulations 4100 through 4111, a “maintenance of net operating income” (MNOI) formula to determine whether a landlord is receiving a fair return and, if not, the basis on which rents can be increased. The MNOI, in turn, is limited by Regulation 4107.

Under Regulation 4107(a), regardless of the amount of rent needed to satisfy the MNOI formula, and notwithstanding any other provision of the regulations, “[n]o upward rent adjustment may be authorized for any 12 month period in an amount in excess of twelve percent (12%) or twice the Employment Cost Index (ECI), whichever is greater.” (We refer to this as a 12 percent cap.) If the amount of any adjustment otherwise…