Eminent Domain Report

Housing in California is a hot topic, particularly when the short-term rentals are thrown into the mix. Those opposed to short-term rentals often argue that it removes permanent housing stock from the market and that such rentals negatively impact communities and reduce surrounding property values due to the temporary character of the residents, constant turn-over, noise and overuse. On the other hand, short-term rentals may be an opportunity to maximize income from one’s property, and many investors purchase properties based on their income-generating potential.

Cities have been successful in implementing bans or severe restrictions on short-term housing rentals, despite multiple challenges throughout California. However, when those bans take place in coastal communities, local jurisdictions may have a new obstacle to overcome: the California Coastal Act and its overriding goal of providing visitor access to California’s coast. In a recent Court of Appeal decision (which the Supreme Court declined to take-up), Keen v. City of Manhattan Beach (2022) 77 Cal.App.5th 142, the Court held that the California Coastal Act overrides local cities’ plans to implement short-term rental bans in coastal zones since such restrictions restrict coastal access, and therefore any such bans require Coastal Commission approval. The Commission may be unlikely to approve of such restrictions since they ultimately may inhibit coastal access.

Background

Under the Coastal Act, a local government may develop a local coastal program governing development within its coastal zone. Local governments are encouraged to develop a local coastal program, because it generally shifts initial permitting authority from the California Coastal Commission to the local government. Local coastal programs include multiple elements, including general policies and zoning ordinances. A local coastal program must be approved by the California Coastal Commission before coastal development permitting authority will shift to a local government. Any amendments to a local coastal program must also be approved by the California Coastal Commission. The City of Manhattan Beach has a local coastal program.

In 2019, the City of Manhattan Beach enacted a short-term rental ban (rentals for less than 30 days) that precluded the short-term rental of housing through the City, including in the coastal zone. This ban was challenged by a City resident that owned property in the coastal zone. The property owner sought a writ of mandate to enjoin the City from enforcing the rental-ban ordinance.

The trial court determined that the City’s ordinance banning short-term rentals constituted an amendment to its zoning law in a coastal area, thereby requiring California Coastal Commission approval. Since there was no Coastal Commission approval of the ban, the court enjoined its enforcement pending Coastal Commission approval.

Court of Appeal

On appeal, the Court affirmed the judgment of the trial court. The Court determined that the plain language of the ordinance demonstrated that the ordinance was in fact new and had not been in existence when the Coastal Commission last approved the local coastal program. As such, it was subject to Coastal Commission approval. This determination means that the short-term rental ban is no longer enforceable in the City’s coastal zone, though it remains in place outside of that zone.

While the appeal itself does not require the City to allow short-term rentals, it does require the ordinance to go before the Coastal Commission. The Coastal Commission is charged with protecting access to the California coast and it has publicly stated that short-term rentals should be allowed at the coast because they increase coastal access.

Petition to the California Supreme Court

In a final attempt to uphold the short-term rental ban, the City petitioned the California Supreme Court for review. Among the arguments made was that housing in California is a priority and short-term rentals remove residential housing from the market. Ultimately, the Supreme Court declined to take up the case.

Ramifications

Now, the City must decide whether to give-up on the short-term rental ban in the coastal zone or seek the Coastal Commission’s approval. Given the Coastal Commission’s public support of short-term rentals as a method of promoting coastal access, if the City does decide to pursue Coastal Commission approval, it will likely need to offer significant concessions and modifications if it hopes to obtain that approval. 

This decision, keeping with other recent decisions and trends, is likely to have impacts on all jurisdictions along California’s coast. As a result of the now-final reported decision, one can easily imagine an increase in lawsuits challenging short-term rental bans.