The Top Ten Real Property Cases of 2015
| Publication year | 2016 |
| Author | Basil ("Bill") S. Shiber and Matthew Henderson |
Basil ("Bill") S. Shiber and Matthew Henderson
Basil S. Shiber
Basil ("Bill") Shiber is a shareholder with Miller Starr Regalia. His practice focuses on disputes involving secured transactions, commercial leasing, condemnation, and land use. He is also a contributing author of Chapter 23, "Inverse Condemnation," Chapter 24, "Eminent Domain," and Chapter 30, "Community Redevelopment," of Miller & Starr, California Real Estate 4th.
Matthew Henderson
Matthew Henderson is a shareholder in Miller Starr Regalia's Walnut Creek office. His practice encompasses land use, litigation, CEQA, and appellate matters. He is the contributing author of Chapter 40, "Remedies," of Miller & Starr, California Real Estate 4th.
Below we identify the "Top Ten" cases of 2015 that had the most widespread impact on the practice of real property law in California. The case selection process is subjective and challenging, given the breadth and depth of real estate issues that our courts grapple with every year. Those issues reflect the diversity and vitality of this state and its residents. They also offer a snapshot of the real estate environment in California, albeit necessarily from a rearview mirror perspective.
2015 continued to see an enormous volume of California Environmental Quality Act ("CEQA") cases work their way through the system, an indicator that meaningful legislative CEQA reform has not yet arrived. The year also saw a significant decision from the California Supreme Court regarding the propriety of low-income inclusionary housing requirements relative to new housing construction—an issue with which many cities and counties grapple. In addition, a variety of "bread and butter" real estate cases addressed, among other things, the law of rescission as it pertains to real estate contracts, the enforceability of "co-tenancy" provisions in retail leases, the tort of wrongful foreclosure, and the current state of the implied public dedication doctrine. These cases populate our list of the Top Ten Real Property Cases for 2015.
Inclusionary zoning is a land use regulation, not an exaction.
Last year we mentioned several housing scarcity cases percolating through the courts.2 This year, in California Building Industry Association v. City of San Jose, the California Supreme Court held that an inclusionary housing ordinance adopted by the City of San Jose is subject to the deferential standard of review applied to land use regulation, and not the heightened standard applied to "exactions." Land use regulations apply uniformly to real property as a matter of general legislative action, while a government agency imposes an exaction as a condition of developing a particular piece of property. As the United States Supreme Court has noted, the danger of "extortionate" demands by the government is heightened in the latter context.3
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This case had its genesis in San Jose's adoption of an ordinance that required new residential housing projects of twenty or more units to sell at least fifteen percent of those units at a price that is affordable to low or moderate income households. Developers could satisfy this requirement in other ways, including by making an in-lieu monetary contribution to San Jose. The California Building Industry Association ("CBIA") argued that this ordinance constituted an "exaction" because it was designed to mitigate a problem not caused by the new development—namely, the lack of affordable housing. According to the CBIA, the court should have applied a heightened standard of review to the ordinance, requiring San Jose to demonstrate a proportional relationship between the exaction and the impacts it was designed to mitigate.
The California Supreme Court rejected the CBIA's interpretation of the ordinance, holding that inclusionary housing requirements should be viewed in the context of a local government's statutory obligation to provide adequate housing to all segments of the community,4 and that such requirements are subject to the rational basis test. Consequently, the Court found the ordinance constitutionally valid because it bore a real and substantial relationship to a legitimate public interest, and declared that the ordinance would be invalid only if it were arbitrary, discriminatory, and without a reasonable basis. Several legitimate public objectives supported San Jose's ordinance, including those of increasing the number of affordable housing units in the area, and assuring that affordable housing units are distributed throughout the City.
The Supreme Court distinguished its earlier Sterling Park5 decision, in which it held that the City of Palo Alto's inclusionary zoning ordinance was an exaction under California's Mitigation Fee Act for purposes of the Act's statute of limitations.6 That case revolved around procedural issues related to applicable statutory limitation periods, and did not address the substantive question of constitutional validity presented in the CBIA case. The Court could also factually distinguish Sterling Park because Palo Alto's inclusionary zoning ordinance required developers to give the City a recordable option to purchase the affordable housing units. This type of recorded option constituted an identifiable property interest taken by the government under the ordinance, making the requirement to convey the option more akin to an exaction.
Comment: California Building Industry Association v. City of San Jose is a very important case in that it provides guidance to cities and counties in drafting constitutionally defensible inclusionary housing ordinances, which are subject to a deferential standard of review. Readers should note that this case involved a facial challenge, as opposed to an "as applied" challenge. Facial challenges often fail because the challenger must establish that the enforcing agency cannot apply the ordinance in a constitutionally permissible manner. Accordingly, the CBIA opinion does not preclude an "as applied" challenge based on the application of this or similar inclusionary ordinances to specific developments. However, such "as applied" challenges may be less likely, since proponents of a pending project seeking approval are often motivated to accommodate the city in order to obtain timely project approvals of a project, and create goodwill and certainty going forward.
2. Center for Biological Diversity v. California Department of Fish and Wildlife, Newhall Land and Farming Company7AB 32's statewide reduction mandate regarding greenhouse gases is appropriate as a significance threshold for CEQA review, but a connection must be drawn between the specific project and the statewide goal.
California's Global Warming Solutions Act of 2006, a.k.a. AB 32 (Nunez), is California's primary legislative response addressing global climate change.8 AB 32 requires businesses to reduce their greenhouse gas emissions to 1990-levels by the year 2020. In a 2008 climate change scoping plan that implemented the directive of AB 32, the California Air Resources Board determined that this mandate equates to a twenty-nine percent reduction over projected 2020 "business as usual" emissions—that is, emissions assuming no conservation or regulatory efforts beyond those in place at the time of the forecast.
Newhall Ranch is a development planned on almost 12,000 acres along the Santa Clara River west of the City of Santa Clarita consisting of over 20,000 dwelling units of housing, 58,000 residents, and related commercial and business uses. The Environmental Impact Report ("EIR") for the Newhall Ranch development utilized the twenty-nine percent emissions reduction value contemplated in AB 32 as a significance threshold, and found that the greenhouse gas emissions generated by the project as designed would be thirty-one percent less than the emissions under a "business as usual" scenario. Accordingly, the EIR concluded that the project's likely greenhouse gas emissions would exceed the twenty-nine percent reduction mandated by AB 32, and would therefore be less than significant for CEQA purposes.
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However, the California Supreme Court in this case held that while using the quantitative standard in AB 32 (meaning twenty-nine percent reduction over "business as usual" emissions) as a significance threshold was appropriate, the EIR failed to draw the connection between the emissions from this specific project and the statewide goals mandated in AB 32. The twenty-nine percent reduction mandated by AB 32 covers all regions of California and includes industries and activities other than land use such as transportation, energy, industry, fuels, refrigeration, cooling, and so forth. What was lacking in the project EIR was any demonstration of how the thirty-one percent reduction for this specific project related to and supported the twenty-nine percent reduction mandated statewide. For example, it may be that new construction might achieve greater efficiencies in reduction in greenhouse gases compared to other uses such as transportation, energy, fuels, refrigeration, and air conditioning, and greater reductions in that sector are therefore warranted. Or, certain regions of California might contribute differently to the overall statewide goal of a twenty-nine percent emissions reduction. The EIR failed to make this analytical connection. Accordingly, the record did not support the EIR's conclusion that greenhouse gas emissions from the project would be consistent with the mandates of AB 32.
The second primary issue addressed by the California Supreme Court was a more straightforward one. Namely, the EIR contemplated, as a mitigation measure, collecting and relocating an endangered and "fully protected" fish species. The California Supreme Court held that while the California Department of Fish & Wildlife ("DFW") may conduct or authorize...
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