• Specific Plan's Affordable Housing Requirements Preempted by State Rent Control Law
  • August 27, 2009 | Author: Cecily Talbert Barclay
  • Law Firm: Bingham McCutchen LLP - San Francisco Office
  • A court of appeal has struck down a local requirement that a project include affordable rental units on the basis that the requirement conflicted with and was preempted by the Costa-Hawkins Act, a state law that allows residential landlords to set initial rent levels at the commencement of a tenancy. Palmer/Sixth Street Properties, L.P. v. City of Los Angeles, 96 Cal. Rptr. 3d 875 (July 22, 2009).

    The City of Los Angeles adopted a Specific Plan for an area near downtown Los Angeles. The Specific Plan required that developers of certain residential and mixed use projects within the plan area either construct affordable rental units that would be subject to long-term rent restrictions at regulated rent levels or pay an in-lieu fee that the city would use to build affordable housing elsewhere. The city imposed this requirement as a condition of approval on a mixed-use project, which would have resulted in either the construction of 60 affordable rental units or payment of over $6.7 million of in-lieu fees. The developer challenged the condition.

    In upholding the developer’s challenge, the court explained that the Costa-Hawkins Act, which applies to buildings for which a certificate of occupancy was issued after February 1, 1995, provides that “[n]otwithstanding any other provision of law,” residential landlords may impose whatever rent they choose at the commencement of a tenancy. The court reasoned that, under the plain language of the statute, a condition of approval that forces a developer to construct rental units that would be subject to regulated rental rates “is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit.”

    The court acknowledged that the Costa-Hawkins Act does not apply where the owner has agreed to build affordable housing in consideration for a direct financial contribution or any other form of assistance specified in state density bonus law. Since that was not the case here, the court concluded the exception to the Costa-Hawkins Act did not apply.

    The court also rejected the city’s argument that even if the requirement to provide units at affordable rents were preempted, payment of in-lieu fees would not be preempted since it would not involve rent control. In the court’s view, the in-lieu fee option was “inextricably intertwined” with the requirement to construct the affordable rental units, since the fee amount was based solely on the number of units a developer would otherwise be required to build and rent at restricted rates. The court found the purpose of the requirement was to mandate construction of affordable rental units, not the payment of fees, and that the in-lieu provision therefore also was preempted.

    This court’s decision is the first to invalidate affordable housing requirements based on preemption, and may have far-reaching implications for local inclusionary housing regulations.