By Cori Badgley

In 2009, a three-judge panel for the Ninth Circuit Court of Appeals made a controversial determination that a rent control ordinance relating to mobilehome parks constituted a regulatory taking. (See “Take This! Wealth-Transfer under Rent Control Ordinance Constitutes a Regulatory Taking.”) In 2010 in Guggenheim v. City of Goleta (December 22, 2010, No. 06-56306) __ F.3d __ (“Guggenheim II”), the Ninth Circuit Court of Appeals sitting en banc reversed its previous decision, holding that the plaintiffs had no distinct investment-backed expectations when they purchased the property. Therefore, the rent control ordinance did not constitute a taking of their property.

The city’s rent control ordinance imposed a cap on the amount mobilehome park landowners could charge for rent as well as provided procedures for increasing the rental amount. The result of this law, according to plaintiffs, was to transfer wealth from the landowner to the tenant. When the plaintiffs originally purchased their mobilehome park decades prior to filing the lawsuit, the property was located in the unincorporated area of the county, and the existing county code imposed the same rent control ordinance that was subsequently adopted by the city when it incorporated. This fact became crucial to the appellate court’s decision in Guggenheim II.

Under the Penn Central test, a court must look at the following primary factors when determining whether a regulatory taking has occurred: 1) the economic impact of the regulation on the claimant, and 2) the extent to which the regulation has interfered with distinct investment-backed expectations. In this case, the court found that the second primary factor weighed greatly in favor of the city. The plaintiffs purchased property that was already burdened by the rent control ordinance, and plaintiffs had no expectation that the rent control ordinance would be lifted at some future date. Even when the city incorporated, the city never gave any indication of eliminating the ordinance. Therefore, the court held that plaintiff had no distinct investment-backed expectations, and no taking had occurred.

Although the city may have won this round, the battle may not be over. The court indicated that this was only a facial challenge, and if the city applied the ordinance in an unconstitutional manner, plaintiffs could bring yet another as-applied challenge at a later date.

Cori M. Badgley is an associate at Abbott & Kindermann, LLP. For questions relating to this article or any other California land use, real estate, environmental and/or planning issues contact Abbott & Kindermann, LLP at (916) 456-9595.

The information presented in this article should not be construed to be formal legal advice by Abbott & Kindermann, LLP, nor the formation of a lawyer/client relationship. Because of the changing nature of this area of the law and the importance of individual facts, readers are encouraged to seek independent counsel for advice regarding their individual legal issues.