Here’s Some Rare Good News for California Homeowners

January 21, 2020
By Christina Sandefur

Good news is hard to come by for California property owners. But recently, there’s been reason to be hopeful. Just last week, a California trial court ruled that Del Mar, a tourist city famous for its beautiful beaches and world-renowned horse-racing track, couldn’t ban short-term rentals because city officials failed to follow proper procedure. This decision comes on the heels of similar rulings against the coastal cities of Santa Barbara and Pacific Grove, both of whom attempted to pass anti-home-sharing rules without getting approval from the California Coastal Commission.

A bit of background on the Del Mar situation: In May 2017, the city decided to ban all short-term rentals—that is, all rentals of fewer than seven days—in residential zones. But rather than doing this by actually voting to pass a new ordinance against home-sharing, the city announced that, although short-term rentals are “part of the fabric of Del Mar” and have lawfully operated there since before the city was incorporated, it now interpreted its longstanding zoning regulations as having prohibited home-sharing all along.

For many, this didn’t pass the laugh test. After all, Del Mar residents have been renting out their homes overnight to visitors for longer than the city’s 40-year-old code has been in existence. And the city even temporarily grandfathered short-term rentals that had been operating before April 2016, allowing them to continue operating unrestricted until November 2019. That seems like an odd thing to do if home-sharing has always been illegal.  

Why wouldn’t the city just pass a new ordinance to outlaw short-term rentals? When cities create or restrict land uses, their actions are subject to the California Environmental Quality Act (CEQA), which requires state and local agencies to analyze and mitigate the effects of regulations that could have a significant environmental impact. Changes to zoning and land-use regulations are subject to CEQA. But the City Council ignored that requirement.

A group of homeowners sued, arguing that city officials can’t take away their right to peacefully rent their homes without going through the proper processes. So the city argued that it could skip the environmental review because it wasn’t passing a new regulation, but just restating existing law. The court saw through that, holding that the city’s ban was really new, and that outlawing home-sharing could have serious environmental impacts, as more hotels would have to be built to accommodate visitors to the coast. Therefore, the city must conduct a study to determine how its anti-home-sharing ordinance would affect the environment—and how more targeted regulations (that don’t ban all short-term rentals) might mitigate that impact.

This isn’t the first time cities have tried to skirt the rules in outlawing home-sharing. Homeowners have been peacefully renting their homes to tourists in historic Jerome, Arizona, for decades. Town officials even gave them explicit permission to do so—before suddenly changing their minds in 2015 and telling homeowners they would be charged with a crime if they continued using their homes as short-term rentals. There, too, city leaders didn’t bother adopting a new ordinance, but claimed it was “reinterpreting” an old ordinance. The reason? Because Arizona law requires the government to pay property owners when new regulations eliminate their right to use land. So by claiming that short-term rentals had actually been forbidden all along, Jerome politicians were hoping to pretend no new restriction had been adopted. (Jerome abandoned its scheme after homeowners sued and the state legislature stepped in.)

These procedural rules might seem like small things, but they’re important checks on local power. Local power is, after all, often wielded against private property owners, who are frequently deprived of the protections of our checks and balances system. Requiring cities to consider how their regulations will affect homeowners, visitors, and the public at large is a step forward in protecting people from unnecessary and often oppressive regulations. Until cities learn to target bad actors and nuisances rather than punishing the innocent by enacting across-the-board bans on home-sharing, they can continue to expect more lawsuits from frustrated homeowners—and more courts admonishing them to follow the law.

Christina Sandefur is the Executive Vice President at the Goldwater Institute.