Recently, the Federal Ninth Circuit Court of Appeals upheld the City of Los Angeles’ Rent Escrow Account Program (“REAP”) as constitutional in Sylvia Landfield Trust v. City of Los Angeles. REAP is an administrative program in which the Los Angeles Housing and Community Development Department is able to collect rents from a property that finds to be substandard while a landlord is required to make repairs to the property.
In its decision, the Ninth Circuit held the following
- REAP was rationally related to a legitimate government interest in repairing and preventing substandard housing;
- REAP did not violate the plaintiff Landlord’s substantive due process rights; and
- REAP was not arbitrarily or unreasonably applied to plaintiff Landlord.
What is REAP?
REAP is an administrative program the City of Los Angeles enacted. A property is placed into REAP when a landlord continually fails to repair habitability violations. While a property is placed into REAP, rents are paid to the City of Los Angeles Department of Housing and Community Development (“Housing Department”) The Housing Department determines a reduced rent based upon the violations of the habitability violations. Rent is placed into an escrow account; however, the Housing Department charges several fees associated with maintaining the escrow account, administrative fees, and fees for inspections. While in REAP, a Landlord is required to make repairs in order to remediate the violations of habitability.
REAP is one of many tools the City of Los Angeles and other government entities use to combat substandard housing. For example, the City also uses criminal prosecutions. It also refers cases to the State Tax Franchise Board, which prohibits income tax deductions for interest, taxes, amortization, or depreciation on a property that does not comply with the State or local housing Code.
The Plaintiffs in this action were four landlords who owned property within the City of Los Angeles and had their properties within REAP. In addition to having their properties placed into REAP, one Plaintiff Landlord was arrested for criminal violations of the Housing Code and ordered under house arrest.
Court Found that REAP Did Not Violate Substantive Due Process
Substantive due process allows courts to protect certain fundamental rights from government interference under the due process clauses of the Fifth and Fourteenth Amendments of the U.S. Constitution, which prohibit government from depriving an individual from life, liberty, or property without due process of law. In order to determine whether REAP violated substantive due process, the Court had to determine whether REAP as applied to the Plaintiff Landlords was rationally related to a legitimate government purpose.
In 1988, the City of Los Angeles enacted REAP in order to address landlords who were not maintaining their properties up to City housing codes. The Court cited several studies showing how California, and particularly Los Angeles, have a high number of substandard housing units. In 2011, the U.S. Census Bureau found that out of 1,708,600 units in the Los Angeles and Long Beach, 449,100 were infested with cockroaches, 35,500 were infested with rats, 46,400 had severe problems with plumbing, heating, electricity, or upkeep, and 62,300 lacked consistently working toilets. The Court also cited other instances of habitability violations.
The Court found that REAP was a reasonable administrative program because it allowed landlords to appeal the decision to the City. Importantly, the Court found that a landlord could specifically argue on appeal with the City that a tenant caused the violations. The Ninth Circuit found that the government has a legitimate government interest in preventing substandard housing, and that REAP is a reasonable method to achieve that goal.
Plaintiff’s Specific Arguments
Plaintiff Landlords argued that their properties were not substandard. One Landlord argued that lack of weatherproofing on a roof did not constitute a violation. The Court found that improper roofing is specifically mentioned in Civil Code Section 1941.1(a)(1) as an example of substandard housing. In addition, a Landlord argued that an illegal garage conversion was not a violation; however, the Court found that illegal construction may be a danger to the public health and safety since the unit would not have been inspected.
Second, the Plaintiff Landlords argued that REAP is used to improperly enrich the City and third party contractors. The Court found that third party contractors help to assist the City in furthering its goal in preventing substandard housing. Third party contractors were used to disseminate information about REAP to properties already in REAP, interview tenants to ensure repairs were being made, and assist landlords to comply with REAP’s requirements. It also found that these third party contractors have an additional expertise in working with tenants.
Court Found that REAP was not Applied to Plaintiffs Arbitrarily or Unreasonably
Plaintiff Landlords argued that REAP was applied arbitrarily or unreasonably against them because there were procedural defects in placing Landlord’s properties into REAP. In order for their to be a violation of substantive due process, the violation must “shock the conscience and offend the community’s sense of fair play and decency.” Marsh v. County of San Diego (9th Cir. 2012) 680 F.3d 1148, 1154. Although Plaintiff Landlords argued that the City did not provide proper notice of inspections or opportunities to object at hearings, the Court found these arguments were misplaced and did not rise to a level that shook the conscience.
In its decision, the Court sided with the City of Los Angeles by finding REAP as a reasonable method to further the City’s legitimate interest in preventing substandard housing by punishing landlords in order to force them to make repairs.
A copy of the decision can be found here.