LAMBERT v. CITY AND COUNTY OF SAN FRANCISCO

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Court of Appeal, First District, Division 1, California.

Claude LAMBERT, et al., Plaintiffs and Appellants, v. CITY AND COUNTY OF SAN FRANCISCO, a California municipal corporation, et al., Defendants and Respondents.

No. A076116.

Decided: September 23, 1997

James S. Burling, R.S. Radford, Victor J. Wolski, Pacific Legal Foundation, Sacramento, for Plaintiffs and Appellants. Louise H. Renne, City Attorney, Andrew W. Schwartz, Deputy City Attorney, San Francisco, for Defendants and Respondents.

Claude and Micheline Lambert (hereafter, “Lambert”) are the owners of the 58-unit Cornell Hotel in San Francisco.   Lambert filed the present action to challenge the decision of San Francisco's Planning Commission disapproving his application to convert 24 of the hotel's units from long-term residential use to tourist use.   The trial court rejected the challenge, granting summary judgment to San Francisco.   We will affirm.

FACTUAL/PROCEDURAL BACKGROUND

In 1979, San Francisco's Board of Supervisors took action in response to concerns that the city had a serious housing shortage for low income and elderly residents caused by the conversion of residential hotels into tourist hotels or condominiums.   These concerns, originally addressed by a moratorium on the demolition or conversion of residential hotel units, resulted in the adoption of 1981 legislation limiting the ability of hotel owners, such as Lambert, to convert existing residential units to tourist units.   Lambert's proposed conversion is affected by two interrelated bodies of local law: San Francisco's Planning Code, and San Francisco's Residential Hotel Unit Conversion and Demolition Ordinance (the “HCO”).   The Cornell hotel is located in a district zoned for high density residential-commercial use.   The Planning Code provides that tourist hotels in that zone are permitted only upon the granting of conditional use authorization by the Planning Commission.  (S.F. Planning Code, § 209.2, subd. (e).)  To the extent a hotel has been operated as a tourist hotel in the past, that use is considered a permitted conditional use, but it may not be “significantly altered, enlarged, or intensified, except upon approval of a new conditional use application.”  (S.F. Planning Code, § 178, subds. (a)(2), and (c).)   the HCO, as relevant, prohibits hotel owners from converting residential hotel units to tourist units without first obtaining a permit from the Planning Commission.  (HCO § 41.6)  the HCO further provides that before a permit may be issued, the owners must provide for one-to-one replacement of the units either by adding replacement units to San Francisco's residential housing stock, or by paying an amount equal to the costs of rebuilding an equal number of legal, comparable units.  (HCO - 41.7)  Thus, an owner such as Lambert who desires to convert existing residential hotel units to tourist units must obtain both a conditial use permit under the Planning Code and permission under the HCO to convert the units, permission that may be given only if the owner replaces the units or agrees to pay the costs of constructing like units.

In October 1981, in compliance with the HCO, Lambert reported that the Cornell Hotel had 31 residential units and 27 tourist units.   In 1990, Lambert applied to the Planning Commission for a conditional use permit to convert all of the hotel's residential units to tourist.   The Planning Commission ultimately denied Lambert's request for a conditional use permit, finding that the proposed use was neither desirable nor necessary, would be injurious to personal and property interests in the neighborhood and the community and would be inconsistent with the policies and objectives of San Francisco's Master Plan. Lambert then petitioned the superior court for a writ of administrative mandate, challenging the decision to deny his application for a conditional use permit.

In the meantime, in 1993, and notwithstanding that Lambert himself had reported that the Cornell Hotel had both residential and tourist units, Lambert applied to the Zoning Administrator for a formal determination of the use classification of the hotel and whether it might be converted to full tourist use without a conditional use permit.   The Zoning Administrator determined, in accordance with Lambert's earlier representations, that 31 of the hotel's units were residential and 27 units were tourist.   The Administrator further determined that Lambert could convert the hotel to a tourist hotel only upon receiving conditional use authorization.   Lambert appealed that determination.   The Board of Permit Appeals, partially overruling the Zoning Administrator, found that seven of the units classified as residential properly should be classified as tourist because they were legal non-conforming commercial units.1  As a result, Lambert was entitled to reclassify seven units from residential to tourist.   The practical result of the Board's ruling was that Lambert was entitled to use the seven units for tourist purposes without obtaining a conditional use permit.   The remaining 24 rooms originally classified for residential use, however, were still classified for residential use under the Planning Code. It followed that they could be converted to tourist use only upon obtaining a conditional use permit.

To complicate things further, the seven reclassified units continued to be classified as residential units for purposes of the HCO. The Planning Commission accordingly ruled that Lambert could not convert them to tourist use without complying with the HCO's one-for-one provisions.   Lambert filed a second action in the superior court.   Where the first action challenged the decision to deny Lambert conditional use authorization as to the units still classified residential, the second action challenged the decision to require him to comply with the one-for-one provisions of the HCO as to the seven units newly classified for tourist use.   The superior court consolidated the two actions.   It later granted the petition for writ of mandate as to the second action, severed the cases and remanded to the Board of Permit Appeals the issue of whether a permit to convert the seven units to tourist units should be conditioned on Lambert's compliance with the one-for-one provisions of the HCO. The Board of Permit Appeals resolved the matter by finding that the units could be converted without compliance with the one-for-one provisions.

The present case therefore does not concern the decision to require Lambert to comply with the one-for-one provisions under the HCO, which decision reached only the seven newly classified units and in all events was reversed by the Board of Permit Appeals.   Rather, the present case concerns the Planning Commission's decision to deny Lambert's application for a conditional use permit to convert the remaining 24 residential units to tourist use.   Lambert's theory in the trial court was that the denial of the permit constituted an unlawful taking.   The superior court found that the denial of the permit was not a taking, and granted summary judgment on that basis.

DISCUSSION

I.Neither San Francisco's Regulations nor the Refusal to Grant the Conditional Use Permit Effected a “Taking”

Lambert does not directly challenge the validity of the local regulations themselves, and thus does not challenge the right of the Planning Commission to require him to obtain a conditional use permit to convert his residential units to tourist use.2  Nonetheless, it is appropriate to point out that in Terminal Plaza Corp. v. City and County of San Francisco (1986) 177 Cal.App.3d 892, 223 Cal.Rptr. 379, we upheld the HCO against claims that it violated principles of due process and equal protection, finding that “when tested according to traditional due process and equal protection standards, there can be little dispute that the ordinance serves a legitimate governmental interest, and does so by means reasonably and directly related to its goals.”  (Id. at p. 910, 223 Cal.Rptr. 379.)   We also rejected the argument that by restricting the use of residential hotel property the HCO effected a taking in violation of Amendment V of the United States Constitution and article I, section 19 of the California Constitution.   (Id. at pp. 911-912, 223 Cal.Rptr. 379.)

 We see no reason to revisit our earlier decision here in any detail.   As a general rule, no taking results from the down-zoning of property in such a manner as to limit its potential for development.  “ ‘A purchaser of land merely acquires a right to continue a use instituted before the enactment of a more restrictive zoning.   Public entities are not bound to reimburse individuals for losses due to changes in zoning, for within the limits of the police power “some uncompensated hardships must be borne by individuals as the price of living in a modern enlightened and progressive community.”  (Metro Realty v. County of El Dorado [1963] 222 Cal.App.2d 508 [35 Cal.Rptr. 480]․)’  [Citation.]”  (HFH, Ltd. v. Superior Court (1975) 15 Cal.3d 508, 516, 125 Cal.Rptr. 365, 542 P.2d 237, citing Morse v. San Luis Obispo County (1967) 247 Cal.App.2d 600, 602-603, 55 Cal.Rptr. 710.)   In such cases, a taking occurs only if the application of the general zoning law to the particular property does not substantially advance legitimate state interests or denies an owner economically viable use of his land.  (Agins v. City of Tiburon (1980) 447 U.S. 255, 260, 100 S.Ct. 2138, 2141-2142, 65 L.Ed.2d 106.)   That application of a general zoning law reduces the value of land is not a denial of economically viable use of the land.  “[U]nlike a regulation which effects a taking by prohibiting all economically beneficial uses of the land in question (see Lucas, supra, [Lucas v. So. Carolina Coastal Council (1992) ] 505 U.S. at 1015-1018, 112 S.Ct. at 2894, 120 L.Ed.2d at pp. 814-815), the promulgation of a zoning law which results in only a diminution in the value of the affected property is not a taking.  (Euclid v. Ambler Co. (1926) 272 U.S. 365, 396-397, 47 S.Ct. 114, 121-22, (71 L.Ed. 303 [315]) [54 A.L.R. 1016];  HFH Ltd. v. Superior Court (1975) 15 Cal.3d 508, 514-515, 518, 125 Cal.Rptr. 365, 542 P.2d 237. )  [¶] The denial of the highest and best use does not constitute an unconstitutional taking of property.  (Long Beach Equities, Inc. v. County of Ventura (1991) 231 Cal.App.3d 1016, 1036, 282 Cal.Rptr. 877, cert. den. (1992) 505 U.S. 1219, 112 S.Ct. 3027, 120 L.Ed.2d 898.)  ‘Even when there is a very substantial diminution in the value of land, there is no taking.  ( [Macleod V. sanTa claRa county (9Th cir.1984) 749 F.2d 541], 547-548, citing Hadacheck v. Sebastian (1915) 239 U.S. 394 [36 S.Ct. 143, 60 L.Ed. 348]-diminution in value from $800,000 to $60,000 not a taking;  William C. Haas [& Co., Inc.] v. City & Cty. of San Francisco (9th Cir.1979) 605 F.2d 1117, 1120-diminution in value from $2 million to $100,000 not a taking.)’  (Long Beach Equities, Inc. supra, 231 Cal.App.3d at p. 1036 [282 Cal.Rptr. 877].)”  (Ramona Convent of the Holy Names v. City of Alhambra (1993) 21 Cal.App.4th 10, 22-23, 26 Cal.Rptr.2d 140.)   In the present case, as we noted in Terminal Plaza, the enactment of the HCO and the amendment of the Planning Code limiting the ability of landowners to convert residential hotel units to tourist units, substantially furthered legitimate interests in ensuring the existence of affordable residential housing, did so by a means reasonably and directly related to its goals, and did not deprive hotel owners, such as Lambert, of the economically viable use of their property.  (See Terminal Plaza Corp. v. City and County of San Francisco, supra, 177 Cal.App.3d at pp. 910-912, 223 Cal.Rptr. 379.)   It follows that the restriction on development resulting from these laws, in and of itself, is not a “taking.”

 Lambert's argument, reduced to its essentials, is that a taking occurred when the Planning Commission refused to grant a conditional use permit to except the Cornell Hotel from the limitations imposed on his hotel, and all others, by the local regulations.   In analyzing this contention, we begin by noting that in applying for the conditional use permit Lambert was seeking to alter an existing use.   He therefore was applying for a property right he did not have.   San Francisco's refusal to issue the permit thus deprived him of nothing.   Comments made by the court in Terminals Equipment Co. v. City and County of San Francisco (1990) 221 Cal.App.3d 234, 244, 270 Cal.Rptr. 329 are apposite:  “The regulations at issue in this case are only operating to restrict new uses of the subject Property, not to eliminate existing ones.   There is no constitutional right on the part of landowners to develop their property for maximum economic profit, or to receive compensation when land use regulations restrict their ability to do so.   As stated by the United States Supreme Court:  ‘[T]he submission that appellants may establish a “taking” simply by showing that they have been denied the ability to exploit a property interest that they heretofore had believed was available for development is quite simply untenable.  [Citations.]’ ”

Lambert, however, argues there is a triable issue of fact as to whether a taking occurred because the record contains evidence that San Francisco would have granted the conditional use permit had he agreed to pay $600,000.   The issue here, however, is not whether a taking occurred, because San Francisco took neither $600,000 nor a permitted use from Lambert.   It simply denied him a conditional permit to exploit a property interest.   The question is whether San Francisco denied the permit for improper reasons.   The Planning Commission found that the proposed conversion would not provide a development that is necessary or desirable for, and compatible with, the neighborhood and community.   In support of that finding, the Planning Commission noted that the hotel was located in a neighborhood of mixed residential and commercial use, and that the current mix of uses at the Cornell Hotel was compatible with the neighborhood.   It noted that Lambert had failed to demonstrate that there was insufficient demand for such group (i.e., residential) housing as exists at the Cornell Hotel.   It noted that the classification of the area as mixed residential/commercial preserved important housing resources near the downtown area.   The Planning Commission also found that the proposed conversion would be injurious to property, improvements or potential development.   In support of this finding, the Planning Commission noted that long-term tenancy in group housing would provide for a more stable resident population.   The proposed conversion could be expected to increase the number of tour bus, taxicab and other forms of chartered transportation with an attendant increase in parking and traffic congestion.   Finally, the Planning Commission found that San Francisco's housing stock must be preserved and that the proposed conversion would not promote several policies and objectives of San Francisco's Master Plan. These are (1) to retain the existing supply of housing, (2) to maintain and improve the physical condition of housing while maintaining existing affordability levels and (3) to provide a quality living environment.

 Where, as here, no taking occurred, our task is to determine whether substantial evidence supports the administrative agency's findings and whether the findings support the agency's decision.  (Topanga Assn. for a Scenic Community v. Los Angeles County (1974) 11 Cal.3d 506, 514-515, 113 Cal.Rptr. 836, 522 P.2d 12;  Harris v. City of Costa Mesa (1994) 25 Cal.App.4th 963, 969, 31 Cal.Rptr.2d 1;  PMI Mortgage Ins. Co. v. City of Pacific Grove (1981) 128 Cal.App.3d 724, 729, 179 Cal.Rptr. 185.)   The evidence here fully supports both the findings and the decision.   It is not, nor can it be, contested that San Francisco has a legitimate interest in preserving affordable residential housing stock, ensuring adequate residential housing in the downtown area, preventing an increase in traffic congestion and parking and in providing a quality living environment.   There is no question but that requiring a conditional permit before existing housing stock can be converted to commercial use substantially furthers that legitimate interest.   There is no question but that denying a permit to convert residential housing to tourist use also furthers that legitimate interest.   Indeed, Lambert does not appear to claim otherwise.   He argues that the action of denying him a conditional use permit did not further this interest, citing evidence that there were only two long-term residents living in the Cornell Hotel, that he had offered these residents life-time leases and that there are a large number of vacant residential units in San Francisco.   That few of the Cornell's rooms currently are occupied by long-term residents, however, does not mean that there are no persons interested in establishing a long-term residency there.   The Planning Commission found that Lambert had “failed to demonstrate there is insufficient demand for such group housing as exist[s] at the Cornell Hotel.   Marketing of potentially desirable group housing, possibly including the provision of certain meals (as currently offered to residents and guests) may result in full occupancy to meet the operational needs of [Lambert].”  Lambert's evidence further does nothing to dispute the findings that the continued use of the property would serve to preserve the character of the neighborhood, would preserve the availability of affordable housing, and would prevent additional traffic congestion and parking.

In conclusion, the HCO and the amendments to San Francisco's Planning Code meet constitutional requirements and did not and do not effectuate a taking on affected hotel owners such as Lambert.   The decision to deny Lambert a conditional use permit also did not effect a taking.   Finally, substantial evidence supports the Planning Commission's findings that denial will further legitimate governmental interests.

II.

The Standard of Review Stated in Nollan v. California Coastal Comm'n (1987) 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 677;  Dolan v. City of Tigard (1994) 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304 and Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 50 Cal.Rptr.2d 242, 911 P.2d 429 Has No Application Here

 Lambert contends that the trial court erred in failing to apply the strict scrutiny standard of review stated in Nollan v. California Coastal Comm'n (1987) 483 U.S. 825, 107 S.Ct. 3141, 97 L.Ed.2d 677;  Dolan v. City of Tigard (1994) 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304 and Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 50 Cal.Rptr.2d 242, 911 P.2d 429.   These cases, however, define the standard of review to be applied in circumstances that do not exist here:  that occurring when an issuing agency demands some sort of exaction as a condition of issuing a conditional use permit.

In Nollan v. California Coastal Comm'n, supra, 483 U.S. 825, 107 S.Ct. 3141, the local authority conditioned a permit to rebuild a beach front residence on establishing a public easement across the property.   The Supreme Court found that the condition would be an unconstitutional taking unless it bore a sufficient nexus to the purpose being advanced by requiring the condition.  (Id. at pp. 836-837, 107 S.Ct. at pp. 3147-3148.)   In Dolan v. City of Tigard, supra, 512 U.S. 374, 114 S.Ct. 2309, 129 L.Ed.2d 304, the court held that requiring an owner to dedicate to the public a portion of her land as a condition of a proposed development would be a taking unless it not only bore a sufficient nexus to the purpose being advanced by requiring the condition, but demanded a degree of exaction roughly proportional to the impact of the proposed development.  (Id. at pp. 391, 395-396, 114 S.Ct. at pp. 2319-2320, 2321-2322.)   As this state's high court summarized:  “Where the local permit authority seeks to justify a given exaction as an alternative to denying a proposed use, Nollan requires a reviewing court to scrutinize the instrumental efficacy of the permit condition in order to determine whether it logically furthers the same regulatory goal as would outright denial of a development permit.   A court must also, under the standard formulated in Dolan, determine whether the factual findings made by the permitting body support the condition as one that is more or less proportional, in both nature and scope, to the public impact of the proposed development.”  (Ehrlich v. City of Culver City, supra, 12 Cal.4th at p. 868, 50 Cal.Rptr.2d 242, 911 P.2d 429.)   The court further held that the same standard of review applies whether the authority conditions permit approval on the exaction of an interest in land or on the exaction of fee charged in lieu of the dedication of land.  (Id. at p. 876, 50 Cal.Rptr.2d 242, 911 P.2d 429.)

These cases do not alter the standard for reviewing the validity of a land use ordinance such as the HCO and do not alter the standard for reviewing a decision to deny a conditional use permit.   They do no more than recognize that an exaction from a party deprives that party of something, be it a property right or a sum of money.   They then provide a test for determining when such an exaction is a taking, holding that it is a taking unless it both furthers the same goals as would an outright denial of the permit and is roughly proportionate to the public impact of the proposed development.

Although Lambert contended in the trial court, and contends here, that the issuance of the conditional use permit was conditioned on his compliance with the one-for-one provisions of the HCO, this contention misstates the facts.   The Planning Commission's decision to deny Lambert a conditional use permit was made not under the HCO, but under the authority of the Planning Code. Under that Authority, the Planning Commission denied him a conditional use permit altogether.   We recognize that Lambert's position is that the record contains evidence that San Francisco would have issued a conditional use permit if he paid $600,000.   While it is somewhat disturbing that San Francisco's concerns about congestion, parking and preservation of a neighborhood might have been overcome by payment of significant sum of money, the fact remains that San Francisco did not demand anything from Lambert as a condition of a use permit.   It simply denied the permit outright.   That the Planning Commission might have granted the permit upon payment of $600,000 does not make its refusal to issue the permit into a taking.   Moreover, as Lambert concedes, in determining the validity of the administrative decision, we do not look into the subjective motivation of members of the Planning Commission.  (See City of Fairfield v. Superior Court (1975) 14 Cal.3d 768, 776-779, 122 Cal.Rptr. 543, 537 P.2d 375.)   In short, as neither a property right nor money was in fact taken from Lambert, there is no reason to determine if a taking would have occurred had Lambert been required to pay $600,000 as a condition of a use permit, and thus there is nothing requiring review under the Nollan/ Dolan/Ehrlich standard.

The judgment is affirmed.

I dissent.   I believe the record establishes that the City and County of San Francisco (City) sought money from Claude and Micheline Lambert as a condition to receiving the requested zoning permit and denied the permit when the Lamberts failed to pay the City's price.   The majority acknowledges evidence that the City “might” have granted the permit if the Lamberts had paid the City $600,000, but discerns a distinction between denying a permit after the applicants fail to meet a condition and granting a permit upon a condition.  (Maj.opn. at pp. 567, 569.)   I see no meaningful distinction.

The City Conditioned Approval of the Zoning Permit Upon Payment of a Mitigation Fee.

The Lamberts' 58-room Cornell Hotel is regulated by the City's Residential Hotel Unit Conversion and Demolition Ordinance (HCO) which designated the hotel rooms as 31 residential units and 27 tourist units, based on the units' occupancy status in 1979.1  (S.F.Admin.Code, §§ 41.1, 41.2, 41.4, subds.(a), (q), (s).)   A hotel owner cannot convert one of his residential units into a tourist unit without a permit to convert.  (S.F.Admin.Code, § 41.12.) No permit will be granted unless the hotel owner provides “one-for-one replacement of the units to be converted,” such as by building comparable replacement units or paying to the City an amount equal to site acquisition costs and a percentage of the cost of building comparable replacement units.  (S.F.Admin.Code, § 41.13, subds.(a)(1), (a)(4).)   At the time relevant here, the “in-lieu fee” was 40 percent of the replacement cost plus site acquisition costs;  today the replacement cost percentage has doubled to 80 percent.  (S.F.Admin.Code, § 41.13, subd. (a)(4).)

In 1990, the Lamberts applied under the HCO for a permit to convert their designated 31 residential rooms to tourist use.   The City informed them that a conditional use permit was required to allow the change in use.   A conditional use permit was required because an increase beyond the HCO-designated tourist hotel rooms constituted an enlargement of the Cornell Hotel's permitted conditional use.  (S.F. Planning Code, § 178, subd. (c).)  The Lamberts promptly applied for a conditional use zoning permit.

Meanwhile, “[i]n accordance” with the HCO, the City's Real Estate Department obtained two appraisals of the Cornell Hotel residential units' replacement cost.2  (S.F.Admin.Code, § 41.13, subd. (a)(4).)   The particulars of those appraisals were transmitted between City departments in 1992.   Both appraisals were calculated under the HCO-prescribed formula, but the “range of value” between the two appraisals was conceded by the Real Estate Department to be “considerable:” $488,584 on the one end, and $612,887 on the other end.  (S.F.Admin.Code, § 41.13, subd. (a)(4).)   The Real Estate Department concluded that “the most appropriate estimate of the 40% replacement cost of existing residential rooms at the Cornell Hotel and the value of the required land on which to construct them is $600,000.”

In early 1994, the City conducted several public hearings on the Lamberts' zoning permit application.   At that time, the HCO had been declared unconstitutional by a federal district court and its enforcement permanently enjoined.  (Golden Gate Hotel Association v. City and County of San Francisco (N.D.Cal.1993) 836 F.Supp. 707.)   The injunction was in place from the district court's September 9, 1993, ruling until March 18, 1994, when the Ninth Circuit reversed it and remanded the case for consideration of the City's claim that the facial challenge under the takings clause was time barred.  (Golden Gate Hotel Ass'n v. City and County of San Francisco (9th Cir.1994) 18 F.3d 1482.)   The City ultimately prevailed on that claim.   (Golden Gate Hotel Ass'n v. City & County of San Francisco (N.D.Cal.1994) 1994 WL 443666, aff'd. (9th Cir.1996) 76 F.3d 386, cert. den.  (1996) ---U.S. ----, 117 S.Ct. 51, 136 L.Ed.2d 15.)   But the HCO was not enforceable in January 1994, when the Planning Commission held its first hearing on the Lamberts' zoning permit application.   Nevertheless, the HCO formula was among the mitigation measures considered by the City Planning Commission in reviewing the Lamberts' permit application.   The report from the City Planning Commission's January 1992 hearing states:  “A number of options exist for the Commission to determine the appropriate level of mitigation of the loss of rental housing stock.   The Commission has discretion to impose no conditions on the requested Conditional Use authorization or any condition reasonably related to the impacts of granting of this authorization.”   The report listed the HCO appraisals “[a]mong the possible mitigation measures,” but also stated that other measures could be formulated.

The Lamberts' zoning permit application was denied on March 17, 1994.   The City Planning Commission's ruling is based upon 26 express findings.   Among those findings, are the following:  “12.   In accordance with [a provision of the HCO], the Department of Real Estate has obtained two independent appraisals of the in-lieu fee to be paid to the City and County of San Francisco to convert the thirty-one rooms of group housing (residential hotel units) to tourist hotel units․   Based upon the two valuations, the Department of Real Estate has determined the amount to construct comparable replacement residential hotel units to be $600,000. [¶] ․ [¶] 14.   The Applicants made an offer of $100,000 to be paid in three installments to compensate for the loss of group housing rooms from the City's housing stock if all 31 rooms of group housing were approved for conversion to tourist hotel use. [¶] ․ [¶] 20.   In previous actions by this Commission, conversion of group housing rooms (residential hotel rooms) to tourist hotel use was approved for two nearby properties.   Conversion of 15 rooms of group housing at The Juliana Hotel ․ was approved by the Commission on March 8, 1990․   The conversion was approved upon the payment of $150,000 ($10,000 per group housing room) to the Residential Hotel Preservation Fund. Conversion of 10 rooms of group housing to tourist hotel rooms at ․ The Monticello Inn ․ was also approved by the Commission on March 8, 1990․   Conversion was also approved upon the payment of $150,000 ($15,000 per group housing room) to the Residential Hotel Preservation Fund. [¶] 21.   The Commission finds that the requested authorization is not comparable to those previously granted in that the two other properties were predominantly tourist hotels․   The Commission also found in those cases that the housing loss had been mitigated through payment of a fee. [¶] 22.   The Applicants have failed to demonstrate that the amount offered for the construction or rehabilitation of 31 rooms of group housing is sufficient to mitigate the loss of housing stock by replacing the group housing rooms proposed for conversion.”  (Emphasis added.)

I think the record is clear that the City sought a mitigation fee from the Lamberts and denied the permit when they failed to offer a satisfactory amount.   The City conducted appraisals that estimated the replacement value of the residential hotel rooms at $600,000.   The Lamberts offered $100,000.   The City had granted other zoning permits to hotel owners who paid $150,000 ($10,000 and $15,000 per room), but the Lamberts' offer amounted to only about $3,226 per room.   The Lamberts “failed to demonstrate that the amount offered ․ is sufficient․”   I believe the City Planning Commission's express findings, not its members' “subjective motivation,” prove that the City would have granted the Lamberts' permit request had they succeeded in demonstrating that the amount offered was sufficient.  (Maj.opn. at p. 569.)   In short, the City conditioned approval of the zoning permit upon payment of a “sufficient” mitigation fee, and denied the permit when payment was not made.

I recognize that the City Planning Commission's findings also included, as the majority rightly observes, a conclusion that the proposed conversion “would not provide a development that is necessary or desirable for, and compatible with, the neighborhood or the community․”  (Maj.opn. at p. 567.) But that finding is rooted in the Planning Commission's determination that “[t]he City's housing stock must be preserved.”   Had the Lamberts paid a fee to mitigate the loss of housing stock, the permit would have been granted.   The Planning Commission specifically noted that permits were granted to two other hotels when “housing loss had been mitigated through payment of a fee.”   If, as I believe, the City conditioned approval of the permit upon exaction of a discretionary mitigation fee, then an “essential nexus” must exist between the City's state interests and the exaction, and the exaction must be “roughly proportional” to the impact of the Lamberts' tourist use of their hotel.   (Dolan v. City of Tigard (1994) 512 U.S. 374, 386, 391, 114 S.Ct. 2309, 2317, 2319-2320, 129 L.Ed.2d 304.)   A regulatory agency's legitimate state interests and “laudable” land-use goals will not support unrelated permit exactions.  (Id. at p. 396, 114 S.Ct. at p. 2322.)

Discretionary Permit Exactions are Subject to Heightened Scrutiny.

It is beyond question that the City has broad powers to regulate land use.   (Nollan v. California Coastal Comm'n (1987) 483 U.S. 825, 834-835, 107 S.Ct. 3141, 3147-3148, 97 L.Ed.2d 677.)   But land-use regulations like the zoning law at issue here must “substantially advance legitimate state interests” and not deny a property owner “economically viable use of his land,” lest it constitute a taking.  (Agins v. Tiburon (1980) 447 U.S. 255, 260, 100 S.Ct. 2138, 2141-2142, 65 L.Ed.2d 106.)   The City is not free to attach conditions to its approval of a zoning permit which do not substantially advance legitimate state interests.   Discretionary permit conditions that exact money or real property from landowners present “an inherent and heightened risk that local government will manipulate the police power to impose conditions unrelated to legitimate land use regulatory ends․”  (Ehrlich v. City of Culver City (1996) 12 Cal.4th 854, 869, 50 Cal.Rptr.2d 242, 911 P.2d 429 (plur. opn. of Arabian, J.), cert. den. (1996) 519 U.S. 929, 117 S.Ct. 299, 136 L.Ed.2d 218.) 3  To assure that a discretionary permit exaction is related to legitimate regulatory ends, the government entity must demonstrate an “essential nexus” between the state interest and the permit condition, and a relationship of “rough proportionality” between the exaction and the impact of the proposed land use.  (Dolan v. City of Tigard, supra, 512 U.S. at p. 391, 114 S.Ct. at pp. 2319-2320;  Nollan v. California Coastal Comm'n, supra, 483 U.S. at p. 837, 107 S.Ct. at pp. 3148-3149;  Ehrlich v. City of Culver City, supra, 12 Cal.4th at pp. 869-874, 50 Cal.Rptr.2d 242, 911 P.2d 429.)

In Nollan, the United States Supreme Court invalidated a coastal development permit conditioned upon the landowners granting a public easement across their beachfront property.  (Nollan v. California Coastal Comm'n, supra, 483 U.S. at pp. 827-842, 107 S.Ct. at pp. 3143-3151.)   The high court accepted the proposition that “a permit condition that serves the same legitimate police-power purpose as a refusal to issue the permit should not be found to be a taking if the refusal to issue the permit would not constitute a taking.”  (Id. at p. 836, 107 S.Ct. at p. 3148.)   But a permit condition must serve the same purpose as a permit refusal.  “[U]nless the permit condition serves the same governmental purpose as the development ban, the building restriction is not a valid regulation of land use but ‘an out-and-out plan of extortion.’ ”  (Id. at p. 837 [107 S.Ct. at p. 3148].)  An “essential nexus” must exist between legitimate state interests and the exacted condition.  (Ibid.) The court found no such nexus between the state interest in preserving roadside ocean views and an easement allowing the public to walk across the landowners' property.  (Id. at pp. 836, 838-842, 107 S.Ct. at pp. 3148, 3149-3151.)

In a more recent case, the United States Supreme Court found a nexus between state interests in flood prevention and traffic alleviation and a city's development permit conditions requiring a landowner to dedicate some of her commercial property for storm drainage and a pedestrian/bicycle pathway.   (Dolan v. City of Tigard, supra, 512 U.S. at pp. 387-388, 114 S.Ct. at pp. 2317-2318.)   But a nexus alone is not sufficient;  there must also be a “ ‘rough proportionality’ ” between the exaction and the impact of the proposed development.  (Id. at p. 391 [114 S.Ct. at pp. 2319-2320].)  In Dolan, the city failed to demonstrate that the demanded public floodplain easement was required for flood control, or that the demanded pathway was likely to offset traffic congestion created by the landowner's property development.  (Id. at pp. 392-395 [114 S.Ct. at pp. 2320-2322].)

Our Supreme Court recently held that the Nollan-Dolan heightened standard of scrutiny applies to possessory and monetary discretionary exactions alike, and invalidated a zoning permit for construction of condominiums conditioned upon the landowner's payment of $280,000 to mitigate the loss of city land previously used for recreational facilities.  (Ehrlich v. City of Culver City, supra, 12 Cal.4th at pp. 859-863, 881 [50 Cal.Rptr.2d 242, 911 P.2d 429].)  The exaction failed the “rough proportionality” test because the city made no “individualized findings to support the required ‘fit’ between the monetary exaction and the loss of a parcel zoned for commercial recreational use.”  (Id. at p. 883, 50 Cal.Rptr.2d 242, 911 P.2d 429.)

Here, the City makes no real effort to satisfy the Nollan-Dolan-Ehrlich standard, and instead argues that the standard is inapplicable because the permit was denied, rather than granted with express conditions.   We are thus presented with a critical legal question:  is heightened scrutiny triggered when a government entity denies a permit when a condition is not met, rather than granting the permit with a condition?   The majority answer in the negative, confining Nollan, Dolan and Ehrlich to their facts.   (Nollan v. California Coastal Comm'n, supra, 483 U.S. at p. 828, 107 S.Ct. at pp. 3143-3144 [permit granted with condition];  Dolan v. City of Tigard, supra, 512 U.S. at p. 379, 114 S.Ct. at pp. 2313-2314 [permit granted with conditions];  Ehrlich v. City of Culver City, supra, 12 Cal.4th at p. 862, 50 Cal.Rptr.2d 242, 911 P.2d 429 [permit granted with condition].)  I answer in the affirmative, extending Nollan, Dolan and Ehrlich to achieve their legal aim.

The standard of heightened scrutiny safeguards property owners needing development approval from a regulatory agency's improper leveraging of the state's police power.  (Nollan v. California Coastal Comm'n, supra, 483 U.S. at p. 837 & fn. 5, 107 S.Ct. at pp. 3148-3149 & fn. 5.) Discretionary permit exactions pose “an inherent and heightened risk that local government will manipulate the police power to impose conditions unrelated to legitimate land use regulatory ends․”  (Ehrlich v. City of Culver City, supra, 12 Cal.4th at p. 869, 50 Cal.Rptr.2d 242, 911 P.2d 429.)   Our Supreme Court has explained that the “standard of judicial scrutiny formulated by the high court in Nollan and Dolan is intended to address just such indicators [of leveraging] in land use ‘bargains' between property owners and regulatory bodies-those in which the local government conditions permit approval for a given use on the owner's surrender of benefits which purportedly offset the impact of the proposed development.   It is in this paradigmatic permit context-where the individual property owner-developer seeks to negotiate approval of a planned development-that the combined Nollan and Dolantest quintessentially applies.”  (Id. at p. 868, 50 Cal.Rptr.2d 242, 911 P.2d 429.)   The threat of leveraging exists whether the regulatory agency grants a permit with a condition or denies a permit when a condition is not met.   I do not believe the results in Nollan, Dolan and Ehrlich would have differed had the regulatory agencies demanded the exaction and then denied the permit when the demand was refused.  (See 1 Rathkopf, The Law of Zoning and Planning (4th ed.1997) § 6.10, subd. (d), p. 6-110 [suggesting no change in Nollan result had the regulatory agency denied the permit but offered to approve the permit conditioned upon an exaction].)  To believe otherwise is to believe a regulatory agency can evade the constitutional safeguard of heightened scrutiny by a shrewd repositioning of its exaction demands.   We should be intolerant of such evasions.   Compliance with the Fifth Amendment's Property Clause is “more than an exercise in cleverness and imagination.”   (Nollan v. California Coastal Comm'n, supra, 483 U.S. at p. 841, 107 S.Ct. at p. 3150.)

I would reverse the judgment for the City.

FOOTNOTES

1.   The reclassification resulted from that fact that the HCO permitted summer tourist use of no more than 25 percent of the total residential units in a hotel such as the Cornell Hotel.

2.   152 Valparaiso Associates v. City of Cotati (1997) 56 Cal.App.4th 378, 65 Cal.Rptr.2d 551 is not applicable here because the plaintiffs there were challenging the regulations-rent control laws-limiting their use of their property.   Lambert is not challenging the regulation at issue, but the administrative decision to deny him a conditional use permit.

1.   The classification currently stands at 24 residential units and 34 tourist units, due to an administrative recalculation.  (See Maj. opn. at p. 565.)

2.   The City's Real Estate Department reviews HCO permits to convert unless the public requests review by the City's Planning Commission.

3.   Justice Werdegar joined in the plurality opinion's constitutional analysis without reservation, making it the holding of the Supreme Court.  (Ehrlich v. City of Culver City, supra, 12 Cal.4th at p. 912, 50 Cal.Rptr.2d 242, 911 P.2d 429 (conc. and dis. opn. of Werdegar, J.).)

STEIN, Associate Justice.

DOSSEE, J., concurs. STRANKMAN, P.J., dissents.