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CITY OF WEST HOLLYWOOD, a Municipal Corporation, Plaintiff and Appellant, v. BEVERLY TOWERS, INC., et al., Defendants and Respondents.
In this case we decide a county's prior approval of a final tract map does not by itself exempt a condominium conversion from an ordinance a newly created city enacts regulating condominium conversions within its borders.
FACTS AND PROCEEDINGS BELOW
For many decades West Hollywood existed as an unincorporated area of Los Angeles County. Land use decisions were made for its citizens by the county's Regional Planning Commission and Board of Supervisors. This included the approval of requests to convert rental apartments to condominium ownership.
West Hollywood's citizens voted to incorporate as a separate municipality on November 29, 1984. On that very date, the newly elected city council enacted a moratorium on conversions of rental housing until a regulatory system could be installed. On August 21, 1986, the council passed Ordinance No. 114U, a comprehensive regulation governing conversion of multiple family rental units into condominiums or other “common interest developments.” Among other things, this ordinance requires apartment owners to obtain conditional use permits from the City of West Hollywood (City) before converting any rental units.
During the period the residents of West Hollywood were considering cityhood many apartment owners had succeeded in obtaining subdivision tract maps from the county. State law requires these tract maps before rental units can be converted into condominiums. Most of the owners also managed to obtain approvals for the sale of condominiums from the California Department of Real Estate.
On December 17, 1986, the City filed a complaint for declaratory and injunctive relief. The lawsuit sought to impose the City's condominium conversion regulations on those apartment owners who had obtained tract maps from the county but had not yet succeeded in actually converting any rental units to this other purpose. The complaint specifically names thirty buildings with over six hundred individual apartment units as well as unidentified “doe” defendants. On December 18, 1986, the trial court denied the City a temporary restraining order and on January 16, 1987, denied a preliminary injunction. The court based these rulings on the following findings:
“1. Each of the Defendants has obtained preliminary and final tract map approval under the procedures set forth ․ in the Cal. Subdivision Map Act. (Government Code Section 66410, et. seq.)
“2. Each defendant has duly recorded the final tract maps.
“3. Each defendant has applied for and obtained approval for the sale of the condominium units from California Real Estate Department.”
In reaching its decision the trial court expressly relied on Santa Monica Pines, Ltd. v. Rent Control Board (1984) 35 Cal.3d 858, 201 Cal.Rptr. 593, 679 P.2d 27, and Blue Chip Properties v. Permanent Rent Control Bd. (1985) 170 Cal.App.3d 648, 216 Cal.Rptr. 492.
On February 27, 1987, the trial court sustained respondents' demurrers without leave to amend. On this same date the court also entered an order of dismissal. The City filed a timely notice of appeal.
DISCUSSION
Government regulation of condominium conversions has been the subject of more than a score of California Supreme Court and appellate court opinions during the last few years. Most of the central issues have now been resolved. In this case, however, we are called upon to clear up some lingering confusion created by stray language in certain of these appellate opinions. The precise issue obscured under this cloud of confusion is fairly straightforward: Does the issuance of a final tract map and permission to file a public report for a condominium conversion exempt a landlord from obtaining a conditional use permit and complying with other regulations which are enacted after the map and permission were granted but before the landlord sells any units or incurs substantial expenses in reliance on the approval?
We are aided in this quest for clarity by the bright beacons of several firm holdings found in prior opinions. These opinions have established several key principles. Added together, these principles lead us to the conclusion landlords cannot convert their buildings to condominiums until they have complied with local conversion regulations including those enacted after they obtain final tract map approvals and permission to file public reports concerning the contemplated conversions.
I. PRIOR DECISIONS HAVE ESTABLISHED THAT (1) LOCAL GOVERNMENT MAY REGULATE CONDOMINIUM CONVERSIONS AND (2) NEW REGULATIONS MAY BE IMPOSED ON APARTMENT OWNERS WHO HAVE PREVIOUSLY OBTAINED REQUIRED PERMITS (3) UNLESS THOSE OWNERS HAVE ALSO OBTAINED A “VESTED RIGHT” TO CONVERT WITHOUT COMPLYING WITH NEWLY ENACTED REGULATIONS
The California Supreme Court has upheld local regulation of condominium conversions against a full spectrum of attacks based on the constitution (Griffin Development Co. v. City of Oxnard (1985) 39 Cal.3d 256, 217 Cal.Rptr. 1, 703 P.2d 339) and State Subdivision Map Act (Santa Monica Pines, Ltd. v. Rent Control Board, supra, 35 Cal.3d 858, 201 Cal.Rptr. 593, 679 P.2d 27.). The Court specifically approved the species of regulation West Hollywood enacted—the requirement of a special condo conversion permit (Griffin Development Co. v. City of Oxnard, supra, 39 Cal.3d 256, 264–265, 217 Cal.Rptr. 1, 703 P.2d 339), the imposition of stricter development standards on condominiums than on rental units (39 Cal.3d at pp. 265–266, 217 Cal.Rptr. 1, 703 P.2d 339), and the limitation of conversions in order to preserve the stock of rental housing. (39 Cal.3d at p. 264, 217 Cal.Rptr. 1, 703 P.2d 339.) (For appellate court opinions likewise upholding special restrictions on condominium conversions, see Kalaydjian v. City of Los Angeles (1983) 149 Cal.App.3d 690, 197 Cal.Rptr. 149 [approves ordinance requiring condo converters to pay relocation costs to displaced tenants]; Soderling v. City of Santa Monica (1983) 142 Cal.App.3d 501, 191 Cal.Rptr. 140; Norsco Enterprises v. City of Fremont (1976) 54 Cal.App.3d 488, 126 Cal.Rptr. 659; Rasmussen v. City Council (1983) 140 Cal.App.3d 842, 190 Cal.Rptr. 1; Krater v. City of Los Angeles (1982) 130 Cal.App.3d 839, 181 Cal.Rptr. 923; Hazon–Iny Development, Inc. v. City of Santa Monica (1982) 128 Cal.App.3d 1, 179 Cal.Rptr. 860.)
The Supreme Court likewise has held local government can impose new permit requirements on apartment owners who desire to convert rental units into condominiums even after those owners have obtained tentative and final tract map approvals. (Santa Monica Pines, Ltd. v. Rent Control Board, supra, 35 Cal.3d 858, 201 Cal.Rptr. 593, 679 P.2d 27 [court holds cannot convert without obtaining “removal permit” allowing removal from rental market under Santa Monica ordinance, which is akin to “conditional use permit” required under West Hollywood ordinance].) We observe this holding merely applies to the condominium conversion process the general principle that government can add new permits or approval requirements even after it has granted what formerly had been final approval of a desired land use. (McMullan v. Santa Monica Rent Control Bd. (1985) 168 Cal.App.3d 960, 214 Cal.Rptr. 617 [landowner must obtain removal permit even though had received subdivision map approval before removal permit requirement was enacted because “the ability ․ to enact ․ ordinances or ․ standards ․ is not precluded by the [Subdivision Map] Act even when those ordinances or standards originate after final subdivision map approval and serve ultimately to deny what that approval partially granted.”]; Palmer v. Board of Supervisors (1983) 145 Cal.App.3d 779, 193 Cal.Rptr. 669 [developer must comply with new zone change even though previously granted subdivision map approval]; Avco Community Developers, Inc. v. South Coast Regional Com. (1976) 17 Cal.3d 785, 132 Cal.Rptr. 386, 553 P.2d 546, app. dism. and cert. den. (1977) 429 U.S. 1083, 97 S.Ct. 1089, 51 L.Ed.2d 529 [developer must obtain newly enacted permit even though has tract map approval and has made investments required to obtain that approval], Gisler v. County of Madera (1974) 38 Cal.App.3d 303, 112 Cal.Rptr. 919 [developer must comply with new limitation of 18–acre lots even though had approved subdivision map permitting 2 1/212–acre lots]. See also, Hazon–Iny Development, Inc. v. City of Santa Monica, supra, 128 Cal.App.3d 1, 179 Cal.Rptr. 860; Kappadahl v. Alcan Pacific Co. (1963) 222 Cal.App.2d 626, 35 Cal.Rptr. 354.)
Respondents argue they have something more than a permit or approval to go forward. They contend a condominium conversion is “complete” when the final tract map is approved and therefore subsequently enacted regulations cannot be applied. However, this is not the case. A condominium development is not created until “a separate interest coupled with an interest in the common area ․ [is] conveyed,․” (Civil Code, § 1352, italics added.) “[T]here can be no condominium) until at least one condominium unit has been conveyed by the subdivider.” (County of Los Angeles v. Hartford Acc. & Indem. Co. (1970) 3 Cal.App.3d 809, 814, 83 Cal.Rptr. 740.) Accordingly, respondent apartment owners are in no better position to claim an exemption from newly enacted regulations than other landowners who have received final tract map approvals from a local government agency.
The only exception that might apply is for owners who have earned a “vested right” to proceed with their conversions because they have taken substantial, irretrievable actions the government required them to take in order to gain the approvals needed in the tract map process and have done so before the government enacts its new requirements. As the Supreme Court said while rejecting a “vested right” claim in Santa Monica Pines: “Although [the apartment owners] claim to have expended ‘over $40,000,’ that figure includes a $42,000 condominium license fee paid after the rent control law was adopted․ [¶] [Payment of this license fee was] clearly a ‘calculated risk’ ․ since the charter amendment by its terms required without qualification that a permit be obtained for any removal of units from the rental market․ That amount ($1,709) [the apartment owners spent between tract map approval and enactment of the condominium conversion ordinance] is clearly inconsequential․ [It] does not comprise a ‘substantial’ percentage of the total expenditure contemplated by appellants․ Appellants' claim of a vested right therefore fails.” (Santa Monica Pines, Ltd. v. Rent Control Board, supra, 35 Cal.3d 858, 867–868, 201 Cal.Rptr. 593, 679 P.2d 27, emphasis in original.)
If the granting of a tract map or other approval was enough by itself to exempt property owners from subsequently enacted restrictions, the community would be foreclosed forever from imposing stricter development standards deemed essential to its health, safety and environment. The law does not tie the hands of local government this way in other phases of land use law (Avco Community Developers, Inc. v. South Coast Regional Com., supra, 17 Cal.3d 785, 795, 132 Cal.Rptr. 386, 553 P.2d 546 [final tract map not sufficient to exempt from later enacted requirements because “there could be serious impairment of the government's right to control land use policy․ [¶] [T]racts ․ which had been subdivided decades ago, ․ could be free of all zoning laws enacted subsequent to [that time]․”]; Gisler v. County of Madera, supra, 38 Cal.App.3d 303, 309, 112 Cal.Rptr. 919 [tract map approval not exempt property owner from later changes in land use regulations because otherwise “simple act of filing a map would destroy the power of ․ the local legislative body to ever permit the use of land for purposes other than those specified ․ at the time the map was filed.”, emphasis in original]; Palmer v. Board of Supervisors, supra, 145 Cal.App.3d 779, 193 Cal.Rptr. 669; People v. County of Kern (1974) 39 Cal.App.3d 830, 115 Cal.Rptr. 67; Kappadahl v. Alcan Pacific Co., supra, 222 Cal.App.2d 626, 35 Cal.Rptr. 354; Hill v. City of Manhattan Beach (1971) 6 Cal.3d 279, 285–286, 98 Cal.Rptr. 785, 491 P.2d 369). Santa Monica Pines makes it clear the act of obtaining a tract map does not tie the hands of local government in the field of condominium conversions either.
In the instant case, respondent apartment owners conceded the City could require conditional use permits of those who seek to convert their buildings in the future. Thus, there is no dispute the regulations the city seeks to impose are lawful and constitutional. (And indeed after Griffin it would be difficult to dispute this conclusion.) Nor do the owners contend they acquired a “vested right” to be exempt from these regulations because the government required them to invest substantial sums to obtain the tract maps and other permissions issued to them. Accordingly, there is no basis for a claim of a “vested right” under Santa Monica Pines. Respondents had not created their condominium developments by selling their first units prior to the city's new regulations. As a result, according to the holdings of the decisions discussed in this section, these apartment owners remain subject to the admittedly legitimate regulations the city now imposes on all condominium conversions.
II. LANGUAGE IN THE SANTA MONICA PINES OPINION DOES NOT CONSTITUTE DICTUM AUTHORIZING APARTMENT OWNERS TO SELL UNITS TO INDIVIDUALS AS CONDOMINIUMS WITHOUT COMPLYING WITH NEWLY ENACTED CONVERSION REGULATIONS UNLESS THEY HAVE ACQUIRED A “VESTED RIGHT” TO BE EXEMPT FROM THESE REGULATIONS
As mentioned above, respondent apartment owners did not attempt to prove they had acquired a “vested right” to be exempt from the City's condominium conversion regulations. Instead they claimed the mere act of obtaining a tract map from the county and permission to file a public report with the state was enough to authorize them to sell units to individual buyers as condominiums without complying with the City's regulations. The trial court accepted this argument relying on purported dictum in Santa Monica Pines and in Blue Chip Properties v. Permanent Rent Control Bd., supra, 170 Cal.App.3d 648, 216 Cal.Rptr. 492, a court of appeal opinion which followed Santa Monica Pines.
The Supreme Court language on which the trial court relied is contained in a single sentence from the Santa Monica Pines opinion. This sentence reads: “There is no dispute over their [apartment building owners] authority to subdivide their apartment building as provided in the approved tentative map, that is, to sell fee interests in single apartment units.” The trial court interpreted this single sentence to mean respondents were entitled to convert their apartment buildings into condominium ownership without complying with the City's condominium conversion regulations.
As is often true, however, a single sentence extracted from a judicial opinion can be misleading. This is one of those cases. To begin with, the sentence does not even qualify as dictum for any legal proposition. By its terms, the sentence merely reports the fact that the parties in the Santa Monica Pines case were not disputing over the issue of the apartment owners' authority to subdivide their buildings. Instead the issue was whether those units could be removed from the rental market without obtaining a removal permit as required by Santa Monica's recently enacted rent control law. At the most, this sentence reserved for a later day the issue of whether the mere act of obtaining a tract map gives owners authority to sell units without complying with subsequently enacted local conversion regulations. It most certainly did not constitute a holding—in the form of dictum or otherwise—to the effect they could. Indeed both the language immediately surrounding that sentence and the essential holding of the Santa Monica Pines decision are contrary to the proposition that tract map approvals for condominium conversions exempt owners from subsequent local conversion regulations.
The paragraph in which the quoted sentence appears reads:
“We are reluctant to conclude, ․ that approval of a subdivision map for condominium conversion necessarily leads to a vested right to freedom from subsequent rent control legislation [in this case ordinances requiring apartment building owners to obtain a ‘removal permit’ allowing them to remove their units from the rental market]. In the first place, appellants' argument seems based on the erroneous notion that they have a ‘vested right to obtain a vested right.’ There is no dispute over their authority to subdivide their apartment building as provided in the approved tentative map, that is, to sell fee interests in single apartment units. Rather, appellants claim they acquired the further right to transfer interests which are free of an intervening general regulation—the requirement that any owner of a ‘controlled rental unit’ obtain a permit before removing it from the rental market.
“But it is well established that the rights which may ‘vest’ through reliance on a government permit are no greater than those specifically granted by the permit itself. (Citations omitted.) ․ [¶] For this reason alone, we question whether the approval of a subdivision map for condominium conversion can ever lead to a vested exemption from subsequent rent control laws.” (Santa Monica Pines, Ltd. v. Rent Control Board, supra, 35 Cal.3d at 865, 866, 201 Cal.Rptr. 593, 679 P.2d 27.)
As can be seen, the thrust of this entire passage is not that apartment owners who have obtained tract maps can convert their units to condominium ownership without complying with subsequently enacted local regulations. Rather the passage points out that even if the tract map was enough to confer a vested right they could only sell those units under the terms and to the extent allowed by new local regulations.
The overall structure of the Santa Monica Pines opinion does even more to undercut the interpretation the trial court placed on the decision. In the paragraphs before the passage quoted above, the Supreme Court questions whether tract map approvals for condominium conversions can ever provide the basis for a vested right claim to be exempt from subsequently enacted local regulations. The Court pointed out that normally “acquisition of a vested right to construct a building required: (1) a building permit, and (2) substantial expenditures in reliance on the building permit.” (35 Cal.3d at p. 864, 201 Cal.Rptr. 593, 679 P.2d 27) The Court then acknowledged that its decision in Youngblood v. Board of Supervisors (1978) 22 Cal.3d 644, 150 Cal.Rptr. 242, 586 P.2d 556 had held subdividers could acquire a “vested right” to receive a final tract map when they made the investments required to comply with the conditions imposed at the tentative tract map stage. But the Supreme Court explicitly refused to equate tract map approval for a condominium conversion with tract map approval for construction of a new building. “Youngblood 's analysis ․ may not be fully applicable to condominium conversions. Such projects generally require no substantial new construction, unlike more traditional developments which may require vast expenditures to comply with conditions attached to the tentative map.” (35 Cal.3d at p. 866, 201 Cal.Rptr. 593, 679 P.2d 27.)
Immediately after this passage the opinion shifts to a discussion of the true grounds of the court's decision—a finding the apartment owners did not acquire a “vested right” to convert their rental units to condominiums. Since they lacked a “vested right,” they could not convert unless they qualified for removal permits under the laws Santa Monica enacted after the owners received tract map approval.
“As indicated, we need not decide whether we agree with petitioner that the tentative map approval may be considered akin to a building permit for construction. Even if the map approval is deemed tantamount to permission to withdraw the apartments from the rental market, the amount of money expended by appellants in reliance upon the tentative map approval was certainly inadequate ․ to predicate a vested right.” (35 Cal.3d at p. 867, 201 Cal.Rptr. 593, 679 P.2d 27.)
In the context of the entire opinion it is apparent what the sentence the trial court relied on actually means. Its function was to point out that even assuming the apartment building owners had acquired a “vested right” they would not have been entitled to sell condo units free of the requirements of Santa Monica's removal permit process. That is, the right which would have vested—assuming one had vested—would only have permitted the owners to pass this imperfect title to those who bought the individual condo units. The condo buyers then would have had to continue renting out their units to others unless and until they received “removal permits” for those units from the City of Santa Monica.
In the instant case, respondent apartment building owners did not claim and certainly did not establish they had acquired a “vested right” of any kind. As the Santa Monica Pines court underscored, there is “no vested right to acquire a vested right.” (Santa Monica Pines, Ltd. v. Rent Control Board, supra, 35 Cal.3d 858, 865, 201 Cal.Rptr. 593, 679 P.2d 27.) The “vested right” doctrine is a species of estoppel against the government. It is only when a government action constitutes a promise and that promise reasonably causes citizens to act to their substantial and irretrievable detriment that the government can be estopped from cancelling the promise or modifying its terms.
This principle is readily applied to the condo conversion process. Imagine a local government issued a tentative tract map approving the conversion of a certain apartment building but subject to special conditions requiring the owners to drastically remodel the units before a final tract map would issue. The owner relies on the government's promise he will be able to convert his building to condominiums and invests large sums to accomplish the required remodeling. In those circumstances, the owner would have a good argument that government should be “estopped” from applying new laws which prohibited him from converting his building or which imposed substantial new burdens on the conversion. He has a claim he has earned a “vested right” to proceed with the conversion exempt from regulations which the government passed after he acted to his substantial and irretrievable detriment.
Assume on the other hand another apartment building owner and a different government. This government awards a tentative tract map but without imposing any special conditions requiring substantial alterations or anything else which entails significant substantial expenditures. The only action the owner is required to take in reliance on the government's approval of the proposed conversion is to pay some minor fees or perhaps lay out some large, but refundable assessments before receiving his final tract map. That owner would not have a good case for estoppel against the government. Hence he would not acquire a “vested right” to be exempt from newly enacted laws prohibiting or limiting condo conversions. Indeed Santa Monica Pines specifically held these sorts of rather minor steps are not enough to create a “vested right.”
To recapitulate, respondent apartment building owners neither claimed nor proved they had earned a “vested right.” The most the disputed sentence in Santa Monica Pines suggests is that had they earned a “vested right,” the right that vested would have been a very limited one—to sell units the new owners could not live in unless and until they complied with the newly enacted condominium conversion ordinance. This would include the provision requiring a conditional use permit prior to conversion from rental to owner-occupied housing.
But even that limited right did not vest. Moreover, as the concurring opinion underscores, here, unlike Santa Monica Pines, the newly enacted city regulations implicate the conversion process itself, not just the enforcement of a separate rent control law. The conversions are not complete until the apartment owners comply with the city's regulations, including those requiring a conditional use permit. Accordingly, respondents had no right to sell units unless and until they satisfied the city's condominium conversion requirements. We do not consider Blue Chip Properties v. Permanent Rent Control Bd., supra, 170 Cal.App.3d 648, 216 Cal.Rptr. 492 to have held otherwise. But to the extent it contains dictum which can be interpreted to suggest tract map approvals create a right to sell rental units as condominums before complying with subsequently enacted condominium conversion regulations we decline to follow that language.
Nor does the fact some respondents obtained approvals from the real estate commissioner to issue public reports give them any greater claim of a right to convert. Since the provisions of the local condominium conversion regulations apply, it just means the accuracy and validity of these public reports are in doubt and may have to be amended. (See Cal. Condominium and Planned Development Practice (Cont.Ed.Bar.1984) § 3.93 et seq., p. 256 et seq.)
III. THE CITY HAS STATED A CAUSE OF ACTION AND ESTABLISHED A REASONABLE PROBABILITY OF PREVAILING AND THUS THE DECISIONS SUSTAINING THE DEMURRER AND DENYING THE PRELIMINARY INJUNCTION WERE ERRONEOUS
In the instant case the trial court ruled the City's complaint was defective solely on grounds respondent apartment building owners are legally exempt from the City's newly enacted condominium conversion regulations. We have found this legal conclusion was erroneous. Accordingly, the order sustaining the demurrer likewise was error and must be reversed.
The trial court's denial of the City's preliminary injunction motion likewise rested on the same faulty legal conclusion. Plaintiffs are entitled to a preliminary injunction if they establish a reasonable probability of prevailing in the lawsuit and also establish they will suffer more harm if the injunction is denied than the defendants will suffer if the injunction is granted. (Friends of Westwood, Inc. v. City of Los Angeles (1987) 191 Cal.App.3d 259, 264, 235 Cal.Rptr. 788.)
In the instant case we rule the trial court erred in concluding respondents are exempt from the City's current condominium conversion regulations. Accordingly, contrary to the ruling in the trial court we find there exists a “reasonable probability” the City will prevail in this action.
We further find the City will suffer more serious, irremedial harm if the preliminary injunction is denied than respondents will suffer if it is granted. The apartment units if converted to condominiums will be permanently removed from the supply of rental housing. In contrast, the apartment owners can continue to receive rent on the apartments during the pendency of the lawsuit. In these circumstances, the “balance of hardships” favors issuance of the injunction. Appellate courts have authorized preliminary injunctions even when the effect is to hold up construction of new structures on vacant land. (See, e.g., Friends of Westwood, Inc. v. City of Los Angeles, supra, 191 Cal.App.3d 259, 281, 235 Cal.Rptr. 788 [denial of preliminary injunction reversed in land use case over whether major commercial development could proceed], Transcentury Properties, Inc. v. State of California (1974) 41 Cal.App.3d 835, 116 Cal.Rptr. 487 [preliminary injunction granted to halt construction of residential development during pendency of trial over land use issues].) A fortiori, the “balance of hardships” favors the city in the case of prospective conversions of already existing buildings. Consequently, we reverse the denial of West Hollywood's motion and order the trial court to issue the preliminary injunction.
IV. THE CITY RATHER THAN THIS COURT HAS AUTHORITY TO ADDRESS ANY PROBLEMS CAUSED BY THE SALE OF CONDOMINIUM UNITS DURING THE PENDENCY OF THIS LAWSUIT
Respondents allege in their briefs that several of the building owners have sold units during the pendency of this appeal. They urge that should we rule as we have—that owners cannot sell units without complying with West Hollywood's condominium conversion ordinance—we should not apply this ruling against owners who have sold units after the trial court denied the City's preliminary injunction and while that ruling was on appeal.1
Under accepted principles the notice of appeal suspends the trial court's judgment. (Barnhart v. Edwards (1900) 128 Cal. 572, 57 P. 1004, 61 P. 176, Fulton v. Webb (1937) 9 Cal.2d 726, 72 P.2d 744) “The effect of the appeal is to leave this question of title suspended and in the same condition as it was in before trial․ If he sells the property before title is finally determined he sells at his own risk.” (Fulton v. Webb, supra, 9 Cal.2d 726, 729, 72 P.2d 744.)
The absence of a preliminary injunction prohibiting sale of rental units as condominiums did not confer a right to sell without complying with West Hollywood's condominium conversion regulations. The absence of an injunction merely placed respondent apartment building owners in the same position they would have been had the City not sought an injunction and these owners had proceeded to sell rental units as condominiums. Those sales would have been subject to cancellation for failure to comply with the City's ordinance. Thus, any apartment building owners who sold units while this decision was on appeal proceeded at their own risk.
This court considered the variety of problems which may have been created for condominium purchasers and others by the sale of rental units as condominium units during the pendency of this appeal. Indeed we requested supplemental briefing on this subject. However, upon due reflection, we have decided these issues cannot be addressed by this court. Rather, they may properly be addressed by the city as it implements the provisions of Ordinance No. 114U and any other applicable condominium conversion regulations.
DISPOSITION
The judgment denying the preliminary injunction and the judgment sustaining the demurrer are reversed. The cause is remanded to the trial court with instructions it is to grant the preliminary injunction as requested by the City and to overrule the demurrer. Appellant to recover costs on appeal.
While I agree with the majority opinion, I believe it is important to analyze why it is impracticable in the instant case for this court to exempt from the ordinance certain respondents who have sold units in an attempt to circumvent the ordinance. Despite the fact that it is inappropriate at this time for us to resolve the host of problems such sales may have created, it nevertheless is important to identify them because the City of West Hollywood may have to deal with such problems as a result of this court's decision. Before addressing the foregoing issues, it is necessary to explain what I believe to be the analytical justification for the reversal of the trial court's judgments and the rejection of respondents' position.
Implicit in respondents' position is the claim that the subdivision process is, in some way, a process separate and apart from that of condominium conversion, and that they should be allowed to complete the subdivision process without restriction. But it is clear to me that respondents' subdivision is for the purpose of condominium conversion and therefore the subdivision process is inseparable from the conversion process and that process is complete upon the creation of condominiums. Under Civil Code section 1352, a “common interest development [including a condominium] is created whenever a separate interest coupled with an interest in the common area or membership in the association is, or has been, conveyed, provided, all of the following are recorded: [¶ ] (a) A declaration. [¶] (b) A condominium plan, if any exists. [¶] (c) A final map or parcel map, if Division 2 (commencing with Section 66410) of Title 7 of the Government Code requires the recording of either a final map or parcel map for the common interest development.” Civil Code section 1353 provides that the declaration shall contain the restrictions on the use or enjoyment of the property that are intended to be enforceable equitable servitudes.
Characterizing the sale of the individual units as merely a completion of the subdivision process, governed in part by the Subdivision Map Act, respondents claim that language in Santa Monica Pines, Ltd. v. Rent Control Board (1984) 35 Cal.3d 858, 201 Cal.Rptr. 593, 679 P.2d 27 and Blue Chip Properties v. Permanent Rent Control Bd. (1985) 170 Cal.App.3d 648, 216 Cal.Rptr. 492, supports the sale of their units without the requirement that they apply for a conditional use permit under the City ordinances. According to respondents, it is not they, but the new owners who must comply with appellant's ordinances.
It is true that there is dictum in the foregoing cases which appears to suggest that developers who had obtained approval of tentative tract maps would be able to subdivide and sell individual units and place on future owners the duty to comply with the municipal ordinance requiring a removal permit to remove a unit from the rental market. However, such sales were not in issue in those cases, and it must be remembered that the courts upheld the application of the municipal regulations to the developers. In mentioning such hypothetical sales, the courts did not explain the nature of the fee interest that would be conveyed, and certainly did not imply that the condominium conversion process would be exempt from the removal permit requirement.
While it may be possible, in the context of an ordinance merely dealing with the removal of units from the rental market, to allow condominium conversion to proceed and to impose such permit requirement on the subsequent owner or at the time the unit is withdrawn from the rental market, allowing respondents herein to proceed without compliance with the City regulations is completely impracticable.
City's ordinance (City of West Hollywood, Ord. No. 114U) is comprehensive, regulating various aspects of the project, including aspects of its design, architecture and management. The ordinance requires approval of the conversion if it entails removal of units from the rental housing market, and includes certain provisions which must be incorporated into the project's covenants, conditions, and restrictions (CC & R's). Thus, inasmuch as the ordinance regulates the terms of the CC & R's, which upon creation of the condominium development become equitable servitudes inuring to the benefit of all owners of separate units (Civ.Code, §§ 1352, 1354), this aspect of the ordinance should be imposed prior to the sale of any units. (See Cal. Condominium and Planned Development Practice (Cont.Ed.Bar 1984) § 3.59, p. 214: “Under Bus & P C § 11018.5(c), [the Department of Real Estate (DRE) ] may not issue a public report for a common interest subdivision unless every lot and unit will become subject to the declaration of restrictions and other governing documents when the escrow for the first sale closes and title passes from the subdivider to a purchaser. This requirement is strictly enforced by DRE in recognition of the fact that the subdivision and the owners association will not long exist as viable entities if the provisions of the governing instruments are not enforceable against every owner․”)
In light of the fact that respondents herein do not claim any vested rights which would exempt them from the ambit of the ordinance, I can only conclude that respondents are not entitled to sell the individual units without applying for a conditional use permit. It is clear here that respondents should be compelled to apply for a conditional use permit prior to sale of any units so that if the terms of the ordinance regulating CC & R's are to be imposed, uniform CC & R's conforming to the ordinance can govern the entire project. Therefore, the disposition of the majority correctly reverses the judgment denying the preliminary injunction and directing the trial court to grant it. The purpose of such preliminary injunction is to prevent or, in some cases, halt the sale of units to permit the appropriate parties to apply for conditional use permits under the City's regulations.
Some respondents already have obtained approval from the Real Estate Commissioner to issue a public report, and they claim that this is the last authorization they need to begin to sell the individual units. While this might be the case in the absence of any local regulations, such as the ordinance herein, because City's ordinance has been held to apply to respondents, the accuracy and validity of the public reports may be questionable. (See Bus. & Prof.Code, § 11012, prohibiting material change of setup of offering without written notice to Department of Real Estate.) “Since at least 1965, the Real Estate Commissioner has had authority over ․ condominiums․ The purpose of the Real Estate Law is to prevent fraud and misrepresentation in the marketing of parcels of land by requiring disclosure of the financial risks and benefits of a transaction to proposed purchasers and lessees․ A sale or lease without providing a public report to the transferee is prohibited. (Bus. & Prof.Code, § 11018.2.)” (California Coastal Com. v. Quanta Investment Corp. (1980) 113 Cal.App.3d 579, 589, 170 Cal.Rptr. 263.)
The Department of Real Estate, as part of its review of applications for public reports, evaluates not only the budgetary aspects of the proposed condominium sales, but the organization and ongoing operation of the project, and the establishment, funding and operation of the owners association. (Cal. Condominium and Planned Development Practice (Cont.Ed.Bar 1984) §§ 3.27, 3.28, pp. 182–183.) Because City's ordinance also imposes various requirements as to the operation of the association and contents of the CC & R's, the issue of the applicability of the ordinance logically should be resolved before respondents complete the application for a public report. As to those developers who have already obtained approval of a public report, and as to whom the City may impose certain requirements which may materially change aspects of the offering, there are statutory procedures for obtaining the consent of the Department of Real Estate and for amending the public report. (See Cal. Condominium and Planned Development Practice, supra, § 3.93 et seq., p. 256 et seq.)
As to those individual units which have been sold in an attempt by some respondents to complete the conversion process and circumvent the application of the ordinance, I do not believe it is appropriate or necessary to determine at this time the available remedies of City, the developers or the individual unit owners. The City should be aware, however, of problems that may result if some individual unit owners are granted exemptions from the ordinance while others in the same project are not. Conceivably, different CC & R's would govern different units in a single project. While Civil Code sections 1355 and 1356 contain provisions for the amendment of the declaration of CC & R's, which provisions conceivably may be used to create uniform servitudes as to all units, the City should be aware of these problems when it acts on the respondents' conditional use permits.
In pointing out these problems, it is not my intention to interfere with the City's discretion to grant permits or variances, or to take any other available action as to any conversion and sales. Neither is it my intention to suggest that the individual unit owners, who are not parties herein, are limited to their remedies against the City or respondents; such owners should not be foreclosed from utilizing any available remedies or from otherwise resolving the matter with all those concerned. However, if in the future the City should exact of respondents strict compliance with and subject their properties to all the provisions of the ordinance, City should bear in mind that any such decision well may result in a host of complex issues, one of which could be the effect of the ordinance on the accuracy or continued validity of the public report for which some respondents had obtained approval from the Real Estate Commissioner. Another problem, hereinabove mentioned, arises if the City seeks to assert the provisions in the ordinance governing CC & R's against some individual unit owners while exempting others in the same project. Although these problems, as well as others, may arise, they are not at this time before this court for decision.
I agree with the majority that the City has stated a cause of action and has established a reasonable probability of succeeding in imposing its condominium conversion regulations on respondents, and concur in its disposition of this appeal.
FOOTNOTES
1. We note that owners who sold units before West Hollywood incorporated are not covered by the holding of this opinion. With two exceptions the City dismissed these building owners from its lawsuit before trial. The City subsequently discovered two owners named as defendants in this action and respondents on appeal had sold condominium units before the operative date. After our opinion was filed and while we were considering the petitions for rehearing, the City filed a request for voluntary abandonment of appeal with prejudice only as to defendants Brittany Villas and Nathaniel H. Reed. We granted this request. Thus, these two owners are no longer parties to this appeal.
JOHNSON, Associate Justice.
NEWMAN, J.*, concurs.
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Docket No: No. B027572.
Decided: July 13, 1989
Court: Court of Appeal, Second District, Division 7, California.
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