NCR Properties v. City of Berkeley

Filed 3/9/23
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
NCR PROPERTIES, LLC,
Plaintiff and Appellant;
A163003
v.
CITY OF BERKELEY et al., (Alameda County
Super. Ct. No. RG19024268)
Defendants and Respondents;
SYDNEY LEE et al.,
Real Parties in Interest.
2504 DANA STREET, LLC,
Plaintiff and Appellant;
v. (Alameda County
CITY OF BERKELEY et al., Super. Ct. No. RG19028640)
Defendants and Respondents;
GLORIA CHEN et al.,
Real Parties in Interest.
Appellant landlords (Landlords) purchased two derelict single-family
homes in Berkeley and rehabilitated them, converting them into triplexes.
After Landlords rented out the units, a dispute arose as to whether the
properties are subject to the City of Berkeley’s Rent Stabilization and
Eviction for Good Cause Ordinance, Berkeley Municipal Code Chapter 13.76
(Rent Ordinance). Landlords contended the new units are exempt from local
1
rent control under the Costa-Hawkins Rental Housing Act, Civil Code section
1954.50 et seq. (Costa-Hawkins), which provides an exemption for residential
units that have a certificate of occupancy issued after February 1, 1995. (Civ.
Code, § 1945.52, subd. (a)(1).)
The City of Berkeley’s Rent Stabilization Board (Rent Board) disagreed
as to four of the six units. Explaining that, before Landlords purchased the
homes, the properties had been managed as rooming houses, the Rent Board
concluded two of the three units in each building were carved from space that
had been rented for residential use before the current certificates of
occupancy issued. Thus, these four units reflect a mere conversion from one
form of residential use to another, rather than an expansion of the housing
stock. Only an attic unit in one building and a basement unit in the other are
exempt from local rent control as new construction, the Rent Board found.
Informing the Rent Board’s conclusion was its Resolution 17-13 (Resolution
17-13), an interpretive gloss on the Rent Ordinance.1
1 We grant respondents’ unopposed request for judicial notice of the
following documents: a certified copy of Resolution 17-13, copies of Rent
Board Regulations 403 & 403.5, and excerpts of Berkeley Municipal Code
(B.M.C.) section 13.76.010 et seq. (See Evid. Code, §§ 452, subds. (b) & (c),
453, 459.) We likewise grant appellants’ unopposed request for judicial notice
of the City of Berkeley’s “Guidelines for Issuance of Certificates of
Occupancy,” available at (as of Mar. 9, 2023). We deny as unnecessary appellants’
request for judicial notice of the Legislative Counsel’s Digest for Assembly
Bill No. 1164 (1995–1996 Reg. Sess.), which became Costa-Hawkins, and
Appellants’ Request for Judicial Notice in Support of Letter Brief because
published legislative history may be cited without a request for judicial
notice. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26,
46, fn. 9.) And we deny the remaining requests for judicial notice on
relevance grounds. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24
Cal.4th 415, 422, fn. 2 [“a precondition to the taking of judicial notice in
2
We reach the same conclusion by applying the rule of Burien, LLC v.
Wiley (2014) 230 Cal.App.4th 1039 (Burien) to the admittedly new context of
this case. Because the four units in dispute were converted from space long
dedicated to residential use, Burien teaches that Costa-Hawkins does not
exempt them from local rent control as new construction. And because
Resolution 17-13 interprets the Rent Ordinance in a manner consistent with
Burien and with Costa-Hawkins, neither Resolution 17-13 nor the Rent
Ordinance is preempted by state law.
BACKGROUND
Landlords are two corporate entities formed by the same persons to
engage in parallel projects, that is, to purchase, upgrade, and rent out
residential property in Berkeley. Appellant 2504 DANA STREET, LLC
purchased a single-family home at that address (Dana Street) in 2012.
Appellant NCR PROPERTIES, LLC purchased a similar home at 2401
Warring Street (Warring Street) the following year. In light of the overlap in
membership and activity between appellants, we refer to them both
individually and collectively as “Landlords.”
Before Landlords purchased Dana Street, the property was operated as
an unpermitted rooming house.2 A three-story building with a steeply
pitched roof, it was originally a single-family home that had been permitted
in the 1970’s as a foster home for girls. As of 2006, 11 rooms in the 14-
either its mandatory or permissive form” is that “any matter to be judicially
noticed must be relevant to a material issue”].)
2 A rooming house is a building, other than a hotel, rented to at least
five individuals with at least five separate leases, according to Rent Board
regulations. (Rent Board Regs. 403, 403.5.) The City apparently requires a
use permit to convert a single-family home to a rooming house, but even
where no permit has been obtained, a property operating as a rooming house
must be registered with the Rent Board. (Rent Board Reg. 403.5, subd. (B).)
3
bedroom, 4.5-bath home housed individual renters, but these rooms were not
subject to rent control because the owner also resided in the home and shared
kitchen and bath facilities with the tenants. Also, the home had deteriorated
to the point where it could not be legally inhabited, in part because
inadequate egress and a faulty sprinkler system rendered the third floor a
fire hazard. The building was sold to Landlords with the understanding that
its remaining tenants would move out before closing.
In August 2012, Landlords applied for a permit to convert Dana Street
to a triplex. Among other improvements, they would raise the walls and
substantially reduce the pitch of the roof to expand the second- and third-
floor living spaces, replace the building’s foundation, build external staircases
and separate entrances to the second- and third-floor apartments, and install
a new kitchen in each unit. When the project was finished, the building had
9 bathrooms, 19 bedrooms, and a total of more than 5,500 square feet of
living space, of which 1,245 square feet was new. In December 2014, the City
of Berkeley (City) issued Landlords a certificate of occupancy, reflecting a
change in occupancy classification from single-family dwelling to multi-family
use. Tenants moved in.
Before Landlords purchased the building on Warring Street it, too, had
operated as an unpermitted rooming house for decades. Although classified
for occupancy as a single-family residence, the three-story home had been
registered with the Rent Board as an 11-unit rooming house since 2000.
When Landlords took possession in 2013 only one tenant remained, and he
soon moved out. The building was in poor condition, with a history of
building code violations.
Landlords applied for a use permit to create a new basement unit and
to convert the three floors that had been a rooming house on Warring Street
4
into two apartments. The project involved replacing the building’s
foundation, excavating space in the basement to create 1,254 square feet of
newly habitable living area, adding 95 square feet of habitable space and a
roof deck to the third story, installing a new kitchen in each unit, and other
upgrades. The City Council approved the project in January 2015, the work
was then done, and in December 2015 Landlords received a certificate of
occupancy for their new triplex.
Originally, the City took the position that all six of the new units in
Landlords’ buildings were exempt from rent control under Costa-Hawkins as
new construction. The City Manager so stated with regard to Warring Street
in January 2015, when she recommended to the City Council that it approve
Landlords’ application to convert the property to a triplex. A lower-level
employee reached the same conclusion with regard to Dana Street in a May
2015 email. Both times, it was the new certificate of occupancy that caused
the City to conclude all the new rental units were exempt from the Rent
Ordinance. Then, in November 2016, Berkeley voters passed Measure AA,
which amended the Rent Ordinance’s provision on new construction. (See
B.M.C. 13.76.050.I.)
In May 2017, the Rent Board reversed course on these two properties.
It sent Landlords letters declaring that two of the three units on Warring
Street and all three units on Dana Street were subject to the Rent Ordinance.
The letters constituted an administrative determination that the space that
became these five units had been previously put to residential use, so that
the 2014 decision in Burien, supra, 230 Cal.App.4th 1039 rendered these
units not exempt from local rent control under Costa-Hawkins. Only the
basement unit on Warring Street, where Landlords had excavated previously
5
uninhabitable space, was beyond the reach of the Rent Ordinance, according
to the administrative determination.
A month later, the Rent Board enacted Resolution 17-13, which
provides: “A rental unit with a certificate of occupancy issued after
residential use of the unit began shall not qualify as exempt” from rent
control under the “ ‘new construction’ ” exemption in the Rent Ordinance.
The stated purpose of this resolution was to “ensure that Berkeley’s local new
construction exemption does not conflict with the holding in Burien,” and
thus with Costa-Hawkins.
Landlords contested the Rent Board’s administrative determination,
filing petitions on January 19, 2018, to determine the exempt status of the
units. A hearing officer for the Rent Board denied the petitions in December
2018, relying on Resolution 17-13 and Burien. Landlords appealed, and the
Rent Board then modified the hearing officer’s decision with respect to Dana
Street, to reflect that the third-story unit there was exempt from the Rent
Ordinance because Landlords had created much of that habitable space by
raising the roof. The Rent Board affirmed the hearing officer’s decisions in
all other respects.
In June 2019, Landlords timely filed petitions in the trial court
challenging the Rent Board’s decisions. Named as respondents were the City
and the Rent Board. Each petition asserts a cause of action for
administrative mandamus (citing Code Civ. Proc., §§ 1094.5, 1085), alleging
that “the Rent Board exceeded its jurisdiction, and/or abused its discretion,”
including by misapplying Burien and Resolution 17-13 and by making
regulatory findings inconsistent with Costa-Hawkins’ exemption for new
construction. Each petition also asserts a cause of action for declaratory
6
relief as to related legal contentions (see Code Civ. Proc., § 1060), including a
declaration that state law preempts Resolution 17-13.
The petitions were consolidated and, on May 6, 2021, denied. The trial
court found that Resolution 17-13 and the Rent Board’s decisions regarding
the Dana Street and Warring Street triplexes “accurately reflect the Burien
holding.” Judgment was entered in favor of the City and the Rent Board, and
this timely appeal ensued.
DISCUSSION
This appeal presents two questions of law: whether the Rent Board
correctly construed and applied Costa-Hawkins in determining that the four
challenged units are not exempt from local rent control and, relatedly,
whether Costa-Hawkins preempts Resolution 17-13’s construction of
Berkeley’s Rent Ordinance. The material facts are not in dispute, and we
independently review questions of law. (See Palmer/Sixth Street Properties,
L.P. v. City of Los Angeles (2009) 175 Cal.App.4th 1396, 1405 [mandamus
claim involving Costa-Hawkins]; Crocker National Bank v. City & County of
San Francisco (1989) 49 Cal.3d 881, 888 [mixed questions of law and fact that
are “predominantly legal”].) We first review the legal backdrop before
considering the two issues in turn.
I.
The Legislature enacted Costa-Hawkins in 1995 to moderate what it
considered the excesses of local rent control. (See Mosser Companies v. San
Francisco Rent Stabilization & Arbitration Bd. (2015) 233 Cal.App.4th 505,
514.) The act has two main sections. One section, not at issue in this case,
prohibits vacancy control. With few exceptions, it gives California landlords
the right to set the rent on a vacant unit at whatever price they choose. (Civ.
Code, § 1954.53.) The provision at issue here goes further, where it applies.
7
Civil Code section 1954.52, subdivision (a) (“section 1954.52(a)”) exempts
three categories of rental property from rent control, even for existing
tenancies.
Section 1954.52(a) states, “Notwithstanding any other provision of law,
an owner of residential real property may establish the initial and all
subsequent rental rates for a dwelling or a unit about which any of the
following is true: [¶] (1) It has a certificate of occupancy issued after
February 1, 1995. [¶] (2) It has already been exempt from the residential
rent control ordinance of a public entity on or before February 1, 1995,
pursuant to a local exemption for newly constructed units. [¶] (3)(A) It is
alienable separate from the title to any other dwelling unit . . . .” This third
exemption is complex, but for present purposes it suffices to observe that the
third exemption generally includes single-family homes and condominiums,
which are both separately alienable property interests. (See Burien, supra,
230 Cal.App.4th at p. 1045.)
As originally enacted, the statute contained a loophole, which the
Legislature closed in 2001. (Burien, supra, 230 Cal.App.4th at pp. 1046–
1047.) In pertinent part, the Legislature amended the third exemption in
section 1954.52(a) to exclude “ ‘[a] condominium dwelling or unit that has not
been sold separately by the subdivider to a bona fide purchaser for value.’ ”
(Id. at p. 1045, quoting § 1954.52(a)(3)(B)(ii).) The problem the Legislature
was seeking to solve is illustrated by the facts of Burien. There, a tenant
leased an apartment in 1981 and, still resident there 30 years later, received
a notice that his rent would suddenly more than double. (Burien, at pp.
1042–1043.) The landlord had recently converted the building to
condominiums and, without selling the tenant’s unit, sought to increase the
tenant’s rent by an amount well in excess of what the local rent control
8
ordinance would tolerate. (Id. at p. 1043.) Under Costa-Hawkins as
originally passed, the tenant’s unit would have been exempt from local rent
control because the condominium was separately “alienable,” even though
still owned by the same landlord. (§ 1954.52(a)(3)(A).) After amendment in
2001, the third exemption in section 1954.52(a) no longer applied to the
tenant’s condominium because the landlord subdivider had not sold the unit.
With one loophole closed, the Burien landlord looked for another.
Instead of invoking the third exemption in section 1954.52(a), it invoked the
first exemption, for properties with “a certificate of occupancy issued after
February 1, 1995.” (§ 1954.52(a)(1).) When the landlord converted its
building to condominiums, it “obtained a new certificate of occupancy . . .
based on the change of use from apartments to condominiums.” (Burien,
supra, 230 Cal.App.4th at p. 1043.) This occurred after 1995, so the landlord
contended the plain language of the first exemption removed the tenant’s
condominium from the reach of local rent control. (Id. at p. 1047.) The
tenant read the first exemption differently. He contended “the exemption
refers to the first certificate of occupancy issued for the unit,” and did not
apply to his unit because his tenancy pre-dated the new certificate. (Id. at
p. 1044.) The Burien court concluded, “the language of subdivision (a)(1),
standing alone, is susceptible of both parties’ constructions, but reading the
section as a whole, the exemption can only apply to certificates of occupancy
that precede residential use of the unit.” (Ibid.) Burien broadly announced a
rule, consistent with but not apparent from the plain language of the statute,
that “section 1954.52, subdivision (a)(1), refers to certificates of occupancy
issued prior to residential use of the unit.” (Id. at p. 1042.)
In explaining its reasoning, the court first reviewed familiar principles
of statutory construction. “Our primary task is to determine the intent of the
9
legislative body, so as to construe the statute to effectuate that purpose.
[Citation.] We begin with the words of the statute. . . . ‘If the language is
clear and unambiguous there is no need for construction, nor is it necessary
to resort to indicia of the intent of the Legislature. . . .’ [¶] But the court is
not prohibited ‘from determining whether the literal meaning of a statute
comports with its purpose or whether such a construction of one provision is
consistent with other provisions of the statute. . . . Literal construction
should not prevail if it is contrary to the legislative intent apparent in the
statute.’ ” (Burien, supra, 230 Cal.App.4th at p. 1043.) Where statutory
language is “ ‘reasonably susceptible to more than one interpretation, we will
“examine the context in which the language appears, adopting the
construction that best harmonizes the statute internally and with related
statutes. . . .” ’ ” (Id. at p. 1044.) And “ ‘ “[w]e must select the construction
that comports most closely with the apparent intent of the Legislature.” ’ ”
(Ibid.)
The Burien court next reviewed the 2001 amendment to Costa-
Hawkins and its legislative history. The court cited an analysis of Senate
Bill No. 985 (2001–2002 Reg. Sess.) by the Assembly Committee on the
Judiciary, describing the 2001 amendment as necessary because section
1954.52, subdivision (a)(3) “ ‘was originally created to spur construction of
condominiums’ ” but was being used instead to convert existing apartments
to condominiums. Closing this “ ‘loophole,’ ” the 2001 amendment would
ensure that “ ‘apartment units that have remained rentals would be subject
to local rent control laws.’ ” (Burien, supra, 230 Cal.App.4th at pp. 1046–
1047.)
The court assessed the parties’ proffered interpretations of section
1954.52(a)(1) against what the court took to be the purpose of the exemption.
10
(Burien, supra, 230 Cal.App.4th at pp. 1047–1048.) The court explained,
“[w]hen a building is constructed, added on to, or altered, a certificate of
occupancy is generated at the conclusion of all inspections to certify that the
building meets local building code requirements for occupancy. A
commonsense interpretation of section 1954.52, subdivision (a)(1), is that it
excludes buildings from rent control that are certified for occupancy after
February 1, 1995. Buildings that were certified for occupancy prior to
February 1, 1995, are not excluded.” (Id. at p. 1047.) This interpretation,
proffered by the tenant, “furthers the purpose of the exemption by
encouraging construction and conversion of buildings which add to the
residential housing supply,” while otherwise leaving in place protection for
tenants. (Ibid.) By contrast, the court found, the landlord’s construction
“does not further the purpose of the statute. A certificate of occupancy based
solely on a change in use from one type of residential housing to another does
not enlarge the supply of housing.” (Ibid.)
The Burien court also observed that the landlord’s construction of
section 1954.52, subdivision (a)(1), would negate the 2001 amendment of
subdivision (a)(3), rendering that portion of the statute “nugatory.” (Burien,
supra, 230 Cal.App.4th at p. 1047.) If a certificate of occupancy issued as
part of a condominium conversion could exempt a unit from rent control
under subdivision (a)(1), as the landlord in Burien contended, then there
would be no need to assess whether, under subdivision (a)(3), a tenant’s unit
had “been sold separately by the subdivider to a bona fide purchaser.”
(§ 1954.52(a)(3)(B)(ii).) The court concluded, “[i]nterpreting section 1954.52,
subdivision (a)(1) to apply to any certificate of occupancy issued after 1995
would circumvent the tenant protection enacted by the Legislature under
11
subdivision (a)(3) for buildings converted to condominiums.” (Burien, at
p. 1048.)
Finally, the Burien court considered parallel exemptions in local rent-
control ordinances designed to encourage the creation of new residential
housing, which led to a discussion of Da Vinci Group v. San Francisco
Residential Rent etc. Bd. (1992) 5 Cal.App.4th 24 (Da Vinci Group). (Burien,
supra, 230 Cal.App.4th at pp. 1048–1049.) While Da Vinci Group is
consistent with Burien, it predates Costa-Hawkins and construes an
ordinance not at issue in this case, and the case is accordingly of limited use
here.
But Burien’s discussion of Da Vinci Group does show that the Burien
court was thinking about other conversions, beyond the paperwork
condominium conversion before it. In Da Vinci Group, a commercial
warehouse had been informally converted into apartments by 1980 and
several years later, following substantial renovations to bring the residential
units up to code, was awarded its first certificate of occupancy. (Da Vinci
Group, supra, 5 Cal.App.4th at p. 27.) The property owner argued the
building was exempt as “ ‘new construction’ ” from San Francisco’s rent
ordinance. (Id. at p. 28.) Similarly to the first exemption adopted in Costa-
Hawkins, that ordinance excluded “ ‘rental units located in a structure for
which a certificate of occupancy was first issued after the effective date of this
ordinance.’ ” (Ibid.) The appellate court upheld the local agency’s
determination that this exclusion did not apply, although “[a]t first glance” it
appeared to, because the belatedly obtained certificate of occupancy merely
legalized residential use that was already occurring. (Id. at pp. 28–30.) The
certificate of occupancy was new, but the “units were not newly constructed,
12
nor was the building restructured to permit new residential use,” the Da
Vinci Group court explained. (Id. at p. 30.)
II.
The central dispute between the parties in this case is over how broadly
to read and apply Burien, supra, 230 Cal.App.4th at p. 1048. The trial court
embraced the expansive language in which Burien expressed its holding,
agreeing that the first exemption in section 1954.52(a) “refers to certificates
of occupancy issued prior to residential use of the unit.” (Burien, at p. 1042.)
Before us, the Rent Board endorses this reading, while Landlords seek to
limit and distinguish Burien.
A.
Landlords’ first argument is that the “plain language” of section
1954.52(a) compels a ruling in its favor because this first exemption
unambiguously and categorically exempts properties receiving a certificate of
occupancy after 1995. The problem with this statutory construction is that it
is the same one the Burien court for good reason rejected. (Burien, supra, 230
Cal.App.4th at p. 1047.) We fail to see how the same statutory language can
be read narrowly when applied to a condominium conversion in Burien—to
reach only a certificate of occupancy that precedes residential use—but be
read broadly to reach any certificate of occupancy after 1995 when, as here, a
property owner converts a single-family home or rooming house to a triplex.
It is the same statutory language in both cases. Landlords do not contend
Burien was wrongly decided, and we see no principled basis for concluding
that the nature of the residential use before or after conversion justifies a
different construction of the statute.3 Landlords would have us ignore this
3At oral argument, Landlords proposed a different construction—that
we construe section 1954.52(a)(1) to cover any unit receiving a certificate of
13
issue by characterizing Burien’s holding as an “exception[]” to Costa-Hawkins
that must be narrowly construed. But Burien does not carve out an exception
to Costa-Hawkins, it interprets the exact statutory exemption that is at issue
in this case.
Amici curiae California Apartment Association and San Francisco
Apartment Association attempt to support Landlords’ statutory construction
by arguing that Burien erred in confining section 1954.52(a)’s first exemption
to new construction. They contend that new construction is the subject
matter of subdivision (a)(2), and that subdivision (a)(1) rests instead on a
bright-line distinction between properties that have a certificate of occupancy
after February 1, 1995 and properties that do not, regardless of when the
properties are first put to residential use. We see two problems with this
argument, besides its inconsistency with Burien.
First, amici curiae’s reliance on section 1954.52, subdivision (a)(2) is
misplaced. This second exemption in Costa-Hawkins continues protection
from local rent control for units that were “newly constructed” before 1995—
properties that were exempted by local rent-control ordinances when new,
before the enactment of Costa-Hawkins. (§ 1954.52(a)(2).) Subdivision (a)(2)
grandfathers in the exemption for these no-longer new buildings.
Subdivision (a)(1), by contrast, protects buildings that are actually new, in
that they first receive a certificate of occupancy for residential use after
February 1, 1995.
occupancy after February 1, 1995 except where a current tenancy began
before the new certificate of occupancy issued. This carve-out for holdover
tenants would have provided relief to the individual who filed suit in Burien
but would not have closed the section 1954.52(a)(1) loophole for condominium
conversions, as Burien did. Landlords’ belatedly proposed construction is
inconsistent with much of the language and logic of Burien and fails to
harmonize the first and third exemptions in section 1954.52(a).
14
Second, amici’s reliance on the distinction between a building receiving
a certificate of occupancy and a building being newly constructed founders on
legislative history that equates these two circumstances. A Senate Floor
Analysis explained that the bill that became Costa-Hawkins would “[e]xempt
newly constructed units from rent control.” (Sen. Rules Com., Off. of Sen.
Floor Analysis of Assem. Bill No. 1164 (1995–1996 Reg. Sess.), date July 23,
1995, page 2 (Sen. Floor Analysis), italics added.) The context for this
statement makes clear it was meant to describe the proposed provisions, then
in final form, that would become section 1954.52, subdivisions (a)(1) and
(a)(2).4 A similar analysis in the Assembly states the bill “[e]xempts from
local controls any new construction which is issued a certificate of occupancy
after February 1, 1995, and exempts from local controls any residential real
property which is already exempt from local controls as of February 1, 1995
pursuant to a local exemption for newly-constructed units.” (Assem. Housing
and Community Development Com., Concurrence in Sen. Amendments to
Assem. Bill No. 1164 (1995–1996 Reg. Sess.), date July 24, 1995, at p. 4
4 This report was published as the Senate was considering whether to
amend Assembly Bill No. 1164 to incorporate the provisions of Senate Bill
No. 1257 (1995–1996 Reg. Sess.), which had passed the Senate and which
“would: [¶] . . . Exempt newly constructed units from rent control. Preempt
local rent control provisions which impose vacancy controls . . . . [¶] . . . [¶] . . .
Preempt local rent controls on the rental of ‘single family’ dwellings . . . . [¶]
. . . Leave intact local authority to regulate or monitor the grounds for
eviction.” (Sen. Floor Analysis, at pp. 2–3.) After the Senate agreed to these
amendments and Assembly Bill No. 1164 became law, the described
provisions were codified, respectively, as Civil Code sections 1954.52(a)(1) &
(2), 1954.53, 1954.52(a)(3), and 1954.52, subdivision (c). That no separate
mention was made of certificates of occupancy in this otherwise
comprehensive account of the contents of the bill confirms that the
Legislature intended a “certificate of occupancy” to serve as a proxy for a
“newly constructed unit[]” in section 1954.52(a)(1). (Sen. Floor Analysis, at
p. 2.)
15
(Assem. Analysis), italics added.) This description clearly refers to proposed
language that would become section 1954.52, subdivisions (a)(1) and (a)(2),
respectively.
Driving home the emphasis on new construction, the same Assembly
Analysis continued: of the fourteen cities that then imposed residential rent
control, the only ones that did “not exempt new construction from rent control,
and therefore, would be affected by this bill [were] East Palo Alto, Cotati
(partial exemption) and Los Gatos (partial exemption).” (Assem. Analysis,
supra, at p. 5, italics added.) “Proponents contend that a statewide new
construction exemption is necessary to encourage construction of much
needed housing units, which is discouraged by strict local rent controls,” this
Analysis continued. (Id. at p. 7.) The Assembly, in other words, voted for
Costa-Hawkins on the understanding that the first exemption in section
1954.52(a) would extend “statewide” an exemption for “new construction,”
and would affect only those jurisdictions that did not already “exempt new
construction from rent control.” (Assem. Analysis, at p. 7.)5
5 Landlords point to the legislative history of an earlier, unsuccessful
effort to limit rent control as support for their reading of Costa-Hawkins’s
first exemption. Assembly Bill No. 483 (1985–1986 Reg. Sess.) (Assem. Bill
483), by the same author, would have exempted rental units “first occupied
by a tenant . . . after the effective date of the bill.” (Legislative Counsel’s
Digest, Jan. 30, 1985.) Landlords assert that by later choosing different
language for the first exemption in Costa-Hawkins, the Legislature evinced
an intent to exempt a larger swath of properties than the newly occupied
units described in Assem. Bill 483. The problem with this argument is that
we have no way of knowing whether, when the Legislature chose different
language for Costa-Hawkins, it was trying to convey the same idea as in
Assem. Bill 483 with words it considered more precise or, as Landlords would
have it, was trying to convey a different idea. We therefore find the
Legislature’s unsuccessful effort to pass AB 483 unenlightening. (See
Reznitskiy v. County of Marin (2022) 79 Cal.App.5th 1016, 1033 [unpassed
16
We recognize that a certificate of occupancy is sometimes required in
the absence of new construction. Under the state Building Code, a certificate
of occupancy must issue (1) before a building or portion of a building may be
occupied and (2) when a change in the occupancy classification of an existing
structure is made. (Cal. Code Regs., tit. 24, Part 2, § 111.1; 7 Miller and
Starr, Cal. Real Estate (4th ed. 2022) § 25.40.) The first circumstance
describes new construction, but the second does not, as it comes into play
when a landowner converts residential space from one occupancy
classification to another. As relevant here, the Building Code requires a
certificate of occupancy when a single-family home is converted to a triplex,
since a single-family home fits occupancy classification R-3 and a triplex, as a
multiple dwelling unit, is occupancy classification R-2. (Cal. Code Regs.,
tit. 24, Part 2, § 310.) In parallel with the Building Code, the City of
Berkeley’s “Guidelines for Issuance of Certificates of Occupancy,” supra,
state, “projects which result in the construction of new buildings or changes
in the existing use or occupancy classification of a building or portion thereof
will be issued a separate certificate of occupancy by the City of Berkeley
Building Official.” (Italics added.)
Nothing in the language of the statute or in the legislative history we
have reviewed suggests that the Legislature considered that a certificate of
occupancy would issue when space, already in residential use, was converted
to a different category of residential use. On the contrary, the
contemporaneous records of both the Senate and Assembly reveal that what
the Legislature thought it was doing with section 1954.52(a)(1) was
exempting new construction from local rent control, so long as a property
bills subject to conflicting inferences]; Arnett v. Dal Cielo (1996) 14 Cal.4th 4,
29 [“ ‘Unpassed bills, as evidences of legislative intent, have little value’ ”].)
17
owner played by the rules and obtained a certificate of occupancy. Consistent
with this legislative understanding, and for all the compelling reasons given
in Burien, we accordingly construe section 1954.52(a)(1) as “refer[ring] to
certificates of occupancy issued prior to residential use” of the affected
property. (Burien, supra, 230 Cal.App.4th at p. 1042.) This is a statutory
construction that “furthers the purpose of the exemption by encouraging
construction” of new buildings, as well as conversions that “add to the
residential housing supply.” (Id. at p. 1047.) It is a construction that aligns
with the words of the statute and harmonizes subdivision (a)(1) with the
language added to subdivision (a)(3) in 2001. (Burien, at p. 1047.) And it is
the construction that “ ‘comports most closely with the apparent intent of the
Legislature’ ” as expressed in the legislative history, to exempt new
construction statewide. (Realmuto v. Gagnard (2003) 110 Cal.App.4th 193,
199; see also Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [“the ‘plain
meaning’ rule does not prohibit a court from determining whether the literal
meaning of a statute comports with its purpose”].)
B.
Landlords next contend that even if the first exemption in section
1954.52(a) applies only to those certificates of occupancy that precede
residential use of a unit and expand the supply of housing, their properties in
this case qualify for the exemption. Emphasizing that their buildings were
run-down, unoccupied single-family homes, Landlords assert that they
expanded and improved the living spaces, enabled the properties to house
more people, and created triplex units that had not previously existed. This
was no mere “ ‘ “paperwork” ’ ” conversion, Landlords persuasively contend.
(Burien, supra, 230 Cal.App.4th at p. 1047.) We acknowledge the renovations
were extensive and increased the ability of both buildings to house tenants,
18
but conclude the factual differences between this case and Burien do not
compel a different result here.
Landlords assert that each property houses more tenants now than it
could before the conversion. Each building has more or larger bedrooms;
additional kitchens, living rooms, and bathrooms; and more square footage of
habitable space than before the renovations. But in comparing the total
livable space in the building before and after renovations, Landlords draw
the wrong comparison. They ignore that the Rent Board properly determined
one unit in each building is exempt from rent control as new construction.
Landlords do not contend that if we were to consider only the two contested
units in each building, these units can house more tenants than could the
entire building in the years before its renovation. Our review of the record
suggests this more appropriate comparison, had they made it, would not
favor Landlords. We note, for example, that the square footage of residential
space that Landlords added appears to be less than the square footage of the
two units the Rent Board has already exempted from rent control.6
Landlords also assert their buildings were derelict and unoccupied
before renovations began, in the case of Dana Street “unfit for human
habitation.” To the extent Landlords contend that whenever renovations
improve the condition of a rental property, those improvements take that
property outside the reach of local rent control, Landlords offer no legal
support for this contention. To the extent Landlords intend this line of
6 Landlords described the Dana Street project to the Zoning Appeal
Board as adding about 1,245 square feet of floor space, with a new third-floor
unit (later exempted from rent control) exceeding 1,700 square feet. And the
Warring Street project they described as adding 645 square feet of new floor
area, mostly in a basement unit that would total 1,254 square feet and that
would later be exempted from rent control.
19
reasoning to apply only for renovations that are sufficiently extensive, they
offer no principle to distinguish such renovations from renovations
insufficient to invoke the exception. Also, any interpretation of Costa-
Hawkins that allows the renovation of properties in poor condition to remove
them from the reach of local rent control would perversely reward landlords
for allowing rental units to decay to the point the buildings need extensive
rehabilitation. We see no indication the Legislature intended that result
here.7 Nor do we consider it significant that Landlords’ properties were
unoccupied when renovations began. Especially with buildings near campus
that house a rotating cast of students, we can hardly infer from the absence
of tenants immediately before renovations began that the buildings were in
fact uninhabitable. Indeed, the City’s assessment that Dana Street could not
“be legally inhabited” appears to have been based on conditions in (or before)
2005, and yet all 12 Dana Street units were reportedly occupied between
2006 and 2008. And even if we were to conclude that Costa-Hawkins
intended to reward Landlords for remedying the conditions that made the
third floor of Dana Street an uninhabitable fire hazard by removing that
portion of the building from rent control, well, the Rent Board has already
taken this step.
In seeking factual support for their application of Costa-Hawkins,
Landlords misinterpret the certificates of occupancy. They contend that their
certificates issued as a result of “complete structure changes—resulting in
highly expanded residential use.” (Italics omitted.) But there is no reference
anywhere on either certificate of any expansion in the residential use of these
7 The Legislature separately addressed the subject of dilapidated units
in section 1954.52, subd. (d), but no party asserts that provision of Costa-
Hawkins applies in this case.
20
buildings, and the reference on the certificates to a complete structural
change is taken out of context. When a certificate of occupancy issues, it
must include a dozen different pieces of information, including “a description
of that portion of the structure for which the certificate is issued.” (Cal. Code
Regs., tit. 24, Part 2, § 111.2.) Here, both certificates of occupancy indicate
the new “Occupancy Group: R-2” and, for the “portion of the structure for
which the certificate is issued,” state: “Entire structure. Change from 2-
story single family residence to a triplex” (Warring) or “Complete structure
change from single family dwelling to three unit residential building” (Dana).
This language merely establishes, as to each certificate of occupancy, that it
governs the entire building as opposed to only a portion of it, and that the
building has been converted from a single-family residence to a triplex. This
language says nothing about the extent of the physical changes that made
the conversion possible.
Finally, Landlords suggest that because these certificates of occupancy
recognize three new units, no one of which existed before the conversion, the
units come within the first Costa-Hawkins exemption as it is construed in
Burien. Landlords undercut their own argument, however, with an
admission in their brief opposing an amicus brief filed by the City of Oakland
and the City and County of San Francisco in support of the Rent Board.
Landlords concede, in responding to the hypothetical of an owner who divided
a two-bedroom unit into two one-bedroom units, that “Burien’s prohibition on
paperwork conversions would likely cover this scenario.” But if converting a
two-bedroom unit to two one-bedroom units does not remove a hypothetical
property from the jurisdiction of the Rent Board, we fail to see how
converting a property into three units that is either a single large unit or
21
many small units (depending whether one references legal or actual
occupancy) could have any different effect.
Having walked back their final argument, Landlords appear to be
relying on some mix of the arguments we have already rejected. Landlords
contend their certificates of occupancy are not “based solely on a change in
use from one type of residential housing to another” (quoting Burien, supra,
230 Cal.App.4th at p. 1047) because their projects undertook to do much
more than merely convert to triplexes. But Landlords have not established
that modestly expanding the living space or extensively renovating the
buildings suffices to remove all six of the new units from the reach of local
rent control, rather than the single unit in each building that was properly
deemed exempt. In sum, we see no reason to abandon the statutory
construction of Costa-Hawkins’s first exemption that was adopted in Burien,
and we agree with the Rent Board that, applying that construction here, only
one of three units in each of Landlords’ buildings is exempt from local rent
control.
C.
Landlords also contend that Resolution 17-13 “conflicts with Costa-
Hawkins on its face and as applied,” and leads to an application of the Rent
Ordinance that is contrary to Costa-Hawkins. Resolution 17-13 is thus
preempted by state law, as is the Rent Ordinance as applied here, they
contend. The conclusions we have already reached about the first exemption
in section 1954.52(a) make quick work of these contentions.
Local governments may make and enforce rent control “ordinances and
regulations not in conflict with” state law. (Cal. Const., art. XI, § 7; see also
Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 140.) If Resolution 17-13
or the Rent Ordinance were to conflict with Costa-Hawkins, they would be to
22
that extent without effect. This much is clear from the opening words of
section 1954.52(a): “Notwithstanding any other provision of law . . . .”
But we see no inconsistency between Costa-Hawkins, properly
construed, and Resolution 17-13. Resolution 17-13 interprets the Rent
Ordinance in terms drawn directly from Burien, supra, 230 Cal.App.4th at
p. 1042. “A rental unit with a certificate of occupancy issued after residential
use of the unit began shall not qualify as exempt” from Berkeley rent control,
states Resolution 17-13. Reaffirming Burien today, we find no conflict
between the principle articulated in Resolution 17-13 and Costa-Hawkins.
We thus reject the facial and as-applied challenges to Resolution 17-13 and
the Rent Ordinance it construes.
DISPOSITION
The judgment of the trial court is affirmed. Appellants are to pay costs
on appeal.
TUCHER, P.J.
WE CONCUR:
FUJISAKI, J.
PETROU, J.
23
Trial Court: Alameda County Superior Court
Trial Judge: Hon. Stephen D. Kaus
Counsel: Zacks, Freedman & Patterson, Scott A. Freedman, and
Emily L. Brough for Plaintiffs and Appellants
Dowling & Marquez, Curtis F. Dowling for California
Apartment Association and San Francisco Apartment
Association as Amici Curiae on behalf of Plaintiffs and
Appellants
City of Berkeley Rent Stabilization Board, Matthew Brown,
Matthew Jay Siegel, Hannah Kim; Goldfarb & Lipman
and James T. Diamond, Jr. for Defendants and
Respondents
Barbara J. Parker City Attorney, Maria Bee, Chief
Assistant City Attorney, Laura Lane, Supervising
Deputy City Attorney, and Braz Shabrell, Deputy City
Attorney (City of Oakland); David Chiu, City Attorney,
Yvonne Mere, Chief Deputy City Attorney, Tara
Steeley, Deputy City Attorney, and Manu Pradhan,
Deputy City Attorney (City & County of San Francisco)
for City of Oakland and City of San Francisco as Amici
Curiae on behalf of Defendants and Respondents
NCR Properties, LLC v. City of Berkeley et al. (A163003)
24