Court of Appeal Rules Santa Barbara Could Not Ban Coastal Rentals on Its Own

On 4 May 2021, the California Court of Appeal ruled that the City of Santa Barbara could not shut down short-term vacation rentals along its coast without the approval of the California Coastal Commission. The opinion, in Kracke v. City of Santa Barbara, upheld a trial court order that stopped the city from enforcing its 2015 crackdown in the coastal zone unless it obtained a coastal development permit, an amendment to its coastal program approved by the Commission, or a waiver.

Santa Barbara had 114 registered vacation rentals in its coastal zone by 2015 and 6 by August 2018. The court certified the opinion for publication. On 26 May 2021 the city announced an interim enforcement policy for the coast and said its City Council had announced, on 25 May, a decision to seek review by the California Supreme Court or, in the alternative, depublication of the case.

What the city did in 2015

Before 2015, the opinion said, Santa Barbara treated short-term vacation rentals on its coast as permissible residential uses. A homeowner had to register the rental, obtain a business license and pay the 12 percent daily transient occupancy tax. The opinion put the number of registered rentals paying daily occupancy taxes at 52 as of 2010 and 349 by 2015, of which 114 were in the coastal zone. In that fiscal year the city collected $1.2 million in occupancy taxes from them.

In June 2015, the opinion said, the city began regulating the rentals as hotels under its municipal code, which effectively banned them in the coastal zone. After a hearing, the City Council had unanimously directed staff to enforce zoning rules proactively. The city had found, in the court's summary, that the spread of the rentals was driving up housing costs, reducing the housing stock and changing the character of residential zones.

The city did not seek a coastal development permit, or an amendment to its certified Local Coastal Program, before it acted. The court noted that the record showed the city submitted an amendment to that program in 2018, which was pending before the Commission. The city maintained in court that the rentals were not legally permitted under the program or its municipal code.

How the case reached the appeal court

Theodore P. Kracke, whose company managed short-term vacation rentals, filed suit on 30 November 2016. Six days later, the opinion recorded, the Coastal Commission's chair sent a guidance letter to local governments, Santa Barbara among them. It said vacation rental regulation in the coastal zone had to take place within a local coastal program or under a coastal development permit, and that the Commission did not believe outright bans made through other local processes were legally enforceable there.

After a trial, the Ventura County Superior Court granted Kracke's petition. Its writ required the city to allow vacation rentals in the coastal zone on the same basis as before 23 June 2015 until it obtained a coastal development permit or otherwise complied with the Coastal Act. The Santa Barbara Independent reported that the City Council voted to appeal, on the argument that enforcing its own rules did not require a permit from the Coastal Commission. The Commission filed a friend-of-the-court brief supporting Kracke. The League of California Cities filed one supporting the city.

What the court held

Justice Steven Perren wrote the 11-page opinion for Division Six of the Second Appellate District, and Justices Kenneth Yegan and Martin Tangeman concurred. The question was whether the city's change of enforcement policy was a development under the Coastal Act, which required a coastal development permit for any development that changed the intensity of use of, or access to, land or water in a coastal zone.

The court said it was. It relied on its own 2018 decision in Greenfield v. Mandalay Shores Community Association, in which it had held that a homeowners' association's ban on short-term rentals in the Oxnard Shores beach community was such a change. The same was true in Santa Barbara, the court wrote, although a city and not a private entity had imposed the ban.

The city argued that because its coastal program did not expressly include vacation rentals, it could regulate them without regard to the Coastal Act. The court called that contention incorrect. It had noted that the program was certified in 1981, when such rentals were virtually nonexistent. It also pointed to the city's own conduct: “The City cannot act unilaterally, particularly when it not only allowed the operation of STVRs for years but also benefitted from the payment of transient occupancy taxes.”

The ruling had limits. The court did not say whether coastal rentals should be banned or regulated. That, it wrote, was a matter for the city and the Commission to decide. The judgment was affirmed, and Kracke was awarded his costs on appeal.

Courthouse News Service called the decision the first of its kind in California and wrote that the state's judges had often upheld local governments' rental rules and bans.

How the city answered

The city's response came in an announcement dated 26 May 2021, printed by the Santa Barbara Independent. It said the council had announced on 25 May its decision to seek Supreme Court review or depublication, and it did not say that a petition had been filed.

The same announcement set out an interim enforcement policy for the coastal zone. The city stated its position plainly: “Coastal zone and inland short-term vacation rentals (STVRs) are illegal in lower density Santa Barbara residential zoning districts, and remain so after the Kracke case.”

What changed was enforcement on the coast. The city said action there would be limited to cases where it received complaints about tenant behavior or other nuisance-like conditions. It would not start vacation rental enforcement on its own initiative in the coastal zone, except over business licensing and transient occupancy tax collections. It also said it would act on any property-related health and safety violation in the coastal zone, vacation rental or not. The council also directed staff to put options for regulating coastal rentals on the agenda of a future meeting, with no date set.

CalCoastNews, in a report published on 5 May, quoted Kracke: “The city fought us every step of the way. Now is their prime opportunity to draft fair regulation of STVRs rather than continue to waste taxpayer money and seek review by the California Supreme Court.” His attorney, as quoted by KEYT News Channel 3-12, said certification for publication meant the opinion had binding legal authority in California and could be cited by other lawyers.

What it meant for hosts

For an operator in Santa Barbara's coastal zone, the city's interim policy brought a narrow reprieve and a deadline. The city would act on complaints and on health and safety violations, and it would enforce business licensing and the transient occupancy tax, which the opinion put at 12 percent. Operators in the coastal zone without business licenses were told to contact the city's Finance Department by 30 June 2021 to arrange licensing and tax payments.

For a host inland, the ruling changed nothing. It concerned the coastal zone, and the city said vacation rentals remained illegal in its lower density residential zoning districts.

The court had left the choice between a ban and regulation to the city and the Coastal Commission. The city had said it would ask the California Supreme Court to review the ruling or depublish the case, and its staff had been told to bring regulatory options to a future council meeting.

For hosts elsewhere on the California coast, the opinion was a published holding on coastal rental bans. Whether it would stay published was the question the city had just raised.

Sources

1. California Court of Appeal, Second Appellate District, Division Six, Kracke v. City of Santa Barbara, 2d Civ. No. B300528 (opinion filed 5/4/21, certified for publication) (4 May 2021).
2. Courthouse News Service, California Appeals Court Rules Santa Barbara Can't Enforce Vacation Rental Ban (4 May 2021).
3. KEYT News Channel 3-12, Court decision ends ban on short-term vacation rentals in coastal zones (4 May 2021).
4. Santa Barbara Independent, Santa Barbara Must Allow More Vacation Rentals (5 May 2021).
5. CalCoastNews, Santa Barbara’s vacation rental ban deemed illegal (5 May 2021).
6. City of Santa Barbara (announcement printed by the Santa Barbara Independent), City of Santa Barbara Announces Interim Coastal Zone Short Term Vacation Rental Enforcement Policy In Response to Court of Appeal Ruling in ‘Kracke v. City of Santa Barbara’ (26 May 2021).