THIRD STREET — Tenants are living in fear of eviction as the City Attorney’s Office and Rent Control Board fight to preserve rental units at the Embassy Hotel and Apartments on Third Street.

The owner wants to take the units off the rental market, kicking the current residents out.

Those tenants, who currently have no representation in the lawsuit, are left completely in the dark concerning negotiations over the very homes in which they reside as all three parties in the suit claim attorney-client privilege.

“We’re not going to leave them hanging, we just don’t have a choice right now,” said Michaelyn Jones, attorney for the Rent Control Board.

The fight concerns 19 units in the Embassy Hotel and Apartments complex, which became classified apartment-type units as part of a settlement agreement between City Hall and the complex’s owners that was reached in 2000 following a dispute over the owners’ failure to collect and pay the city tax on hotel beds.

The owners decided to remove those 19 units from the rental housing pool under the Ellis Act, a California state law that allows property owners to get out of the rental business.

According to a 2009 court document, City Hall objected to the removal of the 19 units, saying that the settlement agreement caused the owners to waive any right to remove the disputed units from the housing market.

In February 2009, the owners of the Embassy Hotel and Apartments — referred to as Embassy LLC and Embassy Properties, L.P. in the lawsuit — filed a petition for writ of mandate, requesting that a judge tell City Hall to back off.

In the petition, attorney Anthony J. Oliva, who represents the Embassy, described a situation of undo burden on the Embassy’s owners, citing the difficulties of running a hybrid operation that both houses permanent tenants and short-term hotel guests.

The needs of hotel guests and permanent residents often compete, he wrote, and the owners find it difficult if not impossible to pass on both maintenance and utilities costs to tenants because the units do not have individual meters.

Also cited were difficulties in getting insurance, and a lack of parking.

“What’s not viable is to continue having a building that’s half and half,” Oliva said. “When you have a hotel of this type, you need different services.”

Although the City Attorney’s Office and Rent Control Board’s representation won in the lower court, the Embassy owners took the matter to the state Court of Appeal, which tossed out the argument regarding the Ellis Act waiver.

The court ruled that property owners cannot “knowingly and intelligently” waive the right to remove a rental unit from the market.

The Santa Monica agencies petitioned the California Supreme Court, which declined to hear the matter.

“The appellate court agreed with us that it was not enforceable,” Oliva said. “We’re seeking a court order to permit the removal of those units from the market.”

He would not say what those units would then be used for.

The matter will return to the lower court, where, City Attorney Marsha Moutrie told elected officials at Tuesday night’s City Council meeting, the consequences could be dire.

“Because of that loss (in the appellate court), it is possible with the case returned to trial court, that the city and Rent Board will lose again,” she said. “If that happens, the tenants could be evicted immediately.”

Oliva acknowledged, however, that the matter is not a slam dunk.

“There are certain circumstances under which a waiver would be enforceable,” he said.

The next court hearing is June 23. In the meantime, City Hall, the Rent Control Board and the Embassy are engaging in settlement negotiations, about which they cannot speak, said Deputy City Attorney Alan Seltzer.

Nine units are currently occupied by renters and are affected by the suit, although it is unclear on City Hall’s end how many tenants live in those units.

It doesn’t inspire confidence on the part of the tenant community that their rights will be protected as negotiations continue.

“The tenants have been assured by the City Council that their rights and interests will be a priority in the negotiations between the city and the Embassy,” said one tenant who preferred to remain anonymous. “It is my fervent hope that they follow through with their promise. After a two-and-a-half year battle, we expect to be fairly represented in the fate of our tenancies.”

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