Déjà Vu All Over Again: Ninth Circuit Rejects Yet Another Challenge To Rent Control, Including 'Private Takings' Argument

In MHC Limited Financing v. City of San Rafael, the Court of Appeals for the 9th Circuit considered, among other things, whether the City of San Rafael's mobilehome rent control ordinance (the "Ordinance") constituted either a regulatory taking under Penn Central Transportation Co. v. New York City or an impermissible "private" taking in violation of the Fifth Amendment, which prohibits the taking of private property for public use without just compensation. With respect to Penn Central, the court held that economic impact, investment-backed expectations, and the character of the Ordinance all led to the conclusion that the Ordinance did not constitute a taking. The court also rejected plaintiff's "private taking" theory, novel in this context, in which MHC argued that the Ordinance did not qualify as a "public" use and therefore the taking was prohibited, regardless of compensation.

MHC had purchased a mobilehome park (the "Property") while the Ordinance was in effect. The Ordinance restricted a property owners' ability to increase rents but allowed an increase to market rate rents for new tenants after a vacancy. While MHC owned the Property, the City amended the Ordinance. The amendment further restricted the ability to charge higher rents by implementing "vacancy control," which gave any new resident the right to rent a mobilehome pad at the same rate as the previous tenant. MHC argued that the amendment constituted both a Penn Central taking and an impermissible "private taking."

In reaching its conclusion, the court analyzed the Penn Central factors: economic impact, investment-backed expectations and character of the Ordinance. With regard to economic impact, the court noted that the district court did not use the correct analysis. The district court had compared the value of the Property without the Ordinance versus the value of the Property with the Ordinance in place. As the Ordinance was in place at the time of acquisition, the court noted that the correct analysis should have been the value of the Property with the Ordinance in place versus the value of the Property after amendment of the Ordinance. Further, relying on Concrete Pipe & Prods. of Cal., Inc. v. Constr. Laborers Pension Trust for S. Cal., 508 U.S. 602, 645 (1993) the court also pointed out that even if the district court's financial analysis had been appropriate, diminution in value of property less than 100%, the categorical taking established by the Supreme Court...