Force Majeure and Covid: Implications on Tenancies and Rental Payments

| Lindsay Petrone
force majeure

What happens when a tenant does not pay rent citing the financial impacts of the COVID pandemic?  Can such tenant rely on the force majeure provision in the lease to excuse the payment of said rent?  These questions arose in lease contexts throughout the pandemic and a recent Court of Appeal case weighed in on one such situation.  In West Pueblo Partners, LLC v. Stone Brewing Co., LLC (C.A. 1st, April 3, 2023.  Westlaw Cite: 2023 WL 3151827), the court found that West Pueblo Partners, LLC (“Landlord”) could bring an unlawful detainer action to evict Stone Brewing Co., LLC (“Tenant”) and Tenant was not excused from paying rent due to a force majeure event, specifically the COVID pandemic.

In West Pueblo, Tenant operated a brewery and restaurant that was shut down in different capacities due to COVID restrictions during 2020 and 2021.  Tenant alleged they did not have to (and in fact did not) pay rent citing the force majeure provision in the lease which stated in relevant part “if a party is delayed from performing any of its obligations under the lease due to act of god or governmental act, then the time for performance of such party shall be extended for an equivalent amount of time.”  Tenant argued the governmental regulations and business interruptions triggered the force majeure provision and they were excused from paying rent during such time period.

The Court of Appeal reviewed the force majeure provision in the lease (which, to note, did not include a typical qualification that the payment of rent is always required regardless of any force majeure event) and found that if the force majeure event had effectively stopped Tenant from paying rent, that is one thing (for example, a snowstorm blocked the ability to send a wire), but here they had the financial means and chose not to pay the rent due to COVID restrictions and negative impacts on their business.  The Court of Appeal also dug into prior cases analyzing force majeure provisions generally and reiterated that “the qualifying event must have still caused a party’s timely performance under the contract to become impossible or unreasonably expensive.”  The Court of Appeal found that force majeure events which merely make performance unprofitable or more difficult or expensive do not suffice to excuse a contractual obligation.

The West Pueblo court did repeatedly note that Tenant admitted it had the financial means to pay the rent but elected not to do so.  This was a relevant consideration for the Court of Appeal when it reviewed other (out of state) cases on the subject which held certain tenants were excused from paying rent due to COVID and force majeure considerations.  In those cases, the tenants could not pay rent due to COVID because they did not have the financial ability to do so.  Here, Tenant was a company with multiple operations and admitted it could have paid the rental amounts due, but obviously had dramatically less income due to the restrictions.

The West Pueblo case highlights that although a party’s performance may be delayed if they are unable to act due to the force majeure event, it does not necessarily excuse them from performing said action if it was just more expensive or much harder to do so.  It must be impossible or egregiously expensive to comply in order to warrant excusing a contractual obligation.  Even COVID restrictions, which decimated restaurants’ ability to make money, do not necessarily insulate such tenants from their obligations under their leases.  This is especially true if the tenant objectively has the means to make the rental payment otherwise.

 

Authored by Reuben, Junius & Rose, LLP Attorney Lindsay Petrone.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

CEQA Litigation Win

| Sabrina Eshaghi
EIR

RJR Attorneys Successfully Defend 180-Unit Housing Development

Earlier this month, the First District Court of Appeals handed down a win for our client in a CEQA lawsuit challenging the approval of a 180-unit residential project in Petaluma (Project). (Save North Petaluma River and Wetlands v. City of Petaluma (Nov. 14, 2022, A163192) [nonpub. opn.].) Matthew Visick and Sabrina Eshaghi of our office represented the developer during entitlements and litigation.

The Court confirmed:

  • The “baseline” conditions against which biological impacts are measured can be drawn from site visits, studies, and habitat evaluations that were undertaken both before and after the Notice of Preparation (NOP) for the Environmental Impact Report (EIR) is issued; and
  • The EIR need not contain a standalone analysis of evacuation impacts, despite expert testimony to the contrary, where substantial evidence indicates large-scale evacuations would not be necessary.

The Project went through an extensive environmental review process that resulted in the release of a Draft EIR in 2018. The City allowed for an extended public comment period on the Draft EIR and held two hearings to solicit additional comments before preparing the Final EIR. As intended under CEQA, the developer adjusted the project multiple times to respond to comments received during the hearings on the Draft and Final EIR. Despite the developer’s efforts to respond to community input, opponents of the Project submitted a letter from an attorney to the City on the day the City Council approved the Project asserting a broad range of alleged errors in the Project’s CEQA review. Soon after the City Council approved the Project, the opponents filed a lawsuit seeking to invalidate the approval.

At the Trial Court, in addition to challenging the adequacy of the EIR’s biological resources and emergency evacuation analysis, the opponents claimed the developer had deprived the public of its right to meaningfully participate in the CEQA process by making changes to the Project in response to public and City input after publication of the Final EIR, failed to analyze the impact of formaldehyde off gassing from composite building products, and failed to adequately analyze potential impacts related to flooding from the adjacent Petaluma River. The Trial Court rejected the opponents’ wide-ranging claims and upheld the EIR’s certification. The opponents promptly appealed.

The Court of Appeal affirmed the Trial Court’s decision as to the two issues raised on appeal: the “baseline” for measuring biological resources impacts and the adequacy of the Project’s emergency evacuation analysis.

First, the Court agreed that information and analysis conducted both before and after the NOP is issued can be the basis for establishing the “baseline” against which Project impacts are measured. The state CEQA Guidelines generally require existing baseline conditions to be based on the environmental conditions at the time the NOP issues. Here, the NOP was published in 2007, but a special status species report for the EIR’s biological resources analysis was drafted in 2004. The EIR indicated its analysis included updated database reviews and information gathered from site visits in the years following the NOP. The Court confirmed that the use of materials from before and after the NOP issued did not require additional justification because there was no indication that the conditions had changed. Instead, the Court determined that the “inclusion of the post-2007 information indicates that the EIR was prepared with an eye toward ‘completeness’ and ‘a good faith effort at full disclosure.’” The Court also rejected the opponents’ argument that the EIR must provide additional documentation from the biologist’s studies and site visits to allow the opponents to evaluate whether they support the analysis in the EIR, confirming that factual information in the EIR itself may constitute substantial evidence. The Court also noted that the opponents could have obtained this information if they had raised their comments during the public comment period rather than on the day the Project was approved.

Second, the Court agreed that where the City has substantial evidence that large scale evaluations will not be necessary, the EIR need not include a stand alone analysis of evacuation impacts. While the EIR did include an analysis of the Project’s impact on adopted emergency response and evacuation plans, the opponents argued that the EIR also needed to evaluate egress and evacuation safety due to neighborhood concerns regarding flooding and grass fires as well as a letter from a “national evacuation expert” opining on allegedly dangerous public safety impacts in the event of an evacuation. The Court reaffirmed that CEQA does not allow courts to reweigh conflicting evidence when reviewing an EIR and that case law allowed the City to rely on the expertise of its staff to determine that the Project will not have a significant impact. Here, City staff prepared a memo reiterating that the Project is outside the 100-year floodplain and is not within the high fire severity zone, and the Assistant Fire Chief confirmed the Fire Department did not have significant flood or fire access/egress concerns. Given the analysis in the EIR and the corroborating statements from City staff, the Court concluded that the opponents failed to prove any inadequacy of the public safety analysis in the EIR.

This opinion affirms the deferential review that the Courts will give to an EIR. So long as the EIR reasonably sets forth enough information to allow informed public participation and allows the City to make a reasoned decision whether to approve a project, the Courts will not second guess the City’s decision to approve a project.

 

Authored by Reuben, Junius & Rose, LLP Attorney Sabrina Eshaghi.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Density Bonus Law & CEQA Tiering Upheld

| Mark Loper
DBL

This winter, two California Courts of Appeal issued decisions that reaffirm some of the positive aspects of state laws related to housing production, from both a CEQA perspective and via the State Density Bonus Law (“DBL”). In the first case, out of East Bay city Newark, the First District Court of Appeal upheld a tiered CEQA review for a 469-lot subdivision based on a program-level EIR prepared for a Specific Plan. About a week later, the Fourth Appellate District upheld San Diego’s approval of a 20-story residential tower, relying heavily on the protections afforded to mixed-income residential projects under the DBL. We discuss each below.

In Newark, the City approved a specific plan in 2010 for up to 1,260 units, as well as a golf course and related facilities, relying on an EIR. The EIR specifically noted that Newark would proceed under CEQA Guidelines Section 15168 for specific development proposals and “tier” off of the EIR to the extent applicable. In 2019, the applicants submitted a subdivision map proposing 469 residential lots, but no golf course. Other changes from the development analyzed in the EIR included filling and elevating only certain areas on the site (the project site is located next to the San Francisco Bay) and locating the filled and elevated areas directly next to wetlands, with riprap along the western banks. The City prepared an exemption checklist comparing the EIR to the subdivision’s impacts and conducted background technical studies, including an updated sea level rise analysis. The checklist found that the subdivision would be consistent with the specific plan, and that there were no changed circumstances or new information that might trigger the need for more CEQA review than what was done for the EIR. It was a classic example of CEQA “tiering.”

The Court of Appeal upheld the City’s use of the checklist. First, it rejected an argument that the project changes made tiering inappropriate. The Court helpfully pointed out that changes in and of themselves do not eliminate the ability to tier off an EIR; instead, the environmental consequences resulting from those changes must be new, greater, or substantially different than what was analyzed in the EIR. Here, they were not. The Court also rejected the appellant’s claim that the amount and rate of sea level rise was different enough to require a new EIR, finding that the EIR’s unambiguous finding of a significant impact due to sea level rise was adequate, as was some language in the EIR noting that the rate of sea level rise was uncertain and might be accelerating.

Finally, the Court determined that adaptive management plans for sea level rise do not improperly defer consideration of mitigation measures. Taking a refreshingly common-sense approach to climate change and CEQA, the Court would not fault Newark for acknowledging in the EIR that adaptive management would be required. “The City’s potential responses to environmental conditions between 50 and 80 years from now cannot be considered part of the project,” it concluded. “Because the City currently can only dimly guess what measures will be needed to respond to conditions several generations from now, the City was not required to analyze the impacts of the adaptive pathways” as part of the project.

The Court of Appeal’s opinion in San Diego generated more buzz, particularly among the pro-housing groups that have done yeoman’s work in recent years to strengthen California’s housing protections. The case was originally not certified for publication, in part because San Diego’s City Attorney was reluctant to have a published case that so clearly spelled out the limits of the City’s discretion to deny or downsize density bonus projects. Nevertheless, after receiving petitions to publish it, the Court did. It is helpful in several ways, reaffirming the City’s evidentiary burden to deny waivers or concessions; harmonizing General Plan consistency findings with the DBL; and applying the conclusion the First District Court of Appeal reached in Wollmer v. City of Berkeley that a density bonus project can be approved with residential amenities such as a courtyard.

The Project—a 20-story, 204-unit mixed use tower at 6th Avenue and Olive Street across from Balboa Park—faced pushback from neighbors, at least some of whom the Court implied would lose their view of the park. Somewhat surprisingly, instead of arguing that the project would have an unmitigable health and safety impact on the adjacent park, the neighbors argued administratively, at the trial court, and at the Court of Appeal that the project should be denied because it did not comply with several General Plan and Community Plan guidelines that call for contextual development and massing moderation of tall towers. They also argued that the City should not approve waivers that contradicted the guidelines, and that the City should have approved a shorter and squatter development that had the same number of units but a smaller courtyard.

The Court began its analysis by noting that the neighbors had “sidestepped” the implications of the DBL, not discussing it at all in its opening brief and then dismissively claiming the DBL is not a “free pass.” The Court identified the narrow grounds by which a City can shrink or deny a DBL project and pointed out that the neighbors simply failed to make any arguments about that point.

It then went on to explain that the developer specifically requested concessions under the DBL that were germane to each of the General Plan and Community Plan guidelines the neighbors claimed the project did not comply with. The City Council expressly made a finding that there was no evidence to support the denial of the requested incentive, which the Court found to be determinative—acknowledging that the burden on this issue has now shifted to cities if they attempt to deny a project, not the developer proposing an incentive. It also concluded that the project’s waivers were correctly layered on top of the project with requested concessions, meaning a project qualifies for waivers based on its form with both the density bonus and the concessions.

The Court finally rejected the neighbors’ claim that the project’s design was not dictated by the density bonus and concessions, but by a large courtyard. It pointed out that this precise argument was raised and rejected in the Wollmer v. City of Berkeley case from 2011, one of the first cases analyzing the modern DBL. The San Diego City Council could not demand the developer remove the courtyard or redesign its building to satisfy the neighbors’ subjective concerns. The Court stated: “a city cannot apply a development standard that would physically preclude construction of the project as designed, even if the building includes ‘amenities’ beyond the bare minimum of building components.” It remains to be seen what qualifies as an “amenity” that can be baked into a project other than a courtyard, as both Wollmer and the San Diego case related to open space and courtyard amenities. And the evidentiary burden and procedural posture here were also the same as Wollmer: a city defending a project approval with amenities instead of making a project shorter or smaller by eliminating them. This issue may be ripe for further litigation.

The Newark case—Citizens Committee to Complete the Refuge v. City of Newark et al. (2022) ___ Cal.App. ___ (A162045, Alameda County Superior Court No. RG19046938)—and the San Diego case—Bankers Hill 150 et al v. City of San Diego et al (2022) ___ Cal.App. ___ (D077963, Super. Ct. No. 37-2019- 00020725-CU-WM-CTL)—are reminders that well-crafted CEQA documents, entitlement applications, and approval motions can help ensure new state laws meant to protect and streamline housing projects are accurately applied to a project.

 

Authored by Reuben, Junius & Rose, LLP Attorney Mark Loper.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Appellate Court Clarifies Permit Streamlining Act’s Noticing Requirements

| Mark Loper
PSA's

On the heels of the Berkeley Shellmound SB 35 decision in favor of streamlined housing, another recent Court of Appeal decision rejected a public agency’s attempts to delay a housing project under the Permit Streamlining Act (“PSA”), and clarified that a jurisdiction with permitting authority must take action within the PSA’s time limits even if the project’s public hearing notice did not specifically discuss the PSA’s “deemed approved” provision.

Overturning a 2006 decision about the level of detail necessary to trigger the PSA’s “deemed approved” requirement when a City fails to render a decision on a project within a specified time period, the Court of Appeal in late June determined that a public agency’s hearing notice did not need to specifically include a reference to the deemed approved outcome (Linovitz Capo Shores LLC et al v. California Coastal Commission, No. G058331 (Cal. Ct. App. June 25, 2021)). Instead, the Court found that the California Coastal Commission (“Coastal Commission”) failed to properly make a decision on the merits of a mobilehome housing project within the PSA’s time limits, and under the PSA the project was approved. While the fact pattern for the case is somewhat unique, it provides a lesson for local and state permitting agencies, and project sponsors dealing with jurisdictions hostile to new housing.

Owners of beachfront mobilehomes in San Clemente, Orange County, filed permits with the Coastal Commission and other permitting agencies to renovate their mobilehome park. After several years, the Coastal Commission issued individual public hearing notices for each application. The notice included a project description, the date, time, and location of the hearing, hearing procedures, and ways the public could participate. Notably, the hearing notice did not specify the deadline for the Coastal Commission to render a decision on the permits under the PSA. However, the staff report provided in bold lettering that the Coastal Commission was required to make a decision at the hearing in order to comply with the PSA, and the Commission’s legal counsel discussed the “deemed approved” deadline at the hearing itself.

At the project hearing, the sponsors agreed in principle to withdraw and re-file their applications with an amended scope, but asked the Coastal Commission to waive resubmittal fees and a resubmittal waiting period. The Commission waived the waiting period, but not the resubmittal fees, and the meeting recessed without any further comment from the project sponsors. The Commission did not take any formal action on the pending applications. The sponsors then sued the Commission, claiming in part that the projects had been deemed approved under the PSA.

Unsurprisingly, the Coastal Commission claimed that the projects were not approved for several reasons. Relevant to the PSA, according to the Commission, the requisite public notice under the PSA was never given. It claimed the hearing notice needed to include a statement that the projects would be “deemed approved” if the Commission did not act within 60 days. The Court of Appeal disagreed, interpreting the PSA to require such a statement only when an applicant itself is providing notice of a hearing under the PSA. When the permitting agency provides notice, the PSA’s time limitations can apply even if the notice does not discuss the PSA.

The Court of Appeal’s decision overturns a 2006 decision reaching the opposite conclusion. The Court did not promulgate a list of information that must be included in a public notice to trigger the PSA’s deemed approved deadlines, instead reaching a narrower conclusion that the notice provided in this case—as discussed above—complied with statutory law and constitutional due process principles.

Interestingly, the Court noted that even though the Coastal Commission did not have a legal obligation to notify the public of the upcoming PSA deadline, it did just that, both through the project’s staff report and its legal counsel’s advice to the Commission that the PSA deadline was approaching. The Court also went out of its way to note near-unanimous public support for the project, which arguably made its decision easier. Implied in the Court’s opinion is that the Commission made a simple mistake of parliamentary procedure by not taking an official action on the pending applications in front of it.

The Court did not opine on whether the Commission could legally keep the hearing open and continue it to a future date past the PSA deadline date, or adopt a motion of intent to disapprove and continue it. Both are common actions taken by permitting authorities that pro-housing activists have long claimed circumvent the intent of the PSA and cause delay to housing projects.

Increasingly, California courts are being asked to enforce the pro-housing laws passed in Sacramento in recent years, such as SB 330, the PSA, and SB 35. For example, two trial courts recently rejected anti-housing voter initiatives on the grounds they violated SB 330, either one of which could be appealed and become binding case law. We will continue to keep you up to date on major housing-related legal developments.

 

Authored by Reuben, Junius & Rose, LLP Attorney Mark Loper.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

No Parking? No Problem. Property Owner Not Liable for Failure to Provide On-Site Parking

| Lindsay Petrone
on-site

A case recently discussed a property owner’s duty to a third party visitor, more specifically a possible duty to a third party who incurs an off-property injury due to an alleged deficiency at the owner’s property itself.  In Issakhani v. Shadow Glen Homeowners Association, Inc. (“HOA”), the plaintiff tried to park at the property (owned by the HOA) but there was no more guest parking available (and likely too few guest parking spaces to begin with at the property), so she parked across the busy street at an off-site location.  63 Cal.App.5th 917 (2021).  Plaintiff jaywalked to cross the street to get to the property and was hit by a car and suffered severe injuries.  The Court of Appeal ultimately held that the property owner did not have a duty of care to protect the plaintiff from an accident that occurred as she travelled to the premises.

The Court analyzed the standards for negligence and duty of care.  Claims for negligence or premises liability for injury at a property rely on the same analysis – was there a duty of care?  Was there a breach of that duty?  If yes to the first two, was such breach the cause of the person’s injuries?  The Court referenced the common law that a property owner does have a duty to maintain the land in its possession and control in a reasonably safe condition as to avoid exposing others to an unreasonable risk of injury.  The Court elaborated that such duty of care can extend to a responsibility to avoid exposing persons to risks of injury that occurs off-site if the landowner’s property is maintained in such a manner as to expose persons to an unreasonable risk of injury off-site.

Here, the Court did state that a landowner has a duty of care not to maintain conditions on its property that exacerbated the dangers of invitees entering or exiting the property.  However, they rejected the theory that the absence of adequate on-site parking, by itself, amounted to a condition on the property that exacerbates the off-site danger to invitees and gives rise to an actionable duty.  They found that although there was a foreseeability of harm to the plaintiff with reasonable degree of certainty due to lack of sufficient parking and possible injury when coming to the property, there was not a closeness of connection between the defendant’s conduct and the injury suffered.  More specifically, they found that the plaintiff’s actions – selecting an off-site parking location on the far side of a busy street and then jaywalking – was more a product of plaintiff’s decisions rather than simply a lack of on-site parking at the HOA’s property.

In addition to the analysis of common law elements, the Court also relied on a prior case which directly held that a landowner does not have a duty to provide invitees with on-site parking in order to protect from the dangers of crossing nearby streets to get to the property.  Finally, they found that public policy guarded against finding for the plaintiff as a property owner is sometimes limited by a finite amount of parking and cannot necessarily always provide enough on-site parking for guests and invitees.

Issakhani reminds us that a landowner should be cognizant of possible unsafe conditions at their property which could expose them to liability.  The Court will analyze whether there was a duty and foreseeability of harm to the third party based on the maintenance of one’s own property and a close connection between the risk and injury suffered.  This could also include liability for injuries off the property if directly caused by an unreasonable risk at one’s own property.  However, this case highlights that one cannot cover each and every contingency and someone’s choice to make a riskier decision (here jaywalking across a busy street) will likely not be held against the property owner.

 

Authored by Reuben, Junius & Rose, LLP Attorney Lindsay Petrone.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

Proposition C Upheld by Court of Appeal

| Kaitlin Sheber
Proposition C

California’s First District Court of Appeal (“Court of Appeal”) has rejected arguments from business and tax groups challenging the validity of San Francisco’s Proposition C, the Early Care and Education initiative.  The Court of Appeal held that citizen initiatives to enact a special tax only require a simple majority vote to pass, even if an elected official is involved in the citizen initiative process. This decision could be a game-changer in how tax measures are processed in the future, causing legislators to convert proposed tax measures into citizen-initiated measures, i.e. allowing politicians in California to use the citizen initiative’s simple majority vote requirement to avoid the more strenuous two-thirds supermajority vote local governments must obtain to increase taxes. San Francisco City Attorney Dennis Herrera described the ruling as “a victory for voters and a victory for democracy.”

Background

Proposition C, a citizen initiative, was approved by City of San Francisco voters on the June 5, 2018 ballot. This commercial rent tax was expected to raise up to $145 million annually for childcare and early education services by taxing business revenues from commercial space rentals by 3.5% and warehouse space rentals by 1% where receipts are over $1 million. Norman Yee, at the time a member of the City’s Board of Supervisors, was the driving force behind citizen initiative Proposition C. He completed the key steps required to put a citizen initiative on the ballot— he both turned in the signed initiative petition pages and signed the ballot arguments in support of Proposition C.

In San Francisco, there are two different ways special taxes are imposed: (1) local governments may present a special tax to the voters, but voters must approve the special tax by a super majority two-thirds vote, or (2) local citizen initiatives may present special taxes to the voters after receiving a threshold number of signatures. Citizen initiatives only require a simple majority vote to pass.

After Proposition C was approved by a 51% majority of voters, the Howard Jarvis Taxpayers Association quickly joined forces with other business-related groups (“Plaintiffs”) to challenge the initiative, arguing the measure needed a two-thirds supermajority vote to pass because an elected district supervisor put forward the measure. Though the City has collected tax funds from businesses since the passage of the proposition, the money was not spent during the legal challenge. A San Francisco Superior Court judge rejected Plaintiffs’ arguments in July 2019. The decision was affirmed by the Court of Appeal on January 27, 2021. Now, Plaintiffs are planning to appeal the most recent decision to the California Supreme Court as the Court has not previously ruled on this issue.

Legal Reasoning

The Court of Appeal adopted the reasoning of a recent case in another division of the same court, City and County of San Francisco v. All Persons Interested in the Matter of Proposition C (2020) 51 Cal.App.5th 701 (“All Persons”), to reject Plaintiffs’ appeal arguments. First, All Persons noted the initiative power is “one of the most precious rights” of the democratic process, so courts must both guard and liberally construe the exercise of the power. Accordingly, the court held Proposition 13 only requires governmental entities to gain two-thirds supermajority voter approval before imposing a special tax. Next, the court held Proposition 218, which requires a two-thirds supermajority when local government imposes a special tax, did not apply because the electorate is not “local government.” Finally, the court held that the City Charter did not require a two-thirds supermajority to pass a special tax because the Charter only creates substantive limits on the initiative power, not procedural limitations.

Plaintiffs argued their action challenging Proposition C was distinguishable from All Persons because Norman Yee was an elected official serving on the Board of Supervisors. The court rejected this argument, holding that Propositions 13 and 218 did not require a two-thirds vote to pass special taxes where an elected official was involved in the citizen initiative process. Plaintiffs will appeal to the California Supreme Court, noting this decision allows politicians in California to circumvent the two-thirds voter approval requirement for special taxes by turning special tax proposals into citizen initiative petitions.

 

Authored by Reuben, Junius & Rose, LLP Attorney Kaitlin Sheber.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.