PEPPARD v. CITY OF CARPINTERIA (1991)

Paul E. Peppard and Joan Peppard, Trustees of the Paul Peppard Family Trust which owns and operates a business known as the San Roque Mobile Home Park (Park), appeal from the judgment of dismissal of their first amended complaint after the trial court sustained the demurrer of respondent, City of Carpinteria (The City), without leave to amend.

We reject Park's argument that because its tenants were able to realize a premium on the sale of their mobilehomes in Park's rent-controlled park, the application of the city's mobilehome park rent control ordinance resulted in a taking of its property without just compensation and an illegal transfer of its wealth to departing tenants.

We affirm the judgment of dismissal.

FACTS

In March, 1980 the City enacted an ordinance controlling the amount of rent a mobilehome park owner could charge a tenant for occupancy of a space.   The ordinance was amended and modified many times, but its provision as to the maximum rent chargeable remained basically unchanged.

The maximum allowable rent allowed under the ordinance is to be calculated annually, and is to be the sum of the rent in effect on July 1, 1979, increased by 75% of the ratio of change in the Consumer Price Index.   In addition, the ordinance provides that a park owner may apply for additional rent increases in order to ensure that it receives a just and reasonable return on its investment.

Park filed the original complaint on April 20, 1989.   The first cause of action for declaratory relief alleged that “as a matter of established constitutional law” Park had the right “to raise rents to market levels at the time of vacancy”;  that the ordinance kept rents below “market rentals otherwise obtainable by plaintiff upon turnover of any given unit”;  and that it enabled tenants to “monetize the rent savings upon the sale of their mobilehomes to third parties,” which constituted “an illegal transfer” of Park's wealth by the City to the departing tenants.

In their second cause of action for inverse condemnation, Park alleged that the operation and enforcement of the rent control law constituted an unconstitutional “taking of plaintiff's property for public use and benefit without payment of just compensation.”

The City's demurrer to the original complaint was sustained, with leave to amend.   In their first amended complaint, Park restated the allegations of the first and second causes of action of the original complaint.   Park further alleged that the City's ordinance was “irrational” because it allowed a tenant to sell his mobilehome for a “premium,” and did not, therefore, preserve low-cost or affordable housing;  that the ordinance constituted a taking of the landlord's right to enter into a long-term lease with incoming tenants at lower rents “for consideration which the departing tenant, by virtue of the ordinance, is now able to receive in a disguised form by receiving a ‘premium’ for the price of the coach”;  and that “the ordinance has effected the total transfer of all of the appreciated value of the pad from the landlord to the tenant, which the tenant realizes at the time of sale of the coach.”

The trial court sustained the City's demurrer to the first amended complaint without leave to amend on the grounds (1) that it did not state a cause of action;  (2) that appellants were collaterally estopped to bring either cause of action because their predecessor in interest raised the same issues in an earlier suit that was dismissed;  and (3) that both causes of action were barred by the statute of limitations.

DISCUSSION

I

Park argues that the City's mobilehome park rent control ordinance creates secure tenure for tenants, gives tenants the right to occupy spaces at a reduced rate, and, because the ordinance does not provide for decontrol of rent when a change in tenancy occurs, gives them the ability to “monetize” this right by selling their onsite mobilehomes for a premium.   Park claims that this transfer of the value of the underlying land from the landlord to the tenant constitutes an unconstitutional taking.   We disagree.

 A local land use regulation is a regulatory taking only if it “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, 65 L.Ed.2d 106.)   Consistent with their police power, local governments may adopt rent control ordinances where an unregulated market for rental housing allows landlords to charge excessive rents.  (See, e.g., Pennell v. City of San Jose (1988) 485 U.S. 1, 11–12, 108 S.Ct. 849, 857–858, 99 L.Ed.2d 1.)

California courts have held that “․ rent control legislation will be held to be constitutionally valid as a proper exercise of the police powers so long as it is ‘reasonably calculated to eliminate excessive rents and at the same time provide landlords with a just and reasonable return on their property.’   [Citations.]”  (Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside (1984) 157 Cal.App.3d 887, 897, 204 Cal.Rptr. 239, citing Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 165, 130 Cal.Rptr. 465, 550 P.2d 1001.)

In Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside, supra, 157 Cal.App.3d 887, 204 Cal.Rptr. 239, as here, plaintiffs argued that the Oceanside rent control ordinance “transferred the monopolistic advantage over residents from the park owner to the selling tenant, to the disadvantage of prospective tenants and to the detriment of the park owner, a share of whose unregulated profit is now shifted to the selling tenant.”  (Id. at p. 906, 204 Cal.Rptr. 239.)   An amicus brief on behalf of plaintiff characterized this effect as an uncompensated taking of property in violation of the federal and California constitutions.

 Concurring with the courts in Cotati Alliance for Better Housing v. City of Cotati (1983) 148 Cal.App.3d 280, 287–288, 195 Cal.Rptr. 825 and Palos Verdes Shores Mobile Estates, Ltd. v. City of Los Angeles (1983) 142 Cal.App.3d 362, 370–371, 190 Cal.Rptr. 866, the Oceanside court held that a “reasonable return on fair market value” standard is not constitutionally required for a rent control ordinance.  (Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside, supra, 157 Cal.App.3d at p. 898, 204 Cal.Rptr. 239.)   The constitution requires only that rent control ordinances permit landlords to obtain a “just and reasonable” return on their investment.  (Id. at p. 907, 204 Cal.Rptr. 239.)

The Oceanside court determined that the ordinance was “structured to establish a fair base rent which reflects general market conditions and incorporates relevant pricing factors” and hence did not reduce rents more than required for the purposes of the police power.  (Id.) ¹  It concluded that “ ‘[a] just and reasonable return is one which is generally commensurate with returns on investments in other enterprises having corresponding risks.   On the other hand, it is also one which is not so high as to defeat the purposes of rent control nor permit landlords to demand of tenants more than the fair value of the property and services which are provided.’  [Citation.]  Thus, ‘[t]he rate of return permitted may not be as high as prevailed in the industry prior to regulation nor as much as the investor might obtain by placing his capital elsewhere.’  [Citation.]”  (Id. at p. 907, 204 Cal.Rptr. 239.)

 Here, Park alleges that the City's rent control ordinance is irrational because, by not providing for decontrol when a tenant turnover occurs and allowing the departing tenant to sell his coach for a premium, the ordinance does not serve the governmental interest in preserving low-cost or affordable housing.

The Oceanside court dealt with the same question with respect to an ordinance similar to the one in the present case.   It concluded that it was rationally based since it was “structured to establish a fair base rent which reflects general market conditions and incorporates relevant pricing factors.”  (Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside, supra, 157 Cal.App.3d at p. 907, 204 Cal.Rptr. 239.)

The same is true here.   The City's rent control ordinance is reasonably calculated to further the City's interest in eliminating excessive rents for spaces in mobilehome parks, counteracting the ill effects of a shortage of mobilehome spaces (Carson Mobilehome Park Owners' Assn. v. City of Carson (1983) 35 Cal.3d 184, 189 fn. 4, 197 Cal.Rptr. 284, 672 P.2d 1297), and protecting the investment of mobilehome owners.  (See Oceanside Mobilehome Park Owners' Assn. v. City of Oceanside, supra, 157 Cal.App.3d at p. 910, 204 Cal.Rptr. 239.)

Park does not allege that the ordinance is irrational because it denies it fair and reasonable rents, nor does it allege that it attempted and failed to obtain the City's approval for additional rent increases, as provided for in the ordinance.   Accordingly, we assume the space rental, as controlled by the City's ordinance, provide a just and reasonable return on appellants' investment.  (See Yee v. City of Escondido (1990) 224 Cal.App.3d 1349, 274 Cal.Rptr. 551.)

In Yee, the court concluded that “[w]here a government regulation purports to reduce the excessive and unfair price to a reasonable level, the mere fact that the price for complementary goods and services rises as a result does not transmute an otherwise reasonable price regulation into a compensable ‘taking.’ ”  (Id. at p. 1353, 274 Cal.Rptr. 551.)

We agree with Oceanside and Yee that the mere fact that a tenant is able to sell his coach at a premium because it is located in a rent-controlled park does not mean that the application of the rent control ordinance to the park owner's property constitutes an unconstitutional taking of the owner's property without just compensation.

II

Park urges us to adopt the holding in Hall v. City of Santa Barbara (1986) 833 F.2d 1270 (9th Cir.), cert. den., (1988) 485 U.S. 940, 108 S.Ct. 1120, 99 L.Ed.2d 281.   We decline to do so as the reasoning in Hall is not persuasive.

In Hall, mobilehome park owners challenged the City of Santa Barbara's mobilehome rent control ordinance, a key provision of which required mobile park operators to offer their tenants leases of unlimited duration.   The Halls argued that by giving tenants the right to a perpetual lease at a below-market rental rate, the ordinance transferred to each tenant a possessory interest in the land on which his mobile home was located.   They contended that the substantial premium paid for mobile homes in parks subject to the ordinance constituted the transfer of a valuable property right to occupy spaces in mobile home parks at below-market rates and an unconstitutional taking of their property.  (Id. at p. 1273–1274.)

The Hall court relied on Loretto v. Teleprompter Manhattan CATV Corp. (1982) 458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868, where the court concluded that the application of an ordinance requiring owners of residential property to allow cable television companies to attach cables to their buildings constituted a physical taking of property.   In finding a taking, the Hall court made an exception to the traditional balancing approach applicable to most governmental regulations that are claimed to constitute takings.   It held that where the government action is “a permanent physical occupation of property,” there is a taking to the extent of the occupation, “without regard to whether the action achieves an important public benefit or has only minimal economic impact on the owner.”  (Id. at pp. 434–435, 102 S.Ct. at pp. 3175–3176.)

In Hall, the court concluded that application of the provision in the rent control ordinance directing “the landlord to give tenants a lease, a recognized estate in land, lasting indefinitely” constituted a “taking by physical occupation as in Loretto․”  (Hall v. City of Santa Barbara, supra, 833 F.2d at p. 1276.)

The court also concluded that the ordinance operated to give the tenant an economic benefit from his “statutory leasehold” by allowing him to capture a “rent control premium when he sells his mobile home.”  (Id.)  This “economic interest in the land” constituted a transfer to others of the park owners' interest in their land.  (Id. at pp. 1276–1277.)

The court in Yee v. City of Escondido, supra, 224 Cal.App.3d 1349, 274 Cal.Rptr. 551, disagreeing that the operation of the rent control ordinance in Hall constituted a “physical taking,” pointed out that “[i]f mobilehome park tenants ․ possess any rights to ‘permanently occupy’ the landlord's property, those rights derive not from a rent control ordinance but from the state Mobilehome Residency Law which limits the circumstances under which a landlord may terminate a tenancy, imposing a ‘good cause’ standard.” ²  The court added that it was unaware of any case remotely suggesting “that such a regulation of the landlord-tenant relationship constitutes a compensable taking within the meaning of Loretto.”  (Id. 224 Cal.App.3d at pp. 1355–1356, 274 Cal.Rptr. 551.)

The Yee court concluded that “[w]hen government acts to restore fair rents by imposing rent control, the fact that the price of used mobilehomes rises has not unreasonably ‘taken’ anything from the landlord, let alone caused a ‘permanent physical occupation’ of the landlord's property.”  (Id. at p. 1357, 274 Cal.Rptr. 551.)

The Yee court cited FCC v. Florida Power Corp. (1987) 480 U.S. 245, 107 S.Ct. 1107, 94 L.Ed.2d 282 decided after Hall, in support of its conclusion that Loretto does not apply to a rent control ordinance of the type considered in Hall or in Yee.   In Florida Power, a federal rent control statute limited the amount of rent utilities could charge cable television companies for the right to use the utilities' power poles.   The court rejected the utility company's argument that because a tenant invited to lease at a certain rent could remain at a substantially lower regulated rent, the operation of the statute was a taking under Loretto.   It concluded that the “element of required acquiescence is at the heart of the concept of occupation.”  (FCC v. Florida Power Corp., supra, 480 U.S. at p. 252, 107 S.Ct. at p. 1112, emphasis added.)

As the Yee court pointed out, “[n]othing requires [property owners] to rent their property to mobilehome owners.   If they choose to do so, however, the terms on which they may do so are regulated by state statute and local ordinance.”  (Yee v. City of Escondido, supra, 224 Cal.App.3d at p. 1358, 274 Cal.Rptr. 551.) ³

III

 As a separate ground for sustaining respondent's demurrer, the trial court ruled that Park's claims are barred by the statute of limitations.   The statute of limitations for bringing an action for damages for property taken by inverse condemnation is five years.  (Code of Civ.Proc. § 318 ⁴ ;  Garden Water Corp. v. Fambrough (1966) 245 Cal.App.2d 324, 327, 53 Cal.Rptr. 862.)

 The City's rent control ordinance was enacted in 1980, and amended numerous times.   By its terms it was to expire in 1985 unless the City extended it.   In April 1985 the City enacted ordinance number 371, “re-adopting and extending chapter 5.69, as amended, of the Carpinteria Municipal Code relating to mobile home park rent stabilization for an additional five-year period.”   In February 1986 the City enacted ordinance number 388, “amending chapter 5.69 of the Carpinteria Municipal Code, as amended, relating to updating the mobile home park rent stabilization program.”

Park argues that ordinances 371 and 388 constitute new legislation incorporating the prior rent control ordinances and their action is timely.   We disagree.

Although the City's rent control ordinance has been amended many times, its maximum rent provisions have been substantially the same since 1980.   Furthermore, ordinances 371 and 388 do no more than re-adopt, extend, and amend the original ordinance as previously amended.

 Park's argument that their action should not be barred by the statute of limitations because the alleged taking is a continuing wrong is not persuasive.

A continuing violation is occasioned by continual unlawful acts, not by continued ill effects from an original violation.  (Ward v. Caulk, (9th Cir.1981) 650 F.2d 1144, 1147.)   Park's “continuing wrong” theory is inapplicable where the government has taken no additional steps beyond merely enacting the law.

Since Park's suit was filed more than five years from the date the provisions at issue were originally enacted, the trial court properly determined that its claim for damages is time barred.

IV †

The judgment of dismissal is affirmed.

FOOTNOTES

FOOTNOTE.  

1.   A rent control ordinance is unconstitutionally confiscatory if it lowers rents more than could reasonably be required for measure's stated purpose.  Birkenfeld v. City of Berkeley, supra, 17 Cal.3d at p. 165, 130 Cal.Rptr. 465, 550 P.2d 1001.

2.   Civil Code section 798.56.

3.   The Yee court noted that “even the California Mobilehome Residence Law does not require mobilehome park owners to ‘refrain from terminating’ mobilehome space leases.   It simply regulates the economic relationship between the landlord and tenant, requiring that the landlord terminate the space rental only for good cause․”  (Yee v. City of Escondido, supra, at p. 1358, fn. 11, 274 Cal.Rptr. 551.)

4.   We take no position on the applicability of the five year statute as this was not in issue here.

FOOTNOTE.   See footnote *, ante.

ABBE, Associate Justice.*** FN*** Retired Associate Justice of the Court of Appeal sitting under assignment by the Chairperson of the Judicial Council.

STEVEN J. STONE, P.J., and GILBERT, J., concur.