HERO v. City of Los Angeles (2019): Relevant Baseline for CEQA Analysis Properly Evaluated a Property Already Withdrawn under the Ellis Act and Therefore Properly Excluded Evidence of Impact on Housing and Population

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The City was not required to prepare an EIR to address the Project’s alleged impact on the loss of rent-stabilized housing units or the displacement of tenants because the property previously had been withdrawn from the rental market pursuant to the Ellis Act; under CEQA the assessment of impacts of a proposed project ordinarily is based on conditions as they exist at the time the environmental analysis is commenced.

Hollywoodians Encouraging Rental Opportunities v. City of Los Angeles affirmed a trial court’s determination that an EIR was not required under CEQA to evaluate impacts of tenant displacement for a property withdrawn from the rental market under the Ellis Act.

When a developer sought to convert an 18 unit apartment building into a 24 guestroom boutique hotel, a neighborhood association (Hollywoodians Encouraging Rental Opportunities (“HERO”)) appealed approval of the permit. The City Council denied the appeal, so the association petitioned the superior court for writ of mandate to reverse the City Council’s decision.

The California Environmental Quality Act (CEQA) requires that public agencies prepare an environmental impact report (EIR) for any “project” that may have a “significant effect” on the environment, to ensure that the long-term protection of the environment will be the guiding criterion in public decisions.

Not every project requires an EIR, and so an agency will generally conduct an initial study to determine whether there is substantial evidence that the project will have a significant effect on the environment. If it does, the agency must prepare an EIR (and if it doesn’t, the agency can issue a “negative declaration” stating so). However, the agency may also provide a mitigated negative declaration (MND) if revisions to the plans prior to releasing the initial study and MND to the public would resolve the issue and there would no longer be substantial evidence that the revised version of the project would have a significant impact on the environment.

Prior to applying for permits for the hotel, the owner contemplated building a condominium project, and received a 2009 MND that the project would not have significant impacts. In 2013, it invoked the Ellis Act to withdraw the property from the residential rental market, and the units were vacated that year. However, by 2014, the developer backed out over financing issues. The following year, the owner submitted plans for the hotel project. The city prepared an initial study that concluded the project would cause no significant impacts on the environment with respect to population and housing – converting the building to a hotel would not displace housing units or residents because the apartment units had been withdrawn from the rental market and the building was vacant. The city adopted an MND as a condition of approval.

At the trial court, HERO argued that the city should have prepared an EIR (and that the initial study and MND were inadequate anyway). “The gravamen of the action was that the City was required to prepare an EIR to analyze the direct, indirect, and cumulative impact of this Project and similar projects on the supply of rent-stabilized housing and the dislocation of tenants from such housing.”

However, the trial court ruled that a proposed project’s impacts are to be measured against a “baseline” of conditions at the site as the exist as of the time of the environmental analysis and that the appropriate time to measure the effects on population and housing was 2015 – the time of the application to convert to a hotel. To the extent the petitioners argued for review of the effects on displacement of tenants or loss of rent-controlled housing, they were using the wrong baseline.

The Court of Appeal agreed. It also rejected HERO’s circular argument that, had the city denied the application, the owner might have attempted to reverse the effects of the Ellis Act (and therefore resume residential rental use) and that it was an “unproven hypothetical” that the owner would not do this. The Court found that it was actually HERO who relied on an unproven hypothetical in assuming the owner would return to the rental market, and the argument was purely speculative.