06/14/2023
Appellate Court Finds No Vested Right in Renewal of Term-Limited Short-Term Rental Licenses
Some California cities have enacted ordinances to regulate the proliferation of short-term rentals. These ordinances often limit the number of homes that can be offered as short-term rentals by requiring licenses subject to random nonrenewal. The recent case of Hobbs v. City of Pacific Grove (2022) 85 Cal.App.5th 311, involved a challenge to such an ordinance.
The City of Pacific Grove’s ordinance allowed short-term rentals subject to licensing, taxes, and other regulations. Owners could apply for one-year licenses subject to earlier revocation for good cause. The City capped the number of short-term rental licenses at 250 and established a density cap of 15 percent per block. After the City later discovered that it had issued rental licenses exceeding these caps, it selected licenses to “sunset” after a grace period after their current term expired. It adopted a random lottery to fairly and equitably reduce the number of licenses without favoritism. The City’s voters approved a ballot measure that prohibited and phased out all existing short-term rentals in residential districts, except for those located in the City’s “Coastal Zone.”
The owners of two homes sued the City, alleging it unconstitutionally deprived them of “their right to allow guests to stay in their home.” They alleged the ordinance violated the right to due process by (1) arbitrarily limiting how many homes could be offered as short-term rentals, (2) subjecting them to random selection for license nonrenewal, and (3) prohibiting short-term rentals outside the Coastal Zone. The trial court disagreed, and the owners appealed.
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