Developers of rental housing in California had a little something extra to be thankful for Nov. 26. A recent court case — Palmer/Sixth Street Properties v. City of Los Angeles — likely invalidated certain below market rental requirements in more than 100 localities across the state, including San Francisco. (DOC of case here: Download Palmer case.)
In the Palmer case, Los Angeles did something similar to what we do here in San Francisco: require that new rental developments include a certain number of units for low-income households and declare a maximum amount that can be charged to rent those units.
Palmer (a developer) sued on the grounds that the local low-rental requirement violated a state law, the Costa-Hawkins Rental Housing Act, that says landlords get to set initial rental rates. A state appellate court agreed with Palmer and struck down the Los Angeles requirement. In the court’s opinion, it did not matter that (as is the case in San Francisco) a landlord could choose to pay a fee to the city in lieu of providing the low-rate units.
(Note: The Costa-Hawkins Act only applies to rental units, not condos, and does not apply to rental developments that receive government assistance.)
The appellate court decision came down in July, but the California Supreme Court only recently refused to rehear the case. Now that we are stuck with the July ruling, freaking out may officially commence in San Francisco because our below market rental requirements are similar to (though not exactly like) the ones declared unlawful in Los Angeles.
Already, organizations like Tenants Together are calling for the state Legislature to amend the Costa-Hawkins Act to allow for low-rate rental set-asides.
One San Francisco developer, who asked not to be named, told me that no one knows how the Palmer case may affect rental projects currently being negotiated. His company plans to consult with its own lawyers, stay in communication with the Planning Department and see what the city attorney advises. I asked the City Attorney’s Office for a copy of anything it had written on the Palmer case and was told that there is a memorandum, but it’s confidential.
Obviously, I haven’t seen the memo, but “everything is fine” is rarely a secret worth keeping.
BONUS MATERIAL:
From the City Attorney's Office:
It's no secret that the Palmer decision has potential implications for inclusionary housing policies in California that involve rentals. Nothing in Palmer, however, should implicate inclusionary policies for ownership projects, or projects that receive direct, public sector financial contributions.
I can't compromise attorney-client confidentiality by discussing our office's legal advice. But I think it's safe to say that city attorneys and county counsels across the state are working with their clients to assess how Palmer may affect their own local ordinances.
As part of those discussions, it's often the case that options are presented to address potential impacts -- including pursuing legislative fixes. Courts make decisions every day that have potential impacts on local governments. It's our job is to inform our clients about what those are, and to make sure that their policy decisions are fully informed of the legal risks and options.
From Assemblyman Tom Ammiano's Office:
We are aware and are looking at the Palmer case with regards to inclusionary housing and are in discussions with housing advocates and nonprofit housing developers about the best course of action given the ramifications of the decision.
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