Judge: James C. Chalfant, Case: 24STCP00451, Date: 2024-08-27 Tentative Ruling

Case Number: 24STCP00451    Hearing Date: August 27, 2024    Dept: 85

Respondents City of Culver City (“City”) and Intervenor Meadow Forward Action Committee (“MFAC”) separately demur to the First Amended Petition (“FAP”) of Petitioner/Plaintiff Fox Hills Canterbury Co. (“Fox Hills”).

The court has read and considered the moving papers, oppositions, and replies, and renders the following tentative decision.

A. Statement of the Case

1. The First Amended Petition

Petitioner Fox Hills filed this action against Respondent City on February 13, 2024.  The operative pleading is the FAP, filed on May 24, 2024, alleging causes of action for mandamus, declaratory relief, and inverse condemnation.  The FAP alleges in pertinent part as follows.

Petitioner owns real property in the City located at 6300 through 6430 Green Valley Circle and 6100 through 6220 Canterbury Drive (the “Property”). The Property is improved with 24 separate multi-family apartment buildings, each containing a number of separate apartment units. The Property and its buildings are commonly referred to as the Meadows Apartments and are divided into areas commonly known as Meadows South and Meadows North.  FAP, ¶11, Ex.  A.

Petitioner constructed the Meadows Apartments in 1974.  Due to the age of the buildings and infrastructure, plumbing leaks and sewer line issues have occurred within the concrete slab foundations, requiring extensive demolition of slab foundations and repairs of plumbing lines, in many cases requiring the relocation of tenants for the work to be completed.  The costs of the repairs have increased dramatically over the years, averaging $250,000 for each of 2022 and 2023.  In light of the significant expense, Petitioner undertook a project to replace old pipes and infrastructure, both inside and outside the Meadows South and North buildings, remove significant portions of drywall, and replace fixtures, cabinets, floors, countertops, and appliances in each unit (the “Project”).  FAP, ¶12.

To implement the Project, Petitioner paid for, and obtained, in excess of 100 building permits (the “Permits”) from the City.  FAP, ¶13.  In reliance on the Permits, Petitioner performed exterior site work which involved substantial trenching and installation of new underground pipes and conduit, completing this work by the August 2019.  Completion of the exterior site work was necessary for the next phase, which involved the utility replacement and related work inside the buildings.  FAP, ¶14.

Petitioner also sought and obtained Permits for (a) the removal and replacement of plumbing and sewer lines inside the apartment buildings, issued on September 27, 2017, (b) replacement of building mechanical systems, issued on September 26, 2017, (c) replacement and updating of building select electrical systems, issued on October 26, 2016, and (c) repair and replacement of roofing, issued on April 9, 2019.  FAP, ¶15, Ex. B.

In reliance on the Permits, Petitioner completely renovated each apartment unit in the 117 units of Meadows South, removing and replacing a substantial amount of drywall, cabinetry and flooring to access the interior plumbing, sewer, and select electrical lines, replacing substantial interior plumbing and select electrical lines, and installation of new fixtures, cabinets, floors, countertops and appliances in each unit. The interior work at the Meadows South required the units to be vacated.  FAP, ¶16.

To date, Petitioner has paid over $19,700,000 for the construction, Permits, and inspections.  FAP, ¶17.  All interior and exterior work on 117 units in Meadows South was completed in 2021 and the City never attempted to enforce the relocation provisions in the Tenant Protection Ordinance (“TPO”, sometimes “Ordinance”) adopted on September 29, 2020.  Nor did the City contend that the Ordinance applied to the work and tenant relocation occurring at Meadows South.  FAP, ¶17.

The exterior site work has been completed on Meadows North. The remaining work to be completed on the Meadows North buildings under the Permits will require substantial removal of the ground floor concrete slabs to reach the water pipes, sewer lines, and select conduit, removal and demolition of significant portions of drywall, fixtures, cabinets, flooring and appliances to access and replace interior piping and select wiring.  Such work will require the tenants in Meadows North buildings to vacate their units.  As with Meadows South, all tenants in Meadows North will be under month-to-month leases when the renovation starts.  FAP, ¶18.

On or about August 12, 2019, the City Council adopted Ordinance No. 2019-011 (“Interim Rent Control Ordinance”), an urgency ordinance establishing interim rent control measures for 12 months. The Interim Rent Control Ordinance did not contain any relocation right or tenant’s right-to-return based upon construction in or around the rental units. The Interim Rent Control Ordinance was extended, without amendment, through October 31, 2020.  FAP, ¶19.

On or about September 29, 2020, the City Council adopted the TPO, which added a new Subchapter 15.09.300 to the Culver City Municipal Code (“CCMC”) The TPO purports to preclude, inter alia, landlords from relocating tenants from their units unless the tenants are permitted to return to their units at the same rent, even though the units have been substantially upgraded.  The TPO does not have an exemption for projects which have vested rights, such as Petitioner’s Project.  FAP, ¶20, Ex. D.

Upon the onset of the Covid-19 pandemic in approximately March of 2020, Petitioner continued work on the vacant interior units of Meadows South along with other exterior improvements on Meadows North.  FAP, ¶21.

Beginning in the Fall 2021, as the COVID-19 pandemic became somewhat manageable, Petitioner reached out to the Mayor, and members of the City Council, and City staff in an effort to enable the Project to proceed on Meadows North.  These attempts continued through 2022 and 2023. On January 25, 2023, the City advised Petitioner that the City Council voted to have the Petitioner’s concern placed on the agenda for a future City Council meeting. Notwithstanding, the City did not notice or conduct a hearing on Petitioner request to work on Meadows North without compliance with the TPO.  FAP, ¶22.

On or about September 6, 2023, Petitioner sought an exemption from the TPO based upon the vested rights obtained through the issuance of the Permits, work completed, and the $19.7 million spent in reliance thereon.  The City declined to formally respond to Petitioner’s request for an exemption from the Ordinance.  FAP, ¶23.

At a City Council meeting on December 11, 2023, some tenants of Meadows North spoke against any exemption to the Ordinance for the additional work required for Meadows North.  FAP, ¶24.

For its mandamus claim, Petitioner alleges that the City has failed and refused to recognize its vested right to complete the work authorized by the Permits without the imposition of new regulations imposed by the TPO.  FAP, ¶25.  Petitioner has a clear, present, and legal right to complete the work authorized by the Permits based upon vested rights, and it is in the best interest of the community to provide quality housing for the existing and future residents of the City. The City’s invocation of the Ordinance renders the Meadows South portion of the financially infeasible.  FAP, ¶26.  The City has the duty and ability to authorize that the work be completed without invocation of the TPO, and it has failed and refused to perform that duty.  FAP, ¶27.

For its declaratory relief claim, Petitioner alleges that an actual controversy has arisen and now exists between it and the City relative to their respective rights and duties.  Petitioner contends that the TPO is invalid and unenforceable against it in that the City is refusing to exempt the permitted work on the Property from the TPO even though Petitioner has vested rights to complete the work.  As applied, the Ordinance constitutes a taking of private property under Article I, Section 19 of the California Constitution and the Fifth Amendment to the U.S. Constitution, applied to the states through the Fourteenth Amendment.  Petitioner is informed and believes, and based upon such information and belief alleges, that the City disputes these contentions.  FAP, ¶30.  Petitioner desires a declaration as to the inapplicability of the TPO to the Property without subjecting itself to civil and criminal liability by violating the Ordinance.  FAP, ¶31.

For its inverse condemnation claim, Petitioner alleges that the City has the power of eminent domain to take private property for public use.  FAP, ¶33.  By virtue of Petitioner’s application for, the City’s issuance of, and Petitioner’s payment for, the Permits, and Petitioner’s incurrence of over $19,700,000 in reliance, Petitioner has vested rights to complete its work without the City’s invocation of the TPO.  FAP, ¶34.

The purported administrative process for the adjustment of rent in CCMC section 15.09.225 cannot apply to most, if not all, of the expenses for the Project because the so-called passthrough for rent adjustments is limited to capital improvement additions but not replacements.  Moreover, the pass-through exemption in CCMC section 15.09.225 may only be implemented with the tenant’s consent.  In addition, while CCMC section 15.09.220 provides a separate rent adjustment process, it contains a rebuttable presumption that the landlord is obtaining a reasonable return based upon net operating income, which would necessarily exclude capital improvements, thus rendering the rent adjustment process ineffective and futile based on the costs of the Project.  FAP, ¶35.

Petitioner contends that its vested rights extend to the completion of the work, and these vested rights constitute distinct, investment backed expectations protected under Article I, Section 19 of the California Constitution and the Fifth Amendment of the U.S. Constitution.  FAP, ¶36.  If the City is entitled to enforce the Ordinance, the result would constitute a taking of private property without payment of just compensation.  Further, to the extent the City’s refusal to recognize Petitioner vested rights has caused delay and increased expenses, Petitioner is entitled to compensation for the temporary taking of property.  FAP, ¶37.

Petitioner prays for (1) a writ of mandate commanding the City to exempt Petitioner from the TPO so that the work pursuant to the Permits may be completed; (2) declaratory relief declaring the respective rights and duties of the parties under the Ordinance; and (3) just compensation for the temporary taking, in the form of increased construction costs, lost rent and related expenses, and potentially permanent taking of private property in violation of Article I, Section 14 of the California Constitution and the Fifth Amendment of the U.S. Constitution; (4) attorney’s fees pursuant to CCP section 1036; (5) costs of suit; and (6) such other and further relief as the court may deem just and proper.  FAP at 11.

2. Course of Proceedings

On April 29, 2024, the City filed a demurrer to the Petition. 

On May 14, 2024, the court granted Intervenor MFAC’s ex parte application to intervene.  Intervenor demurred and filed an Answer-in-Intervention on the same date. 

On May 24, 2024, Petitioner filed the FAP, and the demurrers were taken off calendar.  

The parties subsequently stipulated to a briefing schedule and the instant hearing date for both demurrers to the FAC.

B. Applicable Law 

            Demurrers are permitted in administrative mandate proceedings.  CCP §§1108, 1109.  A demurrer tests the legal sufficiency of the pleading alone and will be sustained where the pleading is defective on its face. 

            Where pleadings are defective, a party may raise the defect by way of a demurrer or motion to strike or by motion for judgment on the pleadings.  CCP §430.30(a); Coyne v. Krempels, (1950) 36 Cal.2d 257.  The party against whom a complaint or cross-complaint has been filed may object by demurrer or answer to the pleading.  CCP §430.10.  A demurrer is timely filed within the 30-day period after service of the complaint.  CCP §430.40; Skrbina v. Fleming Companies, (1996) 45 Cal.App.4th 1353, 1364. 

            A demurrer may be asserted on any one or more of the following grounds: (a) The court has no jurisdiction of the subject of the cause of action alleged in the pleading; (b) The person who filed the pleading does not have legal capacity to sue; (c) There is another action pending between the same parties on the same cause of action; (d) There is a defect or misjoinder of parties; (e) The pleading does not state facts sufficient to constitute a cause of action; (f) The pleading is uncertain; (g) In an action founded on a contract, it cannot be ascertained from the pleading whether the contract is written, is oral, or is implied by conduct; (h) No certificate was filed as required by CCP sections 411.35 or 411.36.  CCP §430.10. 

A demurrer tests the sufficiency of a pleading, and the grounds for a demurrer must appear on the face of the pleading or from judicially noticeable matters.  CCP §430.30(a); Blank v. Kirwan, (1985) 39 Cal.3d 311, 318.  The face of the pleading includes attachments and incorporations by reference (Frantz v. Blackwell, (1987) 189 Cal.App.3d 91, 94), but it does not include inadmissible hearsay.  Day v. Sharp, (1975) 50 Cal.App.3d 904, 914.   

            The sole issue on demurrer for failure to state a cause of action is whether the facts pleaded, if true, would entitle the plaintiff to relief.  Garcetti v. Superior Court, (1996) 49 Cal.App.4th 1533, 1547; Limandri v. Judkins, (1997) 52 Cal.App.4th 326, 339.  The question of plaintiff’s ability to prove the allegations of the complaint or the possible difficulty in making such proof does not concern the reviewing court.  Quelimane Co. v. Stewart Title Guaranty Co., (1998) 19 Cal.4th 26, 47. 

The ultimate facts alleged in the complaint must be deemed true, as well as all facts that may be implied or inferred from those expressly alleged.  Marshall v. Gibson, Dunn & Crutcher, (1995) 37 Cal.App.4th 1397, 1403.  This rule does not apply to allegations expressing mere conclusions of law, or allegations contradicted by the exhibits to the complaint or by matters of which judicial notice may be taken.  Vance v. Villa Park Mobilehome Estates, (“Vance”) (1995) 36 Cal.App.4th 698, 709. 

            For all demurrers filed after January 1, 2016, the demurring party must meet and confer in person or by telephone with the party who filed the pleading for the purpose of determining whether an agreement can be reached that would resolve the objections to be raised in the demurrer.  CCP §430.31(a).  As part of the meet and confer process, the demurring party must identify all of the specific causes of action that it believes are subject to demurrer and provide legal support for the claimed deficiencies.  CCP §430.31(a)(1).  The party who filed the pleading must in turn provide legal support for its position that the pleading is legally sufficient or, in the alternative, how the complaint, cross-complaint, or answer could be amended to cure any legal insufficiency.  Id.  The demurring party is responsible for filing and serving a declaration that the meet and confer requirement has been met.  CCP §430.31(a)(3).

“[A] demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. [Citation.] In order for the bar of the statute of limitations to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.” State ex rel. Metz v. CCC Information Services, Inc., (2007) 149 Cal.App.4th 402, 413.

            If a demurrer is sustained, the court may grant leave to amend the pleading upon any terms as may be just and shall fix the time within which the amendment or amended pleading shall be filed.  CCP §472a(c).  However, in response to a demurrer and prior to the case being at issue, a complaint or cross-complaint shall not be amended more than three times, absent an offer to the trial court as to such additional facts to be pleaded that there is a reasonable possibility the defect can be cured to state a cause of action.  CCP §430.41(e)(1).

D. Analysis[1]

The City and Intervenor separately demur to the FAP’s claims for mandamus, declaratory relief, and inverse condemnation.  The parties have meet and conferred in compliance with CCP section 430.31(a)(3).  Sharma Decl., ¶¶ 3-4; Soloff Decl., ¶2.

            1. The Traditional Mandamus Claim

            a. The City Has a Ministerial Duty to Respect Vested Rights

A traditional writ of mandate is the method of compelling the performance of a legal, ministerial duty required by statute.  See Rodriguez v. Solis, (1991) 1 Cal.App.4th 495, 501-02.  Generally, mandamus will lie when (1) there is no plain, speedy, and adequate alternative remedy, (2) the respondent has a duty to perform, and (3) the petitioner has a clear and beneficial right to performance.”  Pomona Police Officers’ Assn. v. City of Pomona, (1997) 58 Cal.App.4th 578, 583-84 (internal citations omitted).  Whether a statute imposes a ministerial duty for which mandamus is available, or a mere obligation to perform a discretionary function, is a question of statutory interpretation.  AIDS Healthcare Foundation v. Los Angeles County Dept. of Public Health, (2011) 197 Cal.App.4th 693, 701.

In the absence of a ministerial duty, traditional mandamus relief is unavailable unless the petitioner can demonstrate an abuse of that discretion.  An agency decision is an abuse of discretion only if it is “arbitrary, capricious, entirely lacking in evidentiary support, unlawful, or procedurally unfair.”  Kahn v. Los Angeles City Employees’ Retirement System, (2010) 187 Cal.App.4th 98, 106.  In applying this deferential test, a court “must ensure that an agency has adequately considered all relevant factors, and has demonstrated a rational connection between those factors, the choice made, and the purposes of the enabling statute.”  Western States Petroleum Assn v. Superior Court, (1995) 9 Cal.4th 559, 577.  Mandamus will not lie to compel the exercise of a public agency’s discretion in a particular manner.  American Federation of State, County and Municipal Employees v. Metropolitan Water District of Southern California, (2005) 126 Cal.App.4th 247, 261.  It is available to compel an agency to exercise discretion where it has not done so (Los Angeles County Employees Assn. v. County of Los Angeles, (1973) 33 Cal.App.3d 1, 8), and to correct an abuse of discretion actually exercised.  Manjares v. Newton, (1966) 64 Cal.2d 365, 370-71.  In making this determination, the court may not substitute its judgment for that of the agency, whose decision must be upheld if reasonable minds may disagree as to its wisdom.  Id. at 371.  A writ will lie where the agency’s discretion can be exercised only in one way.  Hurtado v. Superior Court, (1974) 11 Cal.3d 574, 579.

Petitioner alleges that “[t]he City has the present legal duty and ability to authorize that the work be completed without invocation of the Ordinance, but the City has failed and refused to perform that duty.” FAP, ¶ 27.

The City argues that the TPO is devoid of any provision where a property owner could apply for an exemption from its provisions or requirements. The TPO explicitly applies to tenants where “at least one tenant has continuously and lawfully occupied the rental unit for 12 months or more.” RJN Ex. G (TPO §15.09.310(A)(2).  Petitioner implicitly concedes that the Meadows North tenants are entitled to the TPO’s tenant protections.  Petitioner does not identify any ministerial duty, nor a corresponding right to the City’s performance of a ministerial act.  The City concludes that Petitioner’s mandamus claim seeks to compel the City to exercise its discretion to exempt Petitioner from the TPO where such an exemption determination is not authorized.  City Dem. at 15-16.

Petitioner responds that the City has a ministerial duty to comply with constitutional requirements. Every constitutional provision is self-executing, and cities are prohibited from taking official actions that contravene constitutional provisions. See e.g., Leger v. Stockton Unified School District, (1988) 202 Cal.App.3d 1448, 1454. Where the City enforces a subsequently adopted regulation in violation of a property owner’s vested rights, the City’s actions are arbitrary and capricious, and a writ of mandate is merited.  Opp. to City Dem. at 15.

This argument mixes traditional mandamus based on a ministerial duty with traditional mandamus based on a discretionary duty, which is governed by an arbitrary and capricious standard.  However, it is true that a constitutional duty serves to justify mandamus just as well as a statutory duty, and apparently Petitioner relies on principles of due process to assert its vested right to an exemption.  The duty to comply with vested rights is ministerial.

Petitioner adds that the City cannot avoid an exemption simply because the TPO is devoid of any provision where a property owner could apply for one.  Such an interpretation would allow a city to drafts its ordinances in such a way as to bulletproof them -- even if they abrogate constitutional rights — by not providing any administrative remedy for exemption.  Opp. to City Dem. at 15-16.  Plainly, the City cannot avoid an exemption to the TPO if it is constitutionally compelled.

b. The Statute of Limitations Has Not Passed for the Mandamus Claim, But It Is Not Ripe

The City argues that Petitioner’s mandamus claim is a time-barred facial attack on the TPO.  City Dem. at 16.

Code of Civil Procedure section 338 imposes a three-year statute of limitations for “[a]n action upon a liability created by statute, other than a penalty or forfeiture.” A cause of action accrues and the applicable limitations period begins to run when the plaintiff knows of the alleged injury, or at least has reason to suspect a factual basis for the elements of the asserted cause of action.  Lyles v. State of California, (2007) 153 Cal.App.4th 281, 286-87. 

To determine the applicable statute of limitations, courts look beyond a petitioner’s characterization of its claim and “determine what specific governmental act” is challenged.  County of Sonoma v. Superior Court, (2010) 190 Cal.App.4th 1312, 1324 (“The true nature of [the] claims may be found by looking to the allegations of the pleadings and to the relief requested.”).  Because the City has not acted to enforce the TPO against Petitioner, the only government act that Petitioner can challenge related to the TPO is the City’s adoption of the Ordinance on September 29, 2020.  As such, the gravamen of Petitioner’s claim is that the adoption of the TPO itself caused its claimed injury, rather than any enforcement action.  City Reply at 3-4.

The FAP asserts that the Permits were obtained in 2016 through 2019 (FAP, ¶15, Ex.B) and that the TPO was adopted on September 29, 2020 (FAP, ¶17).  The FAP alleges: “The Ordinance arguably purports to preclude, inter alia, landlords from relocating tenants from their prior units unless the tenants are permitted to return to their units at the same rent, even though the units have been substantially improved and upgraded at tremendous expense to the landlord.”  FAP, ¶20.  City Dem. at 16.

The City notes that Petitioner provided comment at the public meeting at which the TPO was adopted, and those comments referenced the unfairness of instituting tenant protections as renovations were occurring on the Property.  RJN, Ex. H.  The allegations in the FAP mirror the comments Petitioner made at the September 2020 hearing, and amount to a disagreement whether the TPO should exempt circumstances where property owners are in the process of conducting renovations at the time of enactment.  City Dem. at 16-17.

Petitioner could have challenged the TPO upon adoption but instead waited for over three years to initiate this lawsuit on February 13, 2024. The three-year statute of limitations for challenging the TPO began to run as soon as the action could be challenged.  CCP §338; Urban Habitat Program v. City of Pleasanton, (2008) 164 Cal.App.4th 1561, 1578.  Petitioner was aware of the impact of the TPO on its Property on the date it was enacted, and no circumstances have changed since then.  FAP, ¶17; RJN Ex. H.  City Dem. at 17.

Petitioner is not making a facial challenge.  Petitioner’s argument that it is exempt from the TPO because of its vested rights is an as-applied challenge to the TPO.  It argues that the Ordinance is only invalid as to its Property because of its vested rights; application of the Ordinance to other City property owners is unaffected by this lawsuit. Moreover, a facial challenge can be made as part of an as-applied challenge.  Travis v. County of Santa Cruz, (2004) 33 Cal.4th 757, 769. 

The City then argues that Petitioner’s as-applied challenge lacks merit because it has taken no action to enforce the TPO against Petitioner.   Petitioner attempted to obtain an exemption to the TPO from the City in 2022 and 2023, but that is irrelevant because Petitioner did not take any action to preserve potential claims such as entering into a tolling agreement. Moreover, as Petitioner admits, the TPO does not include an application process by which a property owner could obtain an exemption.  FAP, ¶20.  Any argument that the City purportedly delayed in rendering a decision on an exemption fails where no such process exists.  City Dem. at 17.

Petitioner responds that the City fails to explain why its lack of enforcement matters.  Even if the Property is determined to be exempt because of Petitioner’s vested rights, the TPO will remain in effect with respect to other property owners in the City who do not have vested rights. A facial challenge would void the entire ordinance as to all property owners in the City - a result Fox Hills has never asked for and does not seek.  Opp. to City Dem. at 16.

The court agrees that Petitioner is making an as-applied challenge.  The court also agrees that the statute of limitations has not passed for an as-applied challenge, including one that makes a facial challenge to the TPO.  However, the as-applied mandamus claim is not ripe because the City has made no discretionary decision to enforce the TPO against Petitioner. 

This leaves only the facial component of an as-applied challenge.[2]  This too is not ripe.  A timely as-applied challenge where the petitioner’s injury does not arise solely from the law’s enactment may include a facial attack on the measure.   Travis v. County of Santa Cruz, supra, 33 Cal.4th at 769.  The facial challenge is a component of an action which challenges the enforcement of the measure and not just its enactment.  As such, the facial challenge to the text of a measure may be made only insofar as it affects enforcement of the measure against the petitioner.  Id. at 767.  The ripeness requirement for such claims is that the property owner must obtain “a final, definitive position regarding how [the city] will apply the regulations at issue to the particular land in question.”  Williamson County Reginal Planning Commission v. Hamilton Bank, (1985) 473 U.S. 172, 191.  Petitioner has not obtained a final, definitive position from the City how it will apply the TPO to Petitioner.  Therefore, the facial component of Petitioner’s as-applied claim is not ripe.

In sum, the statute of limitations has not passed for Petitioner’s as-applied mandamus claim, but it also is not ripe.

2. Petitioner Has No Vested Right to Be Exempt from the TPO

Assuming, arguendo, that Petitioner’s mandamus claim is ripe, the issue becomes whether it has a vested right to be exempt from the TPO.

“It has long been the rule in this state and in other jurisdictions that if a property owner has performed substantial work and incurred liabilities in good faith reliance upon a permit issued by the government, he acquires a vested right to complete construction in accordance with the terms of the permit.” Avco Community Developers Inc. v. South Coast Regional Comm., (“Avco”) (1976) 17 Cal.3d 785, 791.  To lock in vested rights, the relevant point in the land use process is most often construed to be the issuance of a building permit. City of West Hollywood v. Beverly Towers, (1991) 52 Cal.3d 1184, 1191-92.

“[T]he vested rights theory is predicated upon estoppel of the governing body.”  Anderson v. City Council of City of Pleasant Hill, (1964) 229 Cal.App.2d 79, 89.  “This is a principle of equitable estoppel which may be applied against the government where justice and fairness require it.”  Santa Monica Pines, Ltd. v. Rent Control Bd., (1984) 35 Cal.3d 858, 866–67, disapproved on other grounds, City of West Hollywood v. Beverly Towers, supra, 52 Cal. 3d at 1192.  “An equitable estoppel requiring the government to exempt a land use from a subsequently imposed regulation must include (1) a promise such as that implied by a building permit that the proposed use will not be prohibited by a class of restrictions that includes the regulation in question, and (2) reasonable reliance on the promise by the promisee to the promisee’s detriment.” Id. at 867.  No vested right exists “unless and until both of those elements … are established.” Ibid.

The City issued the Permits to perform its work on the Project.  Petitioner performed substantial work in good faith reliance on the permits.  It expended $19.7 million and completed 117 units in Meadows South and the exterior infrastructure for Meadows North.   The question is what vested rights are conferred by this good faith effort?

The City and Intervenor argue that Petitioner cannot show that the Permits implied a promise of no further tenant protections.  Nothing in the Permits contains suggests a promise that Petitioner will be free of future tenant protections enacted by the City.  City Dem. at 18; Int. Dem. at l2. 

Petitioner responds that this argument ignores the word “implied” in the first estoppel element that there must be a promise implied by the building permit that the proposed use will not be prohibited by a class of restrictions that includes the regulation in question.  See Santa Monica Pines, Ltd. v. Rent Control Bd., supra, 35 Cal.3d at 867.  The whole point of vested rights is that building permits are an implied promise to complete the project based on the regulations at the time the permit is issued.  There does not have to be an explicit promise in the Permits that Petitioner will be free of future tenant protections enacted by the City.  Opp. to City Dem. at 11.

Intervenor argues that the Permits imply no such promise. The State’s Housing Law requires local building departments to enforce the State Building Standards Code.  See Health & Safety Code §§ 17910, 17960.  The purpose of the State’s building standards is to “regulate[], require[], or forbid[] the method of use, properties, performance, or types of materials used in the construction, alteration, improvement, repair, or rehabilitation of a building.” Health & Safety Code § 18909(a).  To carry out this purpose, the State Building Standards Code imposes a building permit requirement. See Health & Safety Code §18902; California Building Code §105.1.  Building permits therefore have nothing to do with landlord-tenant law. The Permits therefore do not imply a promise that Petitioner would be exempt from changes in landlord-tenant law adopted after their issuance. Nothing in the Permits’ description of the renovations implies any such promise.  Int. Dem. at 13.

The City  adds that Petitioner cannot establish reasonable reliance.  There are no allegations in the FAP that Petitioner reasonably relied on the Permits to continue to operate their apartment complex free of any subsequently enacted police power regulations such as rent or eviction controls.  “Rent control, like the imposition of a new tax, is simply one of the usual hazards of the business enterprise.” Interstate Marina Dev. Co. v. Cnty. of Los Angeles, (1984) 155 Cal.App.3d 435, 447.  Petitioner alleges that it had commenced “a comprehensive infrastructure and improvement renovation program,” by taking out numerous, specific building permits for the purpose of conducting specific improvements.  FAP, ¶¶ 3, 13, 14, 15.  That is not reasonable reliance.   City Dem. at 18.[3]

Petitioner responds that the City’s argument about lack of reliance allegations in the FAP is the point of alleging vested rights.  Once the building permit is issued, completion of the project is required free of subsequently enacted regulations that would interfere with completion of the project.  There was no TPO when the Permits were issued.  There is no requirement that Petitioner allege that it relied on the Permits to be free of tenant occupancy rules that did not exist when the Permits were issued. That is part and parcel of the vested right allegation.  Opp. to City Dem. at 12.

The court prefers to view the issue as the proper scope of Petitioner’s rights with respect to the Permits.  The scope of vested rights is merely to perform the task authorized by the permit.  That scope does not give Petitioner the right not to comply with the TPO.  Vested rights are acquired when a property owner has performed substantial work and incurred substantial liability in good faith reliance on a permit to complete construction in accordance with the terms of the permit.  Avco, supra, 17 Cal.3d 785 at 791.  The rights that vest through reliance on a government permit are no greater than those specifically granted by the permit itself.  Id. at 793; Spindler Realty Corp. v. Monning, (“Spindler”) (1966) 243 Cal.App.2d 255, 264-65. 

In Russ Building Partnership v. City and County of San Francisco, (1988) 44 Cal.3d 839, 845-46, the California Supreme Court noted the longstanding rule that a developer who performs substantial work and incurs substantial liabilities in good faith reliance on a permit acquires a vested right to finish construction under the terms of the permit and the government may not change zoning laws to prohibit that construction.  The vested rights doctrine protects the developer’s right to construct and also to use the premises as authorized by the permit.  Id. at 846 (developer had vested right to complete construction and occupy the buildings under the permit conditions but had no vested right to avoid the assessment authorized by subsequent ordinance because permits contemplated such assessment).

In Spindler, the court concluded that grading permits obtained prior to issuance of a building permit did not result in vested rights accruing to the property owner to complete construction in accordance with police power regulations (zoning law) in effect at the time the grading permit was issued.  Id. at 264.  While the property owner had completed substantial work in reliance on the grading permit, the grading permit only amounted to a vested right to complete grading, not to build structures permitted prior to the change in zoning.  Id. at 269.  The court noted that work conducted pursuant to the grading permit amounted to a calculated risk.  Id. at 265.

Likewise, in Avco, the property owner sought and obtained a grading permit and other approvals from the City to prepare its building, but the permits did not refer to the buildings that would be constructed there. 17 Cal.3d at 793.  The owner completed significant grading work on the parcel, but the court concluded that there was no vested right to complete construction without regard to regulations adopted after issuance of the grading permit.  Id. at 798.

The only rights granted to Petitioner by the Permits are the right to do specified physical renovation work at the Meadows North.  FAP, ¶¶ 13, 15, Ex. B.  Petitioner does not allege, and could not amend to allege, that the Permits address Petitioner’s obligations to its tenants.  The FAP does not allege that the TPO prohibits Petitioner’s completion of the specified physical renovation work described in the Permits. Nor does it allege that the TPO imposes a new condition that Petitioner must satisfy before it can obtain City permission to perform the specified renovation work and then, upon completion, obtain a certificate of occupancy.  Int. Dem. at 12.

Intervenor points out that, unlike the building code or the zoning code, the TPO does not regulate relations between Petitioner and the government. Rather, the TPO creates certain obligations by Petitioner to its tenants residing in Meadows North when renovation work requires them to vacate their apartments.  Additionally, the TPO-created tenant right-to-return only arises after the physical renovation work specified in the building permits is completed and a certificate of occupancy is issued.  It does not prevent Petitioner’s completion of the renovation work authorized by the Permits.  Int. Dem. at 12.

The City also relies (City Reply at 5) on Briarwood Properties, Ltd. v. City of Los Angeles, (1985) 171 Cal.App.3d 1020, 1024-27, where the court considered the issue of whether a city’s adoption of a relocation assistance ordinance applied to a particular property that had already secured approval of a tentative map to convert the property to condominiums. The property owner contended that the relocation assistance requirements were not applicable to it because: (1) the relocation assistance requirements were an impermissible additional condition to its tentative map; and (2) it had vested rights to preclude the application of the law. Id. at 1029-30. 

The court rejected these arguments.  It noted that the subsequently enacted law was not a new condition and did not effectuate a “restriction on the right to subdivide at all.” Id. at 1029.  The court also noted that the rights that vest are only those rights specifically granted by the permit itself.  Id. at 1030.  Thus, vested rights “related only to [the property owner’s] authority to convert the apartment building as provided in the tentative map.” Ibid. They did not confer “the right to be free of any subsequently adopted regulation.” Ibid.

The Permits were issued for the limited purpose of conducting specific plumbing, mechanical, and electrical work.  Petitioner’s argument that it has a vested right to continue with its renovation plans free of subsequently enacted regulations due to its investments in the Property is similar to the property owner’s failed argument in Spindler.  The Permits do not promise Petitioner the right to operate its apartment complex without complying with tenant protections.

Petitioner argues that the separation of the TPO from the Project for which the Permits were issued ignores the reality that the application of financially onerous requirements in the guise of tenant protection fundamentally changes the economics of the Project such that Petitioner would not have chosen this investment path had it known that it would not be able to charge more for a renovated unit. The TPO essentially operates as an after-the-fact condition imposed by government regulation on the Project.  Petitioner may not complete the work authorized by the Permits unless it complies with the TPO’s condition that it must inform tenants it relocates that it will allow them to reoccupy their units after renovation at the same rent as before.  As applied to Petitioner, the TPO is not some unrelated police power regulation; it is a direct interference with Petitioner’s ability to complete its Project under the laws in existence when the Permits were issued.  Opp. to City Dem. at 7, 11. 

Not so.  Petitioner can complete the improvements without notifying tenants as required by the TPO.[4]  As the City replies (City Reply at 4-5), the TPO has no direct impact on the cost of the renovations; it merely imposes a financial obligation for Petitioner to assist with relocation of tenants who may be displaced by the work, and to allow them to return to their apartment units when it is completed.  Nothing about the TPO interferes in any way with completion of the Project or its cost, and no authority supports Petitioner’s theory that the vested rights doctrine shields it from regulations that would indirectly render permitted work more difficult to obtain an investment return.

Petitioner distinguishes Avco and Spindler as cases concerning the vested rights in a grading permit, which only allow the property owner to complete the grading and not the entire project.  The cases explain that a grading permit is not far enough along in the discretionary land use process to vest the entire project, its construction or its uses.  Avco, supra, 17 Cal.3d at 797-98.  Indeed, grading does not commit a property owner to a definite course of action because it is a preliminary step in the development of property.  The moment of vesting occurs when a building permit is issued.  When building permits are issued, courts exempt projects from regulations imposed following permit issuance.  Avco held that subdivision improvements (streets, utilities, etc.) or zoning is not sufficiently far along in the land use process to vest the right to build the project.  But the situation would have been different if there were building permits for the buildings Avco planned to construct and construction had begun. Then Avco would have had vested rights.  See City of West Hollywood v. Beverly Towers, supra, 52 Cal.3d at 1191-2 ((where a property owner had completed all condominium conversion steps under the Subdivision Map Act other than selling a unit, it had a vested right to be free from later enacted ordinance requiring conditional use permit).  Opp. to City Dem. at 13.[5]

Petitioner’s distinction of Avco and Spindler as grading permit cases does not affect the fact that they stand for the legal proposition that a permit only authorizes the work specified in the permit, however it may be styled.  See Avco, supra, 17 Cal.3d at 93-97.  Avco had a tract map, had installed subdivision improvements, had a grading permit, and had commenced grading, and still had no vested right to construct the project because no permit authorized it. Id. at 785, 797.

The Permits authorize Petitioner to perform its renovation Project and no City enactment implicates Petitioner’s right to do so. Thus, the vested right doctrine is inapplicable.[6]

3. The Inverse Condemnation Claim

This court does not handle inverse condemnation claims; those matters are assigned to the I/C courts.  Therefore, the court will not address the merits of Petitioner’s regulatory taking claim.   However, it will address its ripeness for the convenience of the parties.

An as-applied regulatory takings claim is not ripe unless a challenger can establish that the government reached a final decision applying the subject regulations to its property.  Pakdel v. City & Cnty. of San Francisco, (2021) 594 U.S. 474, 475.  The challenger must show that “there is no question ... about how the regulations at issue apply to the particular land in question.”  Id. at 478.  A court “cannot determine whether a regulation has gone ‘too far’ unless it knows how far the regulation goes.” Ibid.  Thus, a challenger’s failure to exploit available procedures renders a claim unripe.  Id. at 480.  See Mobilehome Communities Owners Ass’n v. City of San Buenaventura, (9th Cir. 2004) 371 F.3d 1046, 1053 (as-applied challenge to ordinance not ripe where property owner did not seek the adjustment of rent based on, inter alia, capital improvements; property owner had “engaged in extended negotiations and mediation with the City” but did not allege it had “sought, and was denied, compensation for losses resulting from rent or vacancy control.”). 

The City notes that Petitioner concedes it has not availed itself of the mechanisms contained in the City’s RCO to account for any alleged losses arising as a result of the City’s RCO and TPO.  FAP, ¶ 35.  Petitioner alleges that doing so would be futile, reasoning that (a) its renovations are ineligible for capital improvement pass-through adjustments under RCO section 15.09.225 because eligible capital improvements must be for additions, not replacement, and (b0 there is a rebuttable presumption of a fair return that would preclude any rent adjustments under RCO section 15.09.220.  FAP, ¶35.  

The City argues that Petitioner’s conclusions are speculative.  The City has not rendered any decisions regarding the eligibility of the Project renovations for capital improvement pass-throughs.  Nor has the City concluded that Petitioner is ineligible for a rent adjustment based on fair return.  Petitioner may demonstrate in an application for rent adjustment that the capital improvements were made beyond that “necessary to bring the property into compliance or maintain compliance with code requirements affecting health and safety.” RJN Ex. F (RCO §15.09.225(C)(3)(b)).  For a rent adjustment application, Petitioner is required to demonstrate that an “additional rent increase is necessary to earn a fair and reasonable return with respect to the operation of their property.”  RCO §15.09.220(C).  The City has not had the opportunity to determine the impact of the regulations on Petitioner or to consider whether it is entitled to relief.  Thus, the inverse condemnation claim is unripe.  City Dem. at 21-22.

Petitioner responds that the TPO shows the City’s argument lacks merit. The TPO only allows a landlord to seek increased rent based upon “eligible capital improvements.” An eligible capital improvement is defined as “the addition, but not the replacement of’ certain improvements, including air conditioning, swimming pool, sauna or hot tub, etc, (15.09.225 B.l), or “substantial improvements to, but not the replacement of, any structural, electrical, plumbing, or mechanical system that requires a permit pursuant to State or local law, such as a required seismic retrofit.” (§15.09.225 B.2). While the work on the Project is extensive, it constitutes the replacement of electrical, sewer, plumbing and natural gas lines.  By its terms, the TPO would not authorize a “capital improvement pass-through cost recovery” because Petitioner’s work constitutes replacement rather than addition of improvements.  Opp. to City Dem. at 17-18.

Petitioner is referring to the RCO, not the TPO.  The City notes that there are two relevant rent adjustment processes for Petitioner: (1) a fair return adjustment to ensure a property owner obtains a fair return (RCO §15.09.220(A)) and (2) a capital improvement pass-through provision (RCO §15.09.225).   While Petitioner claims the capital improvement pass-through provision does not apply to it, the City has not had occasion to consider whether that assertion is correct because Petitioner failed to submit an application.  Even if Petitioner is correct about the pass-through, it ignores the fact that a fair return petition is a plausible avenue for Petitioner to obtain a rent increase. The City’s regulations explicitly state that “Landlords may submit as part of their Application capital improvement expenses that have not been or are not eligible to be passed through to tenants through the City’s Capital Improvement Cost Recovery Pass-Through program.”  City Supp. RJN Ex. A, ¶21.  City Reply at 7-8.[7]

The court agrees.  Petitioner’s takings claims is not ripe because it has not yet participated in the applicable administrative determination process.

E. Conclusion

The City’s demurrer to the Petition is sustained without leave to amend.