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Palmer/Sixth Street Properties, L.P. v. City of Los Angeles

July 22, 2009

PALMER/SIXTH STREET PROPERTIES, L.P., ET AL., PLAINTIFFS AND RESPONDENTS,
v.
CITY OF LOS ANGELES, DEFENDANT AND APPELLANT.



APPEAL from a judgment of the Superior Court of Los Angeles County, Dzintra Janavs, Judge. Affirmed. (Los Angeles County Super. Ct. No. BS107637).

The opinion of the court was delivered by: Suzukawa, J.

CERTIFIED FOR PUBLICATION

The superior court issued a writ of mandate that precludes appellant City of Los Angeles (the City) from enforcing an affordable housing ordinance against a mixed use project that is being developed by respondents Palmer/Sixth Street Properties, L.P., and Geoffrey Palmer (jointly, Palmer). The superior court concluded that, as applied to Palmer‟s proposed project, the affordable housing ordinance conflicts with and is preempted by the vacancy decontrol provisions of the Costa-Hawkins Rental Housing Act (Civ. Code, § 1954.50 et seq. (the Costa-Hawkins Act or the Act)), which allows residential landlords to set the initial rent levels at the commencement of a tenancy. The City has appealed from the judgment, which we affirm.

BACKGROUND

In 1991, the City adopted a Specific Plan (the Plan) for development projects*fn1 within the area located immediately west of the Harbor Freeway near downtown Los Angeles called Central City West (the Area). In relevant part, section 11.C of the Plan (section 11.C) imposes affordable housing requirements on residential and mixed use*fn2 projects of more than 10 dwelling units per lot.*fn3 According to section 2.D of the Plan, the City adopted these requirements in order to protect the Area‟s "existing residential community from further displacement, replace dwelling units previously removed from the Specific Plan area, and provide new housing in proportion to the need, by household size and income, associated with the existing community and new jobs generated in the Plan area."*fn4

This litigation concerns the City‟s conditional approval of a mixed use project (Piero II or the project) that Palmer plans to build within the Area. The site is currently used as a parking lot, but it previously contained a 60-unit low income apartment hotel that was demolished in 1990. The City conditionally approved the project subject to Palmer‟s compliance with section 11.C‟s affordable housing requirements, but Palmer contends the requirements conflict with and are preempted by the Costa-Hawkins Act. As previously mentioned, the Costa-Hawkins Act‟s vacancy decontrol provisions allow residential landlords to set the initial rent levels at the commencement of a tenancy. The Plan, on the other hand, requires either the construction of affordable housing units that are subject to rent restrictions for the life of the units or for 30 years, whichever is greater, or the payment of an in lieu fee that the City will use to build affordable housing units elsewhere. The dispositive issue, both below and on appeal, is whether the City‟s application of section 11.C‟s affordable housing requirements to the Piero II project conflicts with and is preempted by the Act.

I. Section 11.C's Affordable Housing Requirements

Section 11.C.2.a requires applicants for multiple-family residential or mixed use projects to comply with whichever of the following will result "in the greater number of affordable dwelling units: [¶] 1) Document and replace, on a one-for-one basis in the form of new dwelling unit construction, Low and Very Low Income Dwelling Units*fn5 Project Applicant shall designate [and] reserve a total of 15% of the dwelling unit[]s within the Project as Low [I]ncome Dwelling Units."

Alternatively, if a multiple family residential project applicant does not wish to comply with the Plan‟s replacement and inclusionary dwelling requirements, section 11.C provides for the payment of an "in lieu" fee. Section 11.C describes the in lieu fee as follows: "In lieu of the requirements of this Subdivision, a multiple-family residential Project Applicant may pay a fee. [¶] 1) The in lieu fee for a required Very Low Income Dwelling Unit shall be $100,576.14 per unit. [¶] 2) The in lieu fee for a required Low Income Dwelling Unit shall be $78,883.41 per unit."

The Plan limits the monthly rents that may be charged for any required affordable housing unit that is built under section 11.C. According to section 11.E of the Plan, the monthly rent for low income dwelling units "shall not exceed 30% of 80% of the median monthly income for persons or families residing in the Los Angeles Standard Metropolitan Statistical Area," and for very low income dwelling units, the monthly rent "shall not exceed 30% of 50% of the median monthly income." Section 11.E further provides that these rent restrictions shall remain in place, through the use of deed restrictions, "for the life of the dwelling units or for 30 years, whichever is greater."

II. Palmer's Project Application and Waiver Request

In 2006, Palmer applied for approval of the Piero II project, which will include "350 residential units and 9,705 square feet of commercial space on 2.84 acres, consisting of 11 separate, contiguous lots." Because the project site formerly contained a 60-unit low income apartment hotel that was demolished in July 1990, the City concluded that the project falls within the scope of section 11.C‟s replacement dwelling requirements.

Palmer requested a waiver of section 11.C‟s affordable housing requirements. In support of its waiver request, Palmer pointed out that the cost of providing 60 replacement low income dwelling units "would reduce the amount of loan proceeds otherwise available to the project by approximately $10 million, which would render the project economically infeasable."*fn6 Palmer also stated that because the site is "currently being used as a parking lot[,] no existing dwelling units will be demolished or removed as a result of the project. Instead, the [project] will provide an additional 350 units to the existing supply of rental housing in the area, which will enhance the housing opportunities for people who work in downtown."

Palmer objected that applying section 11.C‟s affordable housing requirements to the project would violate the Costa-Hawkins Act. Palmer argued that the Costa-Hawkins Act "pre-empts the area of rental control regulation and provides, among other things, that an "owner of residential real property may establish the initial and all subsequent rental rates for a dwelling or a unit . . . [which] has a certificate of occupancy issued after February 1, 1995.‟ [Civ. Code, § 1954.52, subd. (a)(1).]" Palmer contended that section 11.C‟s affordable housing requirements are "exactly the type of local regulation that the Costa-Hawkins Act was designed to prohibit, as it would reduce, if not entirely eliminate, the economic motivation to produce the very rental housing that the Costa-Hawkins Act seeks to encourage, as it would interfere with applicant‟s right to set initial rents on all of the new apartments produced, and all future rental increases for the property."

Palmer further argued that because it was not "applying for any additional incentives" or receiving "any form of any government support," the project should be exempted from section 11.C‟s affordable housing requirements. (See Civ. Code, § 1954.52, subd. (b) [the Costa-Hawkins Act "does not apply where the owner has otherwise agreed by contract with a public entity in consideration for a direct financial contribution or any other forms of assistance specified in Chapter 4.3 (commencing with Section 65915) of Division 1 of Title 7 of the Government Code"].) Although both the Costa-Hawkins Act and section 11.C permit developers to obtain density bonuses,*fn7 Palmer pointed out that it has no need for a density bonus, because the project involves "approximately 40% fewer" units than are allowed by the zoning ordinances.

III. The City's Administrative Rulings

The local planning commission, the planning and land use management committee, and the city council reviewed Palmer‟s waiver request. At each level, the waiver was denied on the ground that the site formerly contained a 60-unit low income apartment hotel that was destroyed within the time period covered by the Plan.

The planning commission conditionally approved the project subject to section 11.C‟s affordable housing requirements, as stated in condition 10 of the project approval. Under condition 10, Palmer must: (1) provide 60 replacement low income dwelling units, either on or off-site, or pay an in-lieu fee of $96,182.17 per unit for 60 units, for a total of $5,770,930.20;*fn8 and (2) execute a "Covenant and Agreement" to maintain the rent restrictions set ...


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