HomeMy WebLinkAboutShort-term Rental (STR) Hardship Xtnsns - Ord 1338 and Res 2018-25MEETING DATE:
PREPARED BY:
REQUEST:
Recommendation
ORDINANCE NO. 1338
RESOLUTION NO. 2018-25
STAFF REPORT
CITY OF PALM DESERT
COMMUNITY DEVELOPMENT DEPARTMENT
May 10, 2018
Ryan Stendell, Director of Community Development
Consideration of approval of amendments to the Palm Desert Municipal
Code Chapter 5.10, and adoption of a resolution setting forth a policy
for Short -Term Rental Hardship Extensions.
Waive further reading and:
1. Pass to second reading Ordinance No. 1338 , amending the Palm
Desert Municipal Code (PDMC) Chapter 5.10.070; and adding chapter
5.10.075 related to Short -Term Rental (STR) Hardship Extensions.
2. Adopt Resolution No. 2018- 25 , authorizing a policy for STR Hardship
Extensions.
3. Provide staff direction related to the appropriateness of a Fee Schedule for
submission of a STR Hardship Extension Application.
Strategic Plan Objective
Land Use Housing and Open Space Priority 2:
Rationale: City to maintain and enhance Palm Desert's quality of life as an inclusive
community, which supports and expands a strong economic base.
The City Council's recent action on STRs was a rigorous discussion centered on quality of
life within the various residential zones of Palm Desert. Adoption of the attached ordinance
and resolution will continue to define a fair process of phasing out STRs within the R1/R2
zones by December 31, 2019.
Background Analysis
At its meeting of December 14, 2017, the City Council adopted an ordinance implementing
new policy standards for STR operations. Part of the updated standards included not issuing
any new STR permits in the R1/R2 zones and phasing out all existing permits by December
31, 2019. The ordinance as adopted included language (PDMC 5.10.070 C), which provides
for permit renewals past the 2019 sunset date in individual cases if necessary to avoid
unconstitutional takings. During the public hearing process, the City Attorney indicated that
further revision and definition of this section would be highly likely.
May 10, 2018 — Staff Report
Short -Term Rental Hardship Extensions
Page 2 of 3
The City Attorney and staff have been reviewing this process and are requesting the following
actions be taken to fully implement the STR Hardship Extension process:
Ordinance Revisions:
1. Amend PDMC Section 5.10.070(C) to refer to new section 5.10.075 for
implementation of Hardship Extensions.
2. Add PDMC Section 5.10.075, which provides that Hardship Extensions will be
granted if an owner can demonstrate the need for additional time, past December
31, 2019, to reasonably recover the owner's investment in the STR. The section
further provides that the City Council adopt a policy specifying a process for
granting Hardship Extensions and a resolution setting fees for applications. The
section authorizes the City Manager to grant Hardship Extensions pursuant to the
policy, and provides that the City Manager's decisions are final.
Policy by Resolution:
As proposed, the Hardship Extension Policy creates what staff believes is a fair process
for considering Hardship Extensions. The proposed policy allows for the consideration of
the following items when considering extension applications:
1. An owner's investment in the STR including:
A. Purchase price of the home.
B. Capital improvements to the property.
C. Expenses of the STR operations.
Compared with:
2. Revenues generated by the STR including:
A. All revenue generated by the STR use through December 31, 2019.
B. The current fair market value of the home on that date.
As proposed, if the total investment is more than the total actual and potential revenue,
the owner is accorded a hardship extension calculated to provide additional time to
generate sufficient revenue to offset a reasonable investment.
The policy provides that applications be made to the Department of Community
Development. Applications must include a detailed list of financial information and
documentation regarding the investment and revenues. After an application is deemed
complete, staff will consider the application with the assistance of a local CPA (Osborne
Rincon). The Director of Community Development will make an initial determination,
which may be appealed to the City Manager. As proposed, the City Manager is authorized
May 10, 2018 — Staff Report
Short -Term Rental Hardship Extensions
Page 3 of 3
to accept or modify the recommendation and the City Manager's decision is considered
final. The City Manager may also utilize a contracted hearing officer (Godecke Clark) in
making a determination. Staff would like to begin taking applications starting June 1,
2018. Staff will endeavor to complete full consideration and provide a final answer in four
months, so that STR owners have ample time to make necessary decisions regarding
their properties.
Staff does not anticipate that many owners will qualify for extensions based on steady
increases in property values (up 30% since 2012). Homes that are primarily owner -
occupied, or primarily rented long term will not likely qualify for extensions under the draft
policy.
Fiscal Analysis
Staff recommended an ordinance revision to reference a policy establishing a fee for
submission of a Hardship Extension Application. Staff has not yet determined an
estimated expense per a Hardship Extension; however, an application will incur costs in
the following categories:
1. Staff time.
2. City Attorney time.
3. Professional Services by Osborne Rincon, CPA at $100-320/hr. (in support of
initial determination of the Community Development Department).
4. Professional Services by Godecke Clark, CPA at $75-300/hr. (in support of
appeals to the City Manager).
Staff is seeking policy guidance from the City Council in developing a reasonable fee for
processing Hardship Extensions. STR owners have indicated that if the objective is to
provide a genuine opportunity to apply for a Hardship Extension, the high cost of a fee
would be prohibitive. Should the City Council wish to enact a fee for this process, it could
be structured to recover all or parts of the costs incurred.
LEGAL REVIEW
Approved as to Form
N/A
DEPT. REVIEW
FINANCIAL
REVIEW
CITY
MANAGER
Ryan Stendell net Moore Lauri Aylaian
Robert W. Hargreaves Director of Community Director of Finance City Manager
City Attorney Development
ATTACHMENTS: 1. Draft Ordinance No. 1338
2. Draft Resolution No. 2018-25
3. Correspondence
ORDINANCE NO. 1338
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PALM
DESERT, CALIFORNIA, APPROVING AMENDMENTS TO PALM
DESERT MUNICIPAL CODE CHAPTER 5.10 SHORT-TERM RENTALS IN
REGARDS TO TERMINATION AND AMORTIZATION OF SHORT-TERM
RENTALS WITHIN THE CITY IN R-1 AND R-2 ZONES
WHEREAS, pursuant to the authority granted to the City of Palm Desert ("City") by Article
XI, Section 7 of the California Constitution, the City has the police power to regulate the use of
land and property within the City in a manner designed to promote public convenience and
general prosperity, as well as public health, welfare, and safety; and
WHEREAS, adoption and enforcement of regulations and other land use regulations lies
within the City's police powers; and
WHEREAS, the City Council reviewed the existing ordinance and made amendments
on how the City should regulate short-term rentals in certain zones at the recommendation of
the Planning Commission and an Ad Hoc Short -Term Rental Subcommittee, comprised of
industry representatives, elected officials, community members, and City staff; and
WHEREAS, the Planning Commission of the City of Palm Desert, California, did on the
3rd day of October, 2017, hold a duly noticed public hearing to consider recommendations from
the Ad Hoc Short -Term Rental Committee in regards to enforcement, operational requirements,
communication, and density to the City Council; and
WHEREAS, the City Council of the City of Palm Desert, California, did on the 14th day of
December, 2017, hold a duly noticed public hearing and approved staffs recommendation with
clearly specified modifications, including elimination of certain Short -Term Rentals in R-1 and R-
2 Zones in specified time frames and subject to individual extensions if necessary to avoid
unconstitutional takings; and
WHEREAS, the City Council of the City of Palm Desert, California has determined that
the amendments to Municipal Code Chapters 5.10, are consistent with the General Plan and
applicable state law; and
WHEREAS, at said meeting, upon hearing and considering all testimony and
arguments, if any, of all interested persons desiring to be heard, said City Council did find the
foregoing facts and reasons to exist to approve said ordinance:
NOW, THEREFORE, BE IT ORDAINED by the City Council of the City of Palm Desert,
California as follows:
SECTION 1. Adoption of Recitals. The City Council hereby adopts the foregoing
recitals as its findings in support of the following regulations to add a hardship extension
process and further finds that the following regulations, including the eventual elimination of
certain short-term rentals in R-1 and R-2 zones are beneficial and appropriate to protect the
health, safety and welfare of the residents and businesses of Palm Desert within the City
limits.
ORDINANCE NO. 1338
SECTION 2. Adoption of amendments to Chapter 5.10 "Short -Term Rentals"
Section 5.10.070 is amended and Section 5.10.075 is added as specified in Exhibit "A".
SECTION 3. Severability. If any section, subsection, subdivision, paragraph,
sentence, clause, or phrase in this ordinance or any part thereof is for any reason held to be
unconstitutional or invalid or ineffective by any court of competent jurisdiction, such decision
shall not affect the validity or effectiveness of the remaining portions of this ordinance or any
part thereof. The City Council hereby declares that it would have passed each section,
subsection, subdivision, paragraph, sentence, clause, or phrase thereof irrespective of the
fact that any one (1) or more subsections, subdivisions, paragraphs, sentences, clauses, or
phrases be declared unconstitutional, or invalid, or ineffective.
SECTION 4. California Environmental Quality Act Finding. The City of Palm Desert
(City), in its capacity as the Lead Agency under the California Environmental Quality Act
(CEQA), has determined that the amendments to Chapter 5.10 is exempt from CEQA review
pursuant to Section 15061(b)3 in that the amendments to further regulate the use of short-
term rentals will not have a significant negative impact on the environment.
SECTION 5. Publication. The City Clerk of the City of Palm Desert, California, is hereby
directed to publish this ordinance in The Desert Sun, a newspaper of general circulation,
published and circulated in the City of Palm Desert, California, and shall be in full force and effect
thirty (30) days after its adoption.
PASSED, APPROVED, AND ADOPTED by the City Council of the City of Palm
Desert, California, at its regular meeting held on the 10th day of May. 2018, by the following
vote, to wit:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
RACHELLE D. KLASSEN, CITY CLERK
CITY OF PALM DESERT, CALIFORNIA
SABBY JONATHAN, MAYOR
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ORDINANCE NO. 1338
Exhibit "A"
Section 5.10.070 shall be amended as follows:
"5.10.070 Short -Term Rental Permit — Prohibited in R-1 and R-2 zones.
The City shall prohibit the issuance of new Short -Term Rental Permits within the R-1 and R-
2 zones of the City as described below. These requirements do not apply to Temporary Short -
Term Rental Permits and On -Site Owner Short -Term Rental Permits.
A. A new Short -Term Rental Permit within the R-1 zone will not be issued.
B. A new Short -Term Rental Permit within the R-2 zone will not be issued.
C. Existing Short -Term Rental Permits in R-1 and R-2 zones may be renewed if
otherwise qualified, but all such Short -Term Rental Permits shall terminate, and
such uses permanently cease operation, by December 31, 2019. Additional
renewals for operation beyond December 31, 2019, may be granted as
provided in Section 5.10.075 "Termination and amortization of short-term
rentals in R-1 and R-2 zones; Hardship Extensions."
D. If an existing permit is revoked pursuant to this chapter, and the Short -Term
Rental unit is located in the R-1 or R-2 zones, then a new permit will not be
issued."
Section 5.10.075 shall be added as follows:
"5.10.175 - Termination and amortization of short-term rentals in R-1 and R-2 zones;
Hardship Extensions
A. This section shall apply to Short -Term Rental Permits in R-1 and R-2 zones
that are to be terminated by December 31, 2019 ("Terminating Short -Term
Rentals") under section 5.10.170. The purpose of this section is to prevent an
unconstitutional taking of private property without compensation under the
federal or state constitutions by providing for an extension of the amortization
period past the December 31, 2019 as necessary to avoid a taking ("Hardship
Extension"). Hardship Extensions are intended to provide Terminating Short -
Term Rental owners the additional time necessary within which to recover
costs that they reasonably invested primarily for short-term rental use to the
extent that such costs could not already have been recovered during the
allowed period of short-term rental use of the property and cannot be recovered
once the short-term rental use is terminated. The provisions of this section
supersede any other provision of this code relating to the continuation or
amortization of a non -conforming use and shall at all times be interpreted to
prevent an unconstitutional taking of private property under the federal or state
constitutions.
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ORDINANCE NO. 1338
B. The city council shall adopt by resolution a policy detailing the process for
applying for and deciding applications for Hardship Extensions. Application for
Hardship Extensions shall initially be considered by the Department of
Community Development. The city manager is authorized to finally decide such
applications and there shall be no appeals to the city council. The city council
may also establish fees by resolution for the processing and consideration of
Hardship Extension applications and appeals.
C. Upon the conclusion of the amortization period, including any Hardship
Extension, the terminating short-term Rental use shall cease. Thereafter, the
owner's property may be used as a Tong -term residence, a long-term residential
rental, or for any other lawfully permitted or conditionally permitted use in the
zone."
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RESOLUTION NO. 2018- 25
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM
DESERT, CALIFORNIA, ADOPTING A POLICY FOR SHORT-TERM
RENTAL HARDSHIP EXTENSIONS FOR THE TERMINATION AND
AMORTIZATION OF SHORT-TERM RENTALS WITHIN THE CITY IN R-1
AND R-2 ZONES
WHEREAS, the City Council of the City of Palm Desert, California, did on the 10th day of
May, 2018, considered a request by the City of Palm Desert adopting a policy for short-term
rental hardship extensions for the termination and amortization of short-term rentals in the R-1
and R-2 zones; and
WHEREAS, pursuant to the authority granted to the City of Palm Desert ("City") by Article
XI, Section 7 of the California Constitution, the City has the police power to regulate the use of
land and property within the City in a manner designed to promote public convenience and
general prosperity, as well as public health, welfare, and safety; and
WHEREAS, according to the California Environmental Quality Act (CEQA), the City
must determine whether a proposed activity is a project subject to CEQA. If the project is
subject to CEQA, staff must conduct a preliminary assessment of the project to determine
whether the project is exempt from CEQA review. If a project is not exempt, further
environmental review is necessary. The application has complied with the requirements of
the "City of Palm Desert Procedure for Implementation of the California Environmental Quality
Act," Resolution No. 2015-75, in the Director of Community Development has determined that
the policy for short-term rental hardship extensions is exempt from CEQA review pursuant to
Section 15061(b)3 in that the amendments to further regulate the use of short-term rentals
will not have a significant negative impact on the environment; and
WHEREAS, the City Council of the City of Palm Desert, California, did on the 14th day of
December, 2017, hold a duly noticed public hearing and approved staffs recommendation with
clearly specified modifications, including elimination of certain Short -Term Rentals in R-1 and R-
2 Zones in specified time frames; and
WHEREAS, the City Council of the City of Palm Desert, California has determined that
the proposed policy, are consistent with the General Plan and applicable state law; and
WHEREAS, at said meeting, upon hearing and considering all testimony and
arguments, if any, of all interested persons desiring to be heard, said City Council did find the
following facts and reasons to exist to approve said resolution:
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Palm
Desert, California as follows:
SECTION 1. Adoption of Recitals. The City Council hereby adopts the foregoing
recitals as its findings in support of the following regulations to add a hardship extension
process and further finds that the following regulations, including the eventual elimination of
certain Short -Term rentals in R-1 and R-2 zones are beneficial and appropriate to protect the
health, safety and welfare of the residents and businesses of Palm Desert within the City
limits.
RESOLUTION NO. 2018- 25
SECTION 2. Adoption of Policy for Hardship Extension. The City Council hereby
adopts the Policy for Hardship Extensions attached hereto as Exhibit "A".
PASSED, APPROVED, AND ADOPTED by the City Council of the City of Palm
Desert, California, at its regular meeting held on the 10th day of May. 2018, by the following
vote, to wit:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
RACHELLE D. KLASSEN, CITY CLERK
CITY OF PALM DESERT, CALIFORNIA
SABBY JONATHAN, MAYOR
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RESOLUTION NO. 2018- 25
Exhibit "A"
POLICY FOR HARDSHIP EXTENSIONS
PURSUANT TO PDMC SECTION 5.10.075
A. If an owner believes that termination of the short-term rental use by December
31, 2019, will not provide the owner a reasonable period of time within which to recover the
costs that the owner reasonably invested for short-term rental use, and that such costs cannot
be recovered once the short-term rental use is terminated, the owner may apply to the director
of community development for a hardship extension. The duties and responsibilities of the
director of community development under this policy may be performed by the director of
community development's designee. The application for a hardship extension shall be made,
processed, and acted on in accordance with the following provisions:
1. The department of community development will begin receiving
applications for hardship extensions on June 1, 2018. An application will be reviewed for
completeness and the owner will be notified of any deficiencies, or that the application is
complete, within thirty (30) days. The city will endeavor to complete review, hear appeals and
make a final determination within five (5) months of receipt of a complete application,
assuming the owner reasonably cooperates in the process. Consequently, owners desiring a
final decision by December 31, 2018 should have a complete application on file by no later
than August 1, 2018. An extension of a Short -Term rental permit past December 31, 2019
will not be granted simply because an application for a Hardship Extension is pending
2. The owner shall sign the application under penalty of perjury. The
application shall set forth the amount of additional time that the owner contends is necessary,
beyond December 31, 2019, to recover the costs that the owner reasonably invested for
short-term rental use and that cannot be recovered once the short-term rental use is
terminated. The application shall fully set forth the owner's justification for such additional
time and shall include, along with whatever other information the owner believes to be
relevant, the following information.
(a) Internal Revenue Service Schedule E (Supplemental Income
and Loss), Schedule C (Net Profit from Business (Sole Proprietorship), or a Schedule K-1
(Partner's Share of Current Year Income, Deductions, Credits, and Other Items) from Owner's
federal income tax returns for the years since commencement of operation of the Short -Term
rental.
(b) Depreciation Schedule from the most recent income tax year
showing the depreciable basis in the short-term rental, as well as any depreciable
improvements or assets used it the Short -Term rental.
(c) The date that the property was acquired by the owner, the price
and other terms of the acquisition that materially affected the price, the closing escrow
documents, and the purpose for which the property was acquired by the owner. If the property
was acquired by a means other than an arms -length purchase (including without limitation a
gift or inheritance), then the owner shall provide information concerning the most recent arms-
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RESOLUTION NO. 2018- 25
length purchase involving the property and the fair market value of the property on the date
of owner's acquisition.
(d) Finance terms of the short-term rental, if financed, documenting
amount financed, interest rate and term of financing.
(e) Each use that the owner has made of the property since the
owner's acquisition and the period of each such use, indicating the start and end date for
each consecutive use, including each period of personal use, each period of compensated
use by friends or other acquaintances, each short-term rental tenancy, each long-term rental
tenancy, each period in which the property was put to some other use, and each period in
which the property was left vacant and unused. The owner should also include the following
information for each use period:
(1) the number of days in each use period (end date Tess start
date),
(2) the amount of rent or other charges collected,
(3) the amount of transient occupancy tax remitted to the city
(if short-term),
(4) the expenses directly associated with that period of use
(including but not limited to commission fees).
(f) A detailed listing of expenditures made by the owner for capital
improvements to the property for the purpose of putting the property to short-term rental use,
since it was acquired, including the purpose of each expenditure, the amount, the date, the
payee, and any other relevant information for each expenditure. The owner shall provide
receipts, executed contracts, or other written proof of each expenditure.
(g) A detailed listing of expenditures made by the owner for capital
improvements to the property other than those made for the purpose of putting the property
to short-term rental use, since it was acquired, including the purpose of each expenditure, the
amount, the date, the payee, and any other relevant information for each expenditure. The
owner shall provide receipts, executed contracts, or other written proof of the each
expenditure.
(h) A detailed listing of all expenditures, other than for capital
expenditures, incurred by the owner for the purpose of putting the property to short-term rental
use, including the purpose of each expenditure, the amount, the date, the payee, and any
other relevant information for each expenditure. The owner shall provide receipts, contracts,
or other written proof of each expenditure.
(i) A detailed projection of the income and expenses that are
anticipated if the requested hardship extension is approved.
(j) An identification and description of any contract with a third party
that commits the property to a future short-term rental use, including the dates of the
committed use, the rent to be charged for the use, any other amount to be charged or paid
(e.g., cleaning fees, commissions, transient -occupancy tax), and any other relevant
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information relating to the contracted future use. The owner shall provide written evidence of
the contracts identified.
(k) An identification and description of any Tong -term commitment,
whether a lease, mortgage, or other commitment, that has been made by the owner in
reliance on the ability to use the property for short-term rental purposes. The owner shall
provide written documentation for each such commitment.
(I) The fair market value ("FMV") of the short-term rental property
within six (6) months of the application. The owner shall provide the factual basis and analysis
substantiating the FMV, including comparable -sales information, income -approach elements,
and cost -approach elements.
(m) A financial analysis demonstrating the amount of time that will
be required for the owner to recover the costs reasonably invested for short-term rental use
to the extent that such costs could not already have been reasonably recovered during the
period of short-term rental use of the property and cannot be recovered once the short-term
rental use is terminated. The analysis should identify reference sources for each item of data
included and set forth the basis for each assumption made. The director of community
development may provide the owner with a requested form or format for the financial analysis,
and if provided, such form or format shall be completed and submitted by the owner.
3. After receiving a timely filed application, the director of community
development may request any additional information that the director deems in his or her
discretion to be reasonably necessary to ascertain relevant facts and circumstances; and, if
requested, the owner shall provide the requested information within thirty (30) calendar days
of the director's request, unless the director provides for a longer period. The director may
deem an application to be incomplete, and return it to the owner for additional information, if
the information set forth in the application or requested by the director is not provided in a
manner that is comprehensive and understandable and that demonstrates how the factual
information provided leads to the conclusion that the requested hardship extension is
necessary. If an application is returned as incomplete, the owner shall correct the deficiencies
and provide the requested information within thirty (30) calendar days of the director's
request, unless the director expressly provides in writing for a longer period. The director, in
his or her sole and absolute discretion, may waive one or more of the items listed above if he
or she determines that the purpose and intent of this policy can be adequately achieved
without the submittal of such item or items, but no waiver shall be effective unless in writing
and signed by the director.
4. The burden shall be on the owner to establish the need and grounds for
a hardship extension and to establish the reasonableness of the requested duration of the
extension. An owner's failure to produce appropriate information or documentation shall be
grounds for denying or reducing a hardship extension. Any alleged hardship that is based on
action or expenditures not reasonably taken or made in Tight of the circumstances, shall not
be grounds for an extension. Any expense for modification or improvement of the short-term
rental property that was incurred after December 14, 2017, shall be presumed not to be
reasonably incurred unless (i) the owner proves that the expense was reasonably necessary
to operate the short-term rental in a way that would ultimately reduce the duration of the
extension otherwise necessary by allowing for a quicker recovery of the owner's qualifying
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RESOLUTION NO. 2018- 25
costs, or (ii) the expense was incurred to satisfy a requirement of the city for the continued
use and operation of the property.
5. The director of community development shall approve an extension
upon determining that the owner has shown that since the commencement of the use of the
owner's property as a short-term rental property, the owner has not had and will not have by
December 31, 2019, a reasonable period of time within which to recover the costs that the
owner reasonably invested for short-term rental use, and that those costs cannot be
recovered once the short-term rental use is terminated.
6. In determining whether the owner has had and will have a reasonable
period of time for recovery of costs, the director of community development shall consider the
period of time that the owner has had for short-term rental use since the owner began to incur
such costs, as well as the time available for continued short-term rental use until December
31, 2019. In addition to the information contained in the application submitted by the owner,
the director of community development may consider such additional competent and relevant
information that the director may obtain by staff investigation or from other sources as the
director may choose to consult or obtain; however, the director shall not be obligated to
conduct any independent investigation or to seek information outside the scope of the owner's
application. Upon request of the director, the owner shall be reasonably available to respond
to questions or to review and discuss relevant information.
7. In considering the application and making a decision, the director of
community development may take into account all relevant information that relates to the
determination of whether the owner has had or will have a reasonable period of time to
recover the costs that the owner reasonably invested for short-term rental use, and to the
possibility that the costs can be recovered before the short-term rental use is terminated,
including but not limited to any of the following matters:
(a) The information submitted in the owner's application.
(b) The period of time that the owner has had for short-term rental
use since the owner began to incur such costs.
(c) The amount of investment or original cost incurred by the owner.
(d) The income potential of the property since it was allowed to be
used for short-term rental purposes and the income actually received by the owner from short-
term rental use since it was allowed to be used for short-term rental purposes.
(e) Any amortization or depreciation of the improvements to the
property that has been prepared for tax purposes and any tax benefit that the owner might
have derived from claiming depreciation.
(f) The extent of the owner's investment that is unique to the short-
term rental use and does not serve any conforming use of the property.
(g) The extent of the owner's investment that could not be recovered
on sale of the property.
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RESOLUTION NO. 2018- 25
(h) The owner's investment -backed expectations in light of current
and pending regulation at the time that the investment was made.
(i) The replacement cost of improvements that might have been
made that only serve the short-term rental use; and the length of time that the owner has had
the benefit of the investment before the termination of the use.
(j) Any other information that bears on the reasonable period of time
for the owner of a terminating short-term rental to recover the costs reasonably invested for
short-term rental use.
8. A decision by the director of community development to deny an
application for a hardship extension, in whole or in part, or to limit the duration of an extension
to a shorter period than requested by the owner, may be appealed to the city manager. At the
city manager's option, a hearing may be conducted by a hearing officer appointed by the city
manager or the city manager may conduct her or his own independent review. The deadline
for filing an appeal shall be thirty (30) calendar days after the date that the written notice of
the director of community development's decision is mailed (via first class delivery) to the
owner. Such an appeal may be filed only if the owner timely submitted a complete application
to the director of community development for a hardship extension.
9. If appointed by the city manager, the hearing officer shall conduct an
independent analysis of the information already submitted in the matter to the director of
community development and, at the hearing officer's discretion, a hearing; however, neither
the city nor the owner may submit additional information to the hearing officer other than that
which was submitted to the director of community development in connection with the owner's
application for hardship extension, except to the extent the information: (i) could not have
reasonably been provided to the director of community development with the application; (ii)
is necessary to rebut or respond to information submitted by the other party or any other
person to the director of community development; or (iii) in response to a request by the
hearing officer. The hearing officer's recommendation shall be based on all relevant
information, including the categories of information set forth in this section. The burden shall
be on the owner to establish the need and grounds for the hardship extension and to establish
the reasonableness of the requested duration of the extension. Any hardship that is based
on actions or expenditures not reasonably taken or incurred in Tight of the circumstances shall
not be grounds for an extension based on the criteria provided in this section. The
recommendation of the hearing officer shall be considered by the city manager, who may
adopt or modify the recommendation of the hearing officer. Whether or not a hearing officer
was appointed, the decision of the city manager shall be final.
7
G V'IanningkRyan Stendell\Stall Reports 12018'M y 10T anal STR CC Resolution Policy for Hardship Extensions docx
From: Robert Lee fmailto:robert.leena raslawarouo.comj
Sent: Wednesday, March 28, 2018 3:14 PM
To: kswartz cC citvofoalmdesert.ora; rstendell(a�citvofpalmdesert.ora; Robert Hargreaves
Subject: Re: Draft STR Amortization
To the City of Palm Desert:
The proposed Sections 5.10.130 and 5.10.060 are merely "amortization" policies
("Ordinances"), which have a long and contentious history both on a state and federal level
because they can also be regulatory takings. Please refer to my previous letter for both
statutory and case law authorities.
These Ordinances are regulatory takings because they do not advance the stated goal of the
ordinances, i.e. to reduce noise, trash and parking violations that are currently in place in the
City of Palm Desert.
The statistics from 2017 clearly show that despite the volume of complaints, the actual citations
are disproportionately small. Moreover, many of those violations are for illegal STRs. Thus, it is
apparent that the amortization procedures as well as the underlying regulations prohibiting
STRs after December 2019 are, at best, ill -suited for decreasing and/or eliminating actual
violations and, at worst, are merely a pretext for merely reducing "unsubstantiated" complaints
and/or advancing or salvaging the political survival of certain Council Members.
The Ordinances are poorly designed to decrease and/or eliminate violations of noise, parking,
or trash ordinances:
• The deficit caused by the substantial decrease in permit fees for legal rentals will
significantly reduce, if not eliminate, the financial resources available for code
enforcement of STR activities;
• The elimination of STRs will mandate protracted litigation by many STR owners which
will further reduce, if not eliminate, the financial resources available for code
enforcement of STR activities;
• If litigation is successful, the City of Palm Desert may face monetary damages that
exceed the perceived short term benefits of eliminating the majority of STRs;
• Even if litigation is unsuccessful, the protracted nature of litigation will drain City financial
resources, which may subject the City to Taxpayer Litigation for misuse of taxpayer
funds;
• The lack of enforcement resources will create very little incentive for current STR owners
to curb their activities and encourage already illegal STRs to continue or increase their
activities; and
• The complaints by residents will continue, if not increase, since they will have much
higher expectations of promised decreased STR activities, further taxing City resources.
At best, the Ordinances are a pretext for eliminating complaints, not actual violations and at
worst, purely to advance the political advancement and/or survival of Council Members:
• The statistics show that despite the overwhelming volume of complaints, only a small
minority of complaints actually resulted in citations for legal rentals;
• The statistics show that many of the citations were for non permitted STRs;
• The sheer ratio of unsubstantiated complaints versus citations mean:
o that they were either fabricated by the small, albeit vocal residents;
o that the City has been negligent in educating the residents of the threshold
requirements of a citable offense; and/or
o that the City has been negligent in educating the residents of the adverse legal
ramifications of filing frivolous complaints.
One important factor that courts have considered in determining whether an ordinance rises to
the level of a regulatory taking has always been the detriment and harm to the property
owner. The following factors show why litigation brought by STR owners may very well sway
the court in finding that a regulatory taking has occurred:
• STR owners will find it impossible to replace the kind of income generated by STR
activities with income generated by the usual long term rental activities will be forced to
sell their properties;
• All STR owners face the following financial and logistical hurdles in selling their
properties in anticipation of the Ordinances deadline:
o Cost of sales (estimated at 8% of the total value of the property);
o Tax consequences on the capital gains which can reach upwards of 30% of the
sale value (1031 exchanges have strict limitations which may be impossible to
meet due to the low inventory in today's market;
o Inability to replace their properties with similar properties in today's low inventory
market;
o Extensive improvements necessary to prepare their STR for sale to a residential
buyer as a result of extensive rental usage; and
Extensive improvements necessary to the new replacement property to make
them conducive for STR activities.
• STR owners of large estate size properties face the following additional hurdles:
Less inventory for estate size properties in today's low inventory market;
o Higher cost of sales in absolute dollars;
o Higher capital gains taxes; and
o Challenges to 1031 exchange transactions in competing with other buyers.
In determining whether ordinances are a pretext for an ulterior motive or to determine if they
advance the stated purpose of the regulations, courts have considered whether reasonable
alternatives have been considered. In this case, the City of Palm Springs offers a real life
example of a successful alternative to the harsh Ordinances adopted by the City of Palm
Desert. To wit, the City of Palm Springs significantly increased permit and other fees charged to
STR owners in order to make more (not less) resources available to its enforcement
department. Rather than adopting ordinances that can only result in a vicious spiral of less
resources, less enforcement, more illegal activities, and an open invitation for protracted
litigation and potential damages. Palm Springs decided to ensure more enforcement with
additional revenues while continuing to support their business community as well as ensure the
quiet residential character of Palm Springs.
Please note that the adoption of these "amortization" Ordinances may define the above legal
issues as being "at -issue" and invite an immediate proliferation of litigation by STR owners.
Govern your actions accordingly.
Robert K Lee, Managing Partner www RGSLawGroup.com
(;( )I,l)vy:v I'rr
April 4, 2018
Via LS. Mail and E-mail
Sabby Jonathan, Mavor
City of Palm Desert
73510 Fred Waring Drive
Pahn Desert. CA 92260
cityhall'a cityofpalrndcsert.org
Re: Comments for consideration on termination and amortization of short-term
rentals in R-1 and R-2 zones under Palm Desert Municipal Code Section 5.10.160
Dear Mavor Jonathan:
I am writing on behalf of the Goldwater Institute, a nonprofit public policy and litigation
organization that represents property owners in courtrooms and legislatures nationwide. to submit
comments for your consideration on the issue of terminating short-term rentals in R-1 and R- 2
zones under Palm Desert Municipal Code Section 5.10.160.
Local governments nationwide are reacting to the growing trend of short-term rentals by
implementing burdensome regulations and prohibitions at the expense of responsible homeowners.
These rules hurt communities by eliminating opportunities for local residents to make extra
income. pay their mortgage. maintain their homes. and invest hack into the local community. And
they undermine property rights and other fundamental constitutional protections. subjecting cities
to possible legal liability.
In the case of Palm Desert. prohibiting new short-term rental permits in residential zones
R-I and R-2 and terminating existing permits in those zones in December 2019 imposes extreme
hardships on property owners who rent out their homes to visitors in one of the Inland Empire's
most popular tourist destinations. Permitting property owners to request an exception does little to
mitigate those concerns. First. only property owners who can show. in addition to meeting a
number of additional factors. that the ban will result in a taking of their property without just
compensation can apply for an exemption. Taking away a property owner's permit to rem
undermines his property rights and reduces property values. Yet limiting exceptions only to those
who can show that the taking has risen to a constitutional level places a heavy (and perhaps
insurmountable) burden on the propert) owner, who will have to incur the considerable expenses
of obtaining legal counsel and experts to evaluate those claims and prepare the required
documentation. Moreover. the vague and ambiguous factors set forth in Palm Desert Municipal
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.\(, i,Hik. ilei in,l;l i t..1: ((
Mayor Sabby Jonathan
Page 2 of 3
Code Section 25.34.140 inappropriately empower the Commission to exercise a great deal or
discretion in deciding who may keep and exercise their property rights. and who will he out of
luck. I'hc considerable time. expense. and uncertainty associated with requesting an exemption
will necessarily disfavor those upon whom the short-term rental ban will impose the greatest
economic hardship.
Another problematic aspect of Palm Desert's plan is the use of so-called "amortization" as
a process for taking away constitutional rights from property owners without paying them just
compensation. Amortization has been used on some occasions to eliminate highway billboards.
hut California courts have never approved the use of amortization to take away rights from
homeowners without compensation. Indeed. courts have expressed serious concern about the use
of this process to eliminate property rights. In PA Northwestern Distributors Inc. ' . Zoning Board
of Township of Moon, 526 Pa. 186 (1991). for example. the Pennsylvania Supreme Court held
that it was unconstitutional to eradicate a pre-existing property use through "amortization" because
"it would he a strange and novel doctrine indeed which would approve a municipality taking
private property for public use without compensation if the property was not too valuable and the
taking was not too soon.'' California courts have on occasion allowed the government to use
amortization schemes. but they have also expressed concern that amortization might be used to
evade the constitutional obligation of just compensation. Nat'l .Advert. Co. v. Cty. of Monterey. 1
Cal. 3d 875 (I 970). I acre. the "amortization" scheme appears to have been designed for the specific
purpose of taking away property rights ‘vithout just compensation
We encourage Palm Desert to rethink its approach to short-term rentals. Banning the
practice entirely except in special cases where the Commission decides to make an exception does
not target health. safety, or other legitimate concerns of residents — and it can leave the City
ulnerahle to costly and time-consuming litigation. Palm Desert should address nuisance concerns
directly. rather than punishing the innocent many for the possible future wrongs of a few, by
enlorcing the nuisance ordinances it already has on the hooks. For guidance on how to achieve this
balance, the City can look to places like Arizona, which in 2016 passed landmark short-term rental
legislation that received broad -bipartisan support.
Short of Cully reconsidering its short-term rental ban. the City should make the process for
requesting an exemption to the short-term rental ban more fair and favorable to homeowners. It
should not impose the high burden of proving that a constitutional taking would occur in order to
receive an exemption. If homeowners can make a showing of economic hardship, the City should
grant an exception. At the very least, the City should grandfather in all existing short-term rental
permits and not phase them out by December 2019 unless the City can make a showing that
allowing individual homeowners to keep their permits would cause the public harm.
1 would he happy to answer any questions about Arizona's experience and assist the City
with any questions it has in how- to craft an ordinance that would preserve property rights and
foster economic growth while empowering the City to protect neighborhoods from nuisance.
Mayor Sabby Jonathan
Page 3 of 3
Sincerely,
i
\7 I
Christina Sandefur l
Executive Vice President
Scharf -Norton Center for Constitutional Litigation
at the Goldwater Institute
cc: Susan Marie Weber, Mayor Pro Tem
Jan I larnik, Council ,Member
Kathleen Kelly. Council Member
Gina Nestande, Council Member
Lauri A) laian, City Manager
Robert W. Ilargreaves, City Attorney
Kevin and Ryan,
Thank you for sending the amortization draft for the constitutional takings provision for the STRs. I have
the following observations:
1. The obligation on the part of the applicant is extraordinarily onerous. I estimate that the
application would consist of at least 2 3-inch binders of paper work for each permit -holder,
depending on the length of time and frequency of operation. To compile the kind of paperwork,
opinions, data, research and professional evidence required will take months and will take a
considerable financial investment. We estimate that each application will require anywhere
from 50-150 hours to prepare plus $5000 - $10,000 in expert fees.
2. If the objective is to provide permit holders with an genuine opportunity to apply for the
exception, rather than a mere theoretical opportunity, then this draft must be substantially
modified. As drafted, the procedural requirements and the high costs will be prohibitory for
most permit holders.
3. The deadline for the applications is far too soon given the requirement to provide permit
holders with proper notice and the time required of them to compile the vast material in
support of their application. Please bear in mind that many of the permit holders reside outside
of the Palm Desert area and will experience delays in compiling their applications arising from
that geographic distance. July 1, 2018 is not a realistic deadline; it should be by no earlier than 4
months from the date on which the provisions are effective.
4. By extension, the time required by City staff to review the paperwork will also be extraordinarily
onerous. It would be much less expensive for the City to simply grandfather the very few permit
holder in zones R1 and R2 than to review these lengthy applications.
S. While the ordinance sets a date by which the application must be submitted, there is no
corresponding date by which the City of Palm Desert must provide a response. In my
submission, the City should be provided with a reasonable deadline, such as 4 months following
the receipt of the complete application.
6. There is no indication in the draft ordinance as to how the City will release its decisions, how
they will be made available to the public and the requirement for the City to fairly apply the
criteria set out in the ordinance. Transparency is essential to the public faith in the decision -
making process. I would submit that the City should maintain a searchable, public database for
the decisions rendered by the City on this subject matter. As I understand matters, the City has
not ever considered an application under the Constitutional Takings exception and therefore, no
current precedents exist.
7. The onerous nature of the application process on both the applicant and the City highlights the
unworkability of the existing expiry date of STR permits in zones R1 and R2, namely, December
31, 2019. There are 2 very important factors that are unique to the desert that are relevant
with respect to this deadline and the permit application process. What may not be known is
that most STR bookings in the desert are made many months, and even a year or longer in
advance. Secondly, properties sit on the market in the desert for many months and often years
at a time. For these reasons, STR permit holders must make a decision regarding sale by the
latest, one full year in advance of the deadline. No STR permit holders wish to take bookings
that cannot be honored in the event of a sale. With the December 31, 2019 deadline, STR
permit holders will need to make a decision as to whether to sell by the latest, December 2018
so that they do not accept bookings that cannot be honored. With the onerous and lengthy
application process required by this amortization exception, many STR permit holders will not
even receive a decision from the City regarding their application for an extension by December
2018. The STR permit holder will be left in a position where they are prematurely forced to sell
because they cannot be assured they will be able to secure the permit extension. For these
reasons, in my submission, once an applicant has made a complete application to the City, an
immediate extension should be granted for 1 year to December 31, 2020 in order to provide the
applicant with additional time to properly consider all the variables, including the City's decision
regarding the permit extension. We were informed that the objective of the Constitutional
Takings exception was to ensure that property owners were not forced to "fire sale" their
properties. If this extension is not granted, many will indeed be forced to fire sale their
properties.
8. Many of the STR permit holders have been told that the City Council intends to review the
whole issue in 9 months, which I assume is September 2018. We were also informed that the
complaints against STRs have virtually disappeared since December 2017 when the ban was put
into place. Given the very onerous nature of the application process for the permit extension, it
seems premature for the City to devote substantial time and resources to the review and
processing of permit extension applications when it may be that the City changes its position
regarding the permits at the 9-month review stage. It also seems premature and arduous for
permit holders to have to submit mounds of paperwork and to outlay considerable expense for
an application that may ultimately be rendered unnecessary at the 9-month review
stage. Perhaps the City Council will grandfather all the existing permit holders in zones R1 and
R2, which has been presented as a fair compromise that would render the consideration of all
the permit extension applications unnecessary.
Thank you for taking the time to consider my comments.
Sincerely,
Tracey L. Jackson
Dunnaway Jackson Ouellet & Associates
Barristers & Solicitors
Suite 1.205, 808 Nelson Street
Vancouver, BC V6Z 2H2
Tel: 604-682-0007
Fax: 604-682-8711
This e-mail may be privileged and/or confidential, and the sender does not waive any related rights and
obligations. Any distribution, use, or copying of this e-mail or the information it contains by other than
an intended recipient is unauthorized. If you have received this e-mail in error, please advise me (by
return e-mail or otherwise) immediately.
Hi, Kevin,
I've had a look at the draft. To my untrained eye it looks like a comprehensive action on the part of the
City to allow STR owners to see if they meet the criteria for requesting additional time to recover their
cost after STR use is terminated.
I had a question about section numbering. Will this be incorporated into Chapter 5.10? If so, where?
Will it replace any of 5.10? I ask because the current 5.10.130 deals with violations, and the draft is also
numbered 5.10.130.
Another question: If any owner does submit an application for "additional time to recover costs," will
that application be available for examination by the public, or by interested parties?
I look forward to hearing about the completed proposal. Do you know when this might be put before
council?
Regards, Vince Heuring
Vince Heuring
73335 Pinyon St.
Palm Desert CA 92260
heuring@colorado.edu
c) 720-346-4635
Hi Kevin,
Great speaking with you again and I am very jealous of the warm weather you're having now in
the Valley!
As discussed earlier today, I would like to reiterate several issues we spotted in regards to the
amortization proposal.
First, the proposal, while incorporating most of the provisions of a STR hardship ordinance
enacted by the City of Anaheim, CA, does not offer the same types of extensions offered under
that law — hardship extensions in increments of 18 months (18, 36, and 44 months). As you
know, the City of Anaheim initially did not have any options offered until they settled a lawsuit by
a group of property owners. Since the City has largely modeled its proposal under the Anaheim
law, it would be consistent for the proposal to contain similar or the same types of extensions
that were included in the Anaheim law.
Second, the proposal provides a deadline for a homeowner to apply for an extension by July 1,
2018. However, the City does not impose any deadline on when it will notify the homeowner if
the extension has been approved. Since the public purpose of the proposal is to allow affected
homeowners' to recoup their investment costs by obtaining an extension, a similar deadline for
the City is reasonable. An affected homeowner should know when they will receive a decision
from the City so they can make an informed choice on how to best recoup their investment
costs — either by putting their home on their market or transitioning it to Tong -term rent. Without
imposing a deadline to inform homeowners on whether they will receive an extension could lead
to unintentional, negative consequences — especially in light of the uncertainty surrounding the
housing market today and rising interest rates — that may actually harm their ability to recoup
their investment costs.
Third, the City will formally undertake a review of the January 2018 ordinance which banned
vacation rentals in R-1 and R-2 areas after 9 months of the Iaw's enactment — which would
occur sometime in October. Since that review was publicly characterized as a way for the City to
make changes to the ordinance, including mitigating or reversing the ban, then why is the
hardship extension deadline on July 1, 2018? As you know, the proposal's list of requirements
of information and analyses would take a homeowner — or, more likely, a consultant or
accountant — many work hours to complete an application. For a homeowner to spend
significant hours and/or money to apply for an extension, only to have that extension potentially
nullified by Council's action in October seems unfair. Further, if the Council's formal review of
the STR ordinance is strictly for informational purposes and would lead to no potential changes
to the law itself, then the review should have been characterized as such when it was first
announced at the first reading of the STR ordinance. If the formal review could yield some
changes to the STR ordinance, then the extension application deadline should be no earlier
than a date after the Council has completed its 9 month review in October.
Fourth, the City, as you mentioned, has no prior experience with exceptions based on takings. A
reasonable proposal, with an application deadline occurring after the City's formal review
process is completed in October, would provide the City with ample time to have its staff who
are responsible for making decisions adequately trained. Many affected homeowners invested
in vacation rentals to provide for their retirement, and their ability to recoup their investments is
now left in the trust of the City. A nuanced approach to amortization, including different types of
extension and a self-imposed deadline for the City's response, would reflect more accurately on
the importance that this process has on the lives of the homeowners and their families.
Thank you, and happy to discuss more at your and the City's convenience.
Best regards,
Ted
Ted E. Anastasiou
Counsel, Government Relations
Global Legal Services
Wyndham Destination Network
14 Sylvan Way
Parsippany, NJ 07054
o: +1.973.753.6321
m: +1.862.296.6236
e: ted.anastasiou( rci.com
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