By Boyd Hill

California’s Second District Court of Appeal in Kracke v. City of Santa Barbara affirmed the injunction against enforcement of a City of Santa Barbara (City) regulation that effectively banned short term vacation rentals (STVRs) in the coastal zone because the City failed to obtain a required Coastal Development Permit (CDP) prior to enforcing the regulation. [Kracke v. City of Santa Barbara, ___Cal.App.5th___, Case No. B300528 (2nd Dist. 2021).]

Factual and Procedural Background

The City’s Local Coastal Program (LCP) under the Coastal Act was certified in 1981 when STVRs were virtually nonexistent. The City maintained that STVRs were not legally permitted under either the LCP or its municipal code even though it allowed them to operate until 2015. The City only required the homeowner to register the STVR, to obtain a business license and to pay the 12 percent daily transient occupancy tax.

By 2015, there were 349 STVRs, including 114 STVRs in the coastal zone. In that fiscal year alone, the City collected $1.2 million in STVR occupancy taxes.

In June 2015, City staff issued a Council Agenda Report advising that:

. . .[a]ll vacation rentals or home shares that are not zoned and permitted as hotels, motels, or bed and breakfasts are in violation of the Municipal Code.

The City found that the proliferation of STVRs was driving up housing costs, reducing housing stock and changing the character of residential zones.

Following a hearing, the city council unanimously directed its staff to proactively enforce the City’s zoning regulations, “which prohibits hotel uses in most residential zoning districts.” This action effected an STVR ban in residential areas and strict regulation of STVRs as “hotels” in commercial and R-4 zones.

By August 2018, the 114 coastal STVRs had dwindled to just 6. As one City councilmember observed, “[T]he door is closing on vacation rentals.” Kracke, whose company manages STVRs, filed his petition for writ of mandate challenging the City’s regulation for lack of Coastal Act compliance on November 30, 2016.

Six days later, the Coastal Commission’s Chair, Steve Kinsey, sent a guidance letter to local governments, including the City, outlining “the appropriate regulatory approach to vacation rentals in your coastal zone areas moving forward.” He explained:

[P]lease note that vacation rental regulation in the coastal zone must occur within the context of your local coastal program (LCP) and/or be authorized pursuant to a coastal development permit [CDP]. The regulation of short-term/vacation rentals represents a change in the intensity and use and of access to the shoreline, and thus constitutes development to which the Coastal Act and LCPs must apply. We do not believe that regulation outside of that LCP/CDP context (e.g., outright vacation rental bans through other local processes) is legally enforceable in the coastal zone, and we strongly encourage your community to pursue vacation rental regulation through your LCP.

In January 2017, Jacqueline Phelps, a California Coastal Commission Program Analyst, followed up with the city planner, Renee Brooke. Phelps explained that the Commission:

. . .disagree[s] with the City’s current approach to consider residences used as STVRs as ‘hotel’ uses (pursuant to the City’s interpretation of the definition of ‘hotel’ included in the [Municipal Code] for the purpose of prohibiting or limiting STVRs in residential zones.

She directed Brooke to the 2016 guidance letter and again urged the City:

. . .to process an LCP amendment to establish clear provisions and coastal development permit requirements that will allow for STVRs and regulate them in a manner consistent with the Coastal Act.

The Commission’s Deputy Director, Steve Hudson, sent a similar letter a few months later.

After considering the evidence, the trial court found that the City’s STVR enforcement policy constituted a “development” within the meaning of § 30106 of the Coastal Act. It issued a writ requiring the City to allow STVRs:

. . .in the coastal zone on the same basis as the City had allowed them to operate prior to June 23, 2015, until such time as the City obtains a coastal development permit or otherwise complies with the provisions of the Coastal Act.

The Court of Appeal’s Decision

The Court of Appeal affirmed the trial court determinations based on substantial evidence that the City’s STVR regulation constituted “development” under the Coastal Act required the California Coastal Commission’s approval of a CDP, LCP amendment or amendment waiver before the ban could be imposed.

Coastal Act Policies

The Coastal Act is designed to protect, maintain, and, where feasible, enhance and restore the overall quality of the coastal zone environment and its natural and artificial resources. (Pub. Res. Code, § 30001.5, subd. (a).) It also seeks to maximize public access to and along the coast and maximize public recreational opportunities in the coastal zone consistent with sound resources conservation principles and constitutionally protected rights of private property owners. (Pub. Res. Code, § 30001.5 subd. (c).) The Commission is charged with implementing the Coastal Act’s provisions.

The Coastal Act tasks local coastal governmental entities, such as the City, with developing their own LCPs to enforce the Act’s objectives. The LCP’s content is determined by the entity but must be prepared in full consultation with the Commission. Once completed, the LCP is submitted to the Commission for certification. (Pub. Res. Code, §§ 30512-30513.) Although the Coastal Act does not displace a local government’s ability to regulate land use in the coastal zone, it does preempt conflicting local regulations. (Pub. Res. Code, § 30005, subd. (a).)

CDP Required for Development

The Coastal Act requires that any person who seeks to undertake a ‘development’ in the coastal zone obtain a CDP. (Pub. Res. Code, § 30600, subd. (a).) “Development” is broadly defined to include, among other things, any change in the density or intensity of use of land. California courts have given the term ‘development’ an expansive interpretation consistent with the mandate that the Coastal Act is to be liberally construed to accomplish its purposes and objectives.

A ban on STVRs has already been determined by the Court of Appeal to constitute development under the Coastal Act because it affects density and intensity of use and impacts coastal access. (Greenfield v. Mandalay Shores Community Assn., 21 Cal.App.5th 896, 899-900 (2018).)

The Court of Appeal rejected the City’s contention that because STVRs are not expressly included in the LCP, they are therefore excluded, giving the City the right to regulate them without regard to the Coastal Act. 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. When the City abruptly changed this policy, it necessarily changed the intensity of use of and access to land and water in the coastal zone. (Pub. Res. Code. §§ 30600, subd. (a), 30106.)

Conclusion and Implications

This opinion by the Second District Court of Appeal reaffirms the prior decision in Greenfield that STVRs within the coastal zone are subject to regulation under the Coastal Act and that actions by private communities or local government pertaining to STVRs must be subject to Coastal Commission jurisdiction and in accordance with Coastal Act policies. The court’s opinion is available online at: https://www.courts.ca.gov/opinions/documents/B300528.PDF