February 16, 2016

West Coast Real Estate Update: Feb. 16, 2016

Holland & Knight Update
Susan Jennifer Booth | Stacie Andra Goeddel | Robert M. Haight Jr. | Karl J. Lott | Douglas A. Praw

Los Angeles Ballot Proposal To Halt Developer's Zoning Changes

A group called "Coalition to Preserve L.A." is proposing a ballot measure that would impose a two-year moratorium on all projects in the city of Los Angeles that require zoning or general plan changes. The group seeks to stop the types of new large developments that have recently received approvals throughout the city.

The measure would effectively halt a large number of development projects, since many projects require zoning changes given the complexities of the Los Angeles zoning code. Not only would the measure affect the so-called "megaprojects," but it also has the potential to halt the construction of new affordable housing projects and transit-oriented development projects. It could also stop other projects that are called for in the mayor's plans to increase the housing supply in Los Angeles to help reduce homelessness and his plans to increase the use of public transportation.

Mayor Eric Garcetti and Los Angeles City Councilman Mitch O'Farrell have announced their opposition to the ballot measure and have reached out to the organizers in an attempt to reach a compromise that would avoid placing the measure on the November ballot. The mayor has suggested minimizing the use of "spot zoning" and variances in order to satisfy the group's primary objections to the current system.

Efforts to Identify the Beneficial Owners of Real Estate and Other Companies Continue

The Incorporation Transparency and Law Enforcement Assistance Act (Transparency Act) represents the latest effort by the federal government to reduce money laundering and identify potential funding sources of terrorist activities. The Transparency Act was first introduced into Congress in 2008. Since that time, it has died and been reborn on multiple occasions. On Feb. 3, 2016, it was reintroduced as a bill in both the House of Representatives and the Senate.

The Transparency Act, if passed, would impose new reporting obligations upon each corporation and limited liability company (LLC) formed within the United States. Specifically, each corporation and LLC would be required to report to the state of its formation certain information, including name, address and current U.S. passport or state driver's license, for the individual persons who are directly or indirectly the "beneficial owners," or the persons who have direct or indirect control over the corporation or LLC. Each corporation and LLC would also have an ongoing obligation to update the information within a short time following any change. If an individual state does not have the ability to collect the information, then the Department of the Treasury would collect the information. The Transparency Act is intended to prevent individuals from hiding behind corporate facades.

Residential Communities: Proposed Relief from Election Requirements

A new bill, AB 1799, was introduced on Feb. 8, 2016, to amend the Member Election article of the Davis-Stirling Common Interest Development Act to exempt uncontested director elections from the act's stricter election requirements. These requirements are only applicable to votes on certain key issues that could affect the operation of the community, which include election and removal of directors, assessments and amendment of governing documents, as well as any other topic identified in the association rules as being subject to such requirements. Under the Member Election article, the association is required, among other things, to engage up to three qualified third parties to serve as inspectors of elections. The inspectors oversee the election, from determining the number of memberships eligible to vote and tabulating the results to deciding any challenges in connection with a member's right to vote. This amendment would eliminate what many associations and managers have viewed as unnecessary process and expense in an uncontested directors election.

The proposed bill provides that an election is "uncontested" if the number of candidates for election does not exceed the number of directors to be elected at the election. The proposed bill may be heard in committee on March 10, 2016, and further clarification is expected since certain requirements under the Member Election article, like establishing procedures for nominations, must be fulfilled prior to determining if an election of directors is in fact "uncontested."

Los Angeles Appellate Court Cracks Down on Certain Airbnb Use

The Appellate Division of the Los Angeles Superior Court held that a landlord has grounds to evict a tenant for unlawfully renting a room in his or her apartment using Airbnb, where such use constitutes an illegal use of the premises under the Los Angeles Municipal Code (LAMC). Airbnb describes itself as a "community marketplace" for people to list and book properties and has purportedly served more than 60 million guests in more than 34,000 cities around the world. In light of its popularity, constituents of certain parts of Southern California have made efforts to restrict the use of short-term rentals through Airbnb.

In Chen v. Kraft, 2016 S.O.S. 269, the defendant occupied a rent-controlled premises in Venice, Calif., – a popular tourist destination in Los Angeles – pursuant to a lease agreement entered into with the plaintiff's predecessor in interest. The defendant had even negotiated an addendum to the original lease agreement with the plaintiff's predecessor in interest to expressly permit the defendant's hosting guests through Airbnb. The plaintiff subsequently filed a complaint in unlawful detainer alleging that the defendant failed to comply with, among other things, the 10-day notice to stop illegally subletting the unit by allowing subtenants and short-term renters to reside on the premises.

The court affirmed the judgment of the lower court and granted the plaintiff's motion for summary judgment, recognizing that the premises were located within an R1 One-Family Zone, where permitted use did not include a bed-and-breakfast facility or a transient occupancy residential structure, as defined in the LAMC. Even though the defendant claimed that the lease addendum allowed her to engage in Airbnb activities, the court found that such contract was void and unenforceable as it was in violation of existing regulations.

As Airbnb continues to grow in popularity, there will likely be further developments in how it, along with other short-term rental service providers, operates with the various local municipalities. Local landlords and tenants must stay apprised of such developments as they relate to existing regulations.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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