Realtors® -- many of whom are these days burdened with concerns about a still-tenuous market and the hassles of short sales and REOs – may be forgiven for often not being acutely attuned to the great variety of property rights issues that continually wind their ways through courts and legislative bodies throughout the country. Nonetheless, such things continue on and, fortunately, national, state, and local Realtor® associations are pretty good about keeping tabs on them.

Today we look at a situation where the California Association of Realtors® (CAR) weighed in – by filing a friend of the court (amicus) brief – in a case involving rent control. The case, Guggenheim v. City of Goleta, United States Court of Appeals for the Ninth Circuit, involved an ordinance (originally adopted as a Santa Barbara County regulation) that affected mobile home parks in Goleta.

Central to the case were (a) the purpose of the ordinance, and (b) its terms. The purpose of the ordinance, contained in its first section, contains the following: “A growing shortage of housing units resulting in a critically low vacancy rate and rapidly rising and exorbitant rents exploiting this shortage constitutes serious housing problems affecting a substantial portion of those Santa Barbara County residents who reside in rental housing. These conditions endanger the public health and welfare of the County of Santa Barbara. Especially acute is the problem of low vacancy rates and rapidly rising and exorbitant rents in mobile home parks in the County of Santa Barbara. …the Board of Supervisors finds and declares it necessary to protect the owners and occupiers of mobilehomes from unreasonable rents while at the same time recognizing the need for mobile home park owners to receive a fair return on their investment…”

The terms of the ordinance limited the ability of park owners to increase rent of the existing tenants (i.e. owners of mobilehomes on pads in the park) only once a year and/or at the end of a lease term. Rent increases were subject to a formula. If the mobile home were sold to a new park tenant, the rent for the space could be increased by 10%.

The Guggenheims, plaintiffs in the case, purchased a park in 1997, some 18 years after the adoption of the ordinance. (The issue of their time of purchase weighed heavily against them.) They brought suit, some time after their purchase, contending that the ordinance constituted a government “taking”, without compensation, which unjustly deprived them of the economic benefit of the ownership of the park.

But the court was unsympathetic. Basically, its view was that, by the time the Guggenheims purchased the park, it was too late to bring such a suit. The “primary factor” in the case (referring to an earlier precedent) was “the extent to which the regulation has interfered with distinct investment-backed expectations.” But, the court held, the Guggenheims had no right to any greater expectation than was available to them under the ordinance. “A landlord buys land burdened by leaseholds in order to acquire a stream of income from rents and the possibility of rents or resale value in the future. The stream already suffered a reduced flow when the Guggenheims bought it, so what they paid would reflect the flow that the law allowed.” Thus, a lower court’s dismissal of the Guggenheim suit was upheld.

However, things get interesting when we turn to what can only be described as a biting dissenting opinion, one heavily influenced by the Ninth Circuit’s Chief Judge, Alex Kozinski. Central to the dissent is the position that “the Goleta ordinance is not a rent control law for the simple reason that it is not designed to – nor does it – control rents.” The purpose of the ordinance was to put a rein on the rents paid by both the owners AND the occupiers of the mobilehomes.

But it only controlled the space rents paid by the owners; it did not in any way prevent them from raising the rents of tenants who might occupy the units. The effect of this was simply to greatly increase the value of the mobilehomes themselves (their resale prices rose enormously). What it accomplished, in the words of the dissenting opinion, was “to transfer wealth from mobile home park owners to one group of lucky tenants.”

On these grounds, the dissenting opinion argued, the case was less a matter of a taking than it was a violation of due process. And that kind of claim is neither barred by time nor redressed by compensation.

In all likelihood the Guggenheim case will be appealed to the Supreme Court. It should be. And if it is heard, you can bet that the Realtors® will be there.

Published: January 18, 2011

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .