SMW Successfully Defends Mobile Home Rent Ordinance

On December 22, 2010, an eleven-judge en banc panel of the U.S. Court of Appeals for the Ninth Circuit released its much anticipated decision in Guggenheim v. City of Goleta. In this case, Shute, Mihaly & Weinberger LLP (SMW) successfully defended the City of Goleta’s mobile home rent control ordinance. The court upheld the constitutionality of the City’s ordinance against a challenge by the owner of the mobile home park, Daniel Guggenheim, who contended that the ordinance illegally restricted his profits by limiting rental fees within the park.

The case has been closely watched by legal scholars since the majority of a three-judge Ninth Circuit Appellate panel found in favor of  Guggenheim in April 2010. The Ninth Circuit Court vacated that decision and granted an en banc rehearing of the case. A victory for the plaintiffs could have opened the door to significant challenges to other types of land use and environmental regulations, upending long-standing Supreme Court case law that protects such regulatory activity.

This case is about far more than rent control on mobile homes: it goes to the heart of a government’s ability to make land use decisions on behalf of the public good. The Court did the right thing in protecting the rights of local government to make land use decisions, including enacting rent control ordinances that protect vulnerable populations.

In 1997, when Guggenheim purchased the mobile home park in question, it was situated within an unincorporated portion of Santa Barbara County and was subject to the County’s mobile home rent control ordinance. When it incorporated in 2002, the City of Goleta adopted a mobile home rent control ordinance identical to the one that was in place when  Guggenheim purchased the property. Because  Guggenheim bought the property with full knowledge of the ordinance, the Court agreed with the City that Guggenheim had no reasonable expectation that he could increase rents beyond the levels allowed in the ordinance.

As the Court pointed out, Guggenheim bought the property for a price that took into account the ordinance’s limits on the rent increases that the park owner can impose on the mobile home owners who lease space in his park. Had Guggenheim succeeded in the case, he could have dramatically increased rents and gained a windfall profit at the expense of a particularly vulnerable population.

Mobile home owners have a unique relationship with park owners; while the mobile home owner can invest in improvements to her property and surrounding landscaping, she does not own the land itself. The higher the cost of the rent for the pad on which a mobile home sits, the lower the value of the mobile home itself. Without limits on rent increases, mobile home owners cannot recoup their investment in the property if they need to sell their mobile home. This case therefore has significant implications for mobile home owners and mobile home park owners throughout California.

Mobile home owners tend to be low- or moderate-income individuals and families, elderly, and disabled who have struggled to become homeowners. Rent control protects their investment. The Court’s decision affirms the important role rent control regulations play in providing stability for this vulnerable population, particularly in California’s expensive real estate market.

In winning the case, the City of Goleta can now keep its mobile home rent control ordinance in place without compensating mobile home park owners for their alleged loss of profits under the ordinance. Local government agencies throughout California can also maintain land use regulations that limit private profit without fear of being forced to compensate land owners for every such regulation.

Government regulation of land is clearly permitted under the Constitution. A property owner is not entitled to compensation simply because regulation prevents the greatest possible profit. The Supreme Court has time and again affirmed that regulation of property necessary to protect important community interests is the cost of living in a civilized society and does not require compensation. The Ninth Circuit’s decision here followed that well established precedent.