Posted by: Patricia Salkin | November 15, 2018

CA Appeals Court Remands Denial of Hotel Owners’ Motion for Preliminary Injunction Over Taking Claim Under Minimum Stay Requirement

This post was authored by Edward Sullivan, Esq.

San Francisco SRO Hotel Coalition v. City and County of San Francisco, No. A151847 (Cal. App., 1st Dist., October 15, 2018) involved a takings claim under the California Constitution arising out of a 2017 amendment to the City’s Administrative Code that required that there be a minimum term of 32 days for hotel stays in single room occupancy (SRO) hotels. The Code had already been amended to prohibit SRO rentals of less than seven days and the 32 day minimum term would now bring into play the City’s rent control laws. The appellate court noted that an SRO is a small hotel room that typically lacks a private kitchen or bathroom, similar to a college dormitory room. Many low-income, elderly and disabled persons reside in SROs throughout the City. The City sought to preserve these hotels to prevent more “rough sleeping” in City streets and public places and had adopted a moratorium on conversion of SROs to tourist hotel housing in 1979 and adopted further permanent legislation in 1981 to make it economically difficult to make such conversions.  However, tenant protections at that time extended only to those renting for 32 days or more.

Plaintiffs, an association and individual hotel owners, sought invalidation of the amendment and sought review of the trial court’s denial of a preliminary injunction.  Among other allegations, certain Plaintiffs contended that the amendments amounted to a taking because they foreclosed rentals of seven to thirty-one days, which had previously been permitted as a lawful land use, and violated the Due Process and Equal Protection Clauses and sought declaratory and injunctive relief under the Federal Civil Rights Act.  Plaintiffs argued that by requiring SROs to be offered for an initial rental period of at least 32 days, the City was effectively forcing them out of the hotel business and into the landlord/tenant business, “subject to the onerous requirements of the Rent Ordinance, including eviction controls.”  The trial court denied the preliminary injunction finding no deprivation of a vested right and concluding Plaintiffs were unlikely to prevail on the merits and did not reach the question of whether Plaintiffs were entitled to contend that the balance of harms militated in favor of the grant of the preliminary injunction. The likelihood of prevailing and balance of harm analysis were the two requirements for the grant of this type of injunction.

The court concluded that because 32-day rentals are subject to San Francisco’s rent control ordinance, this would change the nature of their business in significant and detrimental ways. The court agreed that the City could eliminate an existing land use by adopting a new regulation by added that it the law effected “an unreasonable, oppressive or unwarranted interference with an existing use, it may be held to be invalid as applied as a taking without just compensation or amortize the use.  The Court concluded:

The ordinances or zoning laws analyzed by each of these decisions had the effect of rendering it impossible to continue operating a legal, existing business; accordingly, the local government was required to either pay compensation or provide a reasonable amortization period for the business owners. The 2017 Amendments do neither. True, they do not require plaintiffs to shut their doors completely. But they do, on their face, require owners of SROs to forego more classically styled hotel rentals in favor of more traditional tenancies. This changes the fundamental nature of their business, by making them landlords rather than hotel operators.

The Court distinguished the rent control results of the 2017 regulations, which could be challenged separately, emphasizing that this case involved solely the forced change in Plaintiffs’ businesses with neither just compensation nor a reasonable amortization process and remanded the matter to the trial court to determine whether the balance of harm factors favored Plaintiffs.

Two things are of note regarding this case.  First, while this was a decision under the California Constitution, the result is unusual – even for California.  The prospect of changing one or more uses allowed in a general zoning ordinance to be the basis for a takings claim should be worrisome to local governments, who should follow this case closely.  If amortization is the alternative to a taking, the basis for calculating amortization would be either the cost of improvements that commit a structure to SRO hotel (as opposed to other hotel) uses and the price paid for the property based on an SRO status.

Second, it is an unpublished decision, which cannot be cited as precedent.  Unpublished decisions in California are most often used when the law is settled.  However, another common reason for an unpublished decision is that the court wants a certain result but does not want its analysis exposed to public scrutiny.  That may be the case here, because the case clearly isn’t based on settled law.

San Francisco SRO Hotel Coalition v. City and County of San Francisco, No. A151847 (Cal. App., 5th Dist., October 15, 2018)

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