Kavanau v. Santa Monica Rent Control Board, 16 Cal. 4th 761 (1997)

Citation: Kavanau v. Santa Monica Rent Control Board, 16 Cal. 4th 761 (1997)
Parent Document: Kavanau v. Santa Monica Rent Control Board, 16 Cal. 4th 761 (1997)
Jurisdiction: California (state)
Effective Date: 1997-08-26
Original Source: https://www.courtlistener.com/opinion/5607899/kavanau-v-santa-monica-rent-con... ↗

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Of course, the fair return principle is not limited to the property as it was when the landlord purchased it. A landlord is also entitled to a fair return on necessary capital improvements. (Sierra Lake Reserve v. City of Rocklin (9th Cir. 1991) 938 F.2d 951, 958, vacated in part (1993) 987 F.2d 662; see also Guaranty Nat. Ins. Co. v. Gates (9th Cir. 1990) 916 F.2d 508, 515.) For example, if a landlord retrofits an older building in order to comply with new building code requirements, the capital improvements may be the larger part of the building’s value. In that case, if fair return did not take those capital improvements into consideration, it would be an empty promise. As the high court noted in Duquesne Light Co. v. Barasch (1989) 488 U.S. 299, 310 [109 S.Ct. 609, 617, 102 L.Ed.2d 646] (Duquesne), “fair rate of return” depends on “the amount of capital upon which the investors are entitled to earn that return.” (See also Hope Gas, supra, 320 U.S. at p. 603 [64 S.Ct. at p. 288] [“return . . . should be sufficient ... to attract capital”].) Thus, a rent control law that merely allows a landlord to recoup the bare cost of a necessary capital improvement runs the risk of being confiscatory and thereby violating the landlord’s right to due process of law. Taking of Property Without Just Compensation

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