Sea Castle Apartments v. Santa Monica Rent Control Board

Monica Apartments Investment Company (Monica) owned an apartment complex in the city of Santa Monica (city). The property had a mortgage that was insured by the federal Department of Housing and Urban Development (HUD). Further, the city had a rent-control ordinance that set the permissible level for rent increases. In March 1983, Monica sought rent increases by filing petition No. I-0669 with the Santa Monica Rent Control Board (board) (defendant). In April 1983, the board approved the petition and ordered that the rental rates for the property be increased to a maximum annual yield of $604,848. Yet federal regulations authorized HUD to preempt the rental rates imposed on a property by a local ordinance if the property had a federally insured mortgage. Thus, Monica requested that HUD preempt the board’s decision. In August 1983, the request was granted, and HUD set rental rates at a maximum annual yield of $743,212. In December 1986, Monica refinanced the property, thereby extinguishing the HUD-insured mortgage. In October 1987, Monica sold the property to Sea Castle Apartments, Ltd. (Sea Castle) (plaintiff). Subsequently, Sea Castle filed suit, contending that the rents for the property should be based on the HUD-determined rates. The board argued that the rents for the property should be based on petition No. I-0669. The trial court ruled in favor of the board. Sea Castle appealed.