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Rue-Ell Enters. v. City of Berkeley

Court of Appeal of California, First Appellate District, Division Five

September 16, 1983

Civ. No. 51415


 [*83]  [**920]   In this case we hold that a municipality, by virtue of its authority in the exercise of  [**921]  its police power to regulate rents, may require a one-year reduction in rents provided in existing leases on commercial property, measured by a percentage of the landlord's property tax savings resulting from the passage of Proposition 13, without violating constitutional prohibitions against impairment of the obligation of contracts. We further hold that such legislation is not preempted by state law.

Rue-Ell Enterprises, Inc. (Rue-Ell), an owner of commercial property in the City of Berkeley, filed a complaint for declaratory and injunctive relief [***2]  against the City of Berkeley, its city attorney, and one of Rue-Ell's tenants alleging that the City of Berkeley "Renter Property Tax Relief Ordinance"  [*84]  of 1978 was unconstitutional as applied to two commercial leases between Rue-Ell and the tenant. After a nonjury trial, the trial court rendered judgment for defendants. We affirm the judgment.

Prior to 1978, Rue-Ell and its tenant entered into leases providing for periodic cost of living increases in rents and for additional payments should taxes on the leased premises be increased. On June 6, 1978, the initiative commonly known as Proposition 13 was passed, adding article XIII A to the California Constitution. Property taxes on the properties in issue were reduced from $ 23,148 to $ 8,195 as a result of Proposition 13. 1

On November 7, 1978, the electorate of the [***3]  Cityof Berkeley enacted the Renter Property Tax Relief Ordinance (hereafter Measure I), to remain in effect until December 31, 1979. Measure I contained a preamble stating, in essence, that a shortage of rental property and resulting rent increases had caused a "severe problem" for Berkeley renters and had "endangered the health, safety, and welfare of all Berkeley residents," therefore it was "necessary as well as fair" to provide renters with a portion of the benefits of Proposition 13. The measure required all Berkeley landlords, residential and commercial, to reduce their 1979 rents by an amount equal to 80 percent of their Proposition 13 savings. 2 As a result of Measure I, the rent due Rue-Ell under the leases in issue here, totalling $ 2,158 per month, was reduced by $ 199 per month. In January 1979 the tenant asserted its right to the reduction. Rue-Ell then commenced this action.

 [***4]   CA(1a)(1a)  Rue-Ell's principal contention on appeal is that Measure I is invalid because it violates the contract clauses of the state and federal Constitutions. (U.S. Const., art. I, § 10 ["No State shall . . . pass any . . . law impairing the obligation of contracts . . . ."]; Cal. Const., art. I, § 9 ["A . . . law impairing the obligation of contracts may not be passed."].) Respondents contend it does not.

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147 Cal. App. 3d 81 *; 194 Cal. Rptr. 919 **; 1983 Cal. App. LEXIS 2168 ***

RUE-ELL ENTERPRISES, INC., Plaintiff and Appellant, v. CITY OF BERKELEY et al., Defendants and Respondents

Subsequent History:  [***1]  Appellant's petition for a hearing by the Supreme Court was denied November 10, 1983. Grodin, J., did not participate therein.

Prior History: Superior Court of Alameda County, No. 518682-6, Robert L. Bostick, Judge.

Disposition: The judgment is affirmed.


impairment, rent, contracts, renters, emergency, leases, substantial impairment, public purpose, regulation, tenant, property tax relief, state law, windfall, contractual obligation, reductions, increases, benefits, reasonable expectation, natural gas, deregulation, invalidated, Ordinance, argues, gains

Constitutional Law, Congressional Duties & Powers, Contracts Clause, General Overview, Real Property Law, Landlord & Tenant, Rent Regulation, Governments, Local Governments, Police Power, Federal Preemption, Civil Procedure, Standards of Review, Harmless & Invited Errors, Criminal Law & Procedure, Harmless & Invited Error, Evidence, Evidence, Admissibility, Procedural Matters, Rulings on Evidence