Local Affordable Housing Laws May Be Unenforceable

August 6, 2009

A recent California Court of Appeals decision concluded that the inclusionary affordable housing requirements imposed on a private developer by the City of Los Angeles were unenforceable as they violated the State's Costa-Hawkins Rental Housing Act (Civ. Code § 1954.50 et seq.).

The case, Palmer/Sixth Street Properties, L.P., et al v. City of Los Angeles, involved a mixed-use project with 350 residential rental units of which the developer was required to designate 60 units as low-income dwelling units and subject them to a 30-year covenant that established income and rental restrictions. These types of restrictions are common in a number of local ordinances.

The City put forward arguments that the developer had waived its right to object to the affordable housing restrictions but in this case the Court decided that the necessary facts for waiver had not been proven by the City.

This case potentially opens the door to the termination of affordable housing restrictions imposed on private developments constructed after February 1, 1995.

On the other hand, the case also presents opportunities for developers and municipalities to rethink how affordable housing programs should be implemented.

There is an affordable housing requirement established under another state law, the Mello Act (Govt. Code § 65590 et seq.). It remains to be seen how the Costa-Hawkins Rental Housing Act adopted in 1995 will be reconciled against the Mello Act, adopted in 1982.

Also, the California Redevelopment Law, which predates the Costa-Hawkins Rental Housing Act and the Mello Act, contains extensive affordable housing requirements to be implemented by redevelopment agencies and relates to projects that replace low or moderate income dwelling units as well as new production of affordable housing units. When Community Development Block Grants are used, Federal HUD Guidelines also impose affordable housing requirements.

Whether the case will be limited to future projects or have retroactive applicability is another open issue.

Please feel free to contact us for a further discussion of the case and how it may affect your projects.

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