April 11, 2017

West Coast Real Estate Update: April 11, 2017

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

San Francisco Ordinance Invalidated in Victory for Landlords

In Coyne v. City and County of San Francisco, No. A145044 (Cal. Ct. App. Mar. 21, 2017), the California Court of Appeal invalidated a San Francisco ordinance that required landlords of residential properties to provide a monetary "relocation benefit" to displaced tenants any time the landlord exits the rental market pursuant to the Ellis Act. The Ellis Act is a state statute that prohibits a city or county from "compelling the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease. ..." The essential purpose of the Ellis Act is to allow a landlord to withdraw a unit from the rental market without excessive interference by a city or county.

In 2014, San Francisco enacted an ordinance requiring, among other things, landlords to provide a monetary relocation benefit to displaced tenants in an amount equal to 24 times the difference between the unit's current rental rate and the fair market value of the unit, as determined by a prescribed schedule. The relocation benefit was intended to compensate displaced tenants of rent-controlled units for two years' worth of the difference between what the tenant was paying and what the tenant assumedly would pay after being displaced. Although the ordinance was amended in 2015 to comply with the result of a 2014 lawsuit that challenged the ordinance, the amount of the relocation benefit was not changed.

The court decided that the relocation benefit imposed a prohibitive price on the exercise of landlords' rights under the Ellis Act and was therefore pre-empted by the state statute.

West Hollywood City Council Rejects Mayor's Proposed Moratorium on New Hotels

The West Hollywood City Council on April 3, 2017, unanimously rejected a proposal by Mayor Lauren Meister to impose a moratorium on the construction of new hotels in the city. Several West Hollywood hotel projects already approved or under consideration would add 1,229 rooms within the city – a 60 percent increase over the current number of rooms. A recent study concluded that such a dramatic increase could result in a decrease in hotel occupancy rates, average daily room rates and transit occupancy tax collected by West Hollywood. As a city that relies heavily on the tourism industry, revenue generated by the transit occupancy tax accounts for 26 percent of West Hollywood's annual general fund budget.

While the city council rejected an outright moratorium on new hotel projects, it decided to require future hotel projects to conduct a financial report regarding the project's impact on the existing hotel market and to explore alternatives other than a hotel on the proposed building site.

Mojave Desert Water Project Benefits from Trump Administration's Environmental Policy

A memorandum issued March 29, 2017, by the Department of Interior's Bureau of Land Management rescinded two prior memoranda issued under the Obama Administration that would have required the Cadiz Valley Water Conservation, Recovery and Storage Project (Cadiz Water Project) to undergo a federal environmental review as part of a permitting process to build a pipeline across federal land. The Cadiz Water Project proposes to pump water from aquifers under the Mojave Desert and sell it to Southern California water districts. Under the policy prescribed by the March 29 memorandum, the owner of the Cadiz Water Project is now free to route its pipelines along railroad right of ways and avoid the expensive and time-consuming federal environmental review.

Sen. Dianne Feinstein (D-Calif.), who authored the 1994 California Desert Protection Act, stated the policy change could "destroy pristine public land" and have an irreversible detrimental impact on the California desert. In response, the owner of the Cadiz project said that the project has undergone multiple environmental reviews, including a California Environmental Quality Act review that survived court challenges, and would provide water for 400,000 people, generate 5,900 new jobs and drive nearly $1 billion in economic growth.


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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