Guggenheim Case Argued

If you are a regulatory inverse condemnation junkie, and particularly if you are into takings in the rent control context, we highly recommend the report of our fellow blogger Robert Thomas, on yesterday’s oral argument before the U.S. Court of Appeals for the 9th Circuit, sitting en banc — that’s eleven federal appellate judges — in the case of Guggenheim v. City of Goleta.

Guggenheim is the case in which a three-judge panel of the 9th Circuit held 2 to 1 that the Goleta mobile home rent control ordinance was a taking of the landlord’s property because it monetized the controlled rent advantage, and allowed a departing mobile home tenant to sell it (i.e., to sell the right of occupancy at controlled rents) for a pretty penny to the successor tenant. There was evidence that a used mobile home in place, that had a fair market value of a few thousand dollars, would be sold by the departing tenants to their successors for six figures because it carried with it the right to occupy it at low, controlled rents. So what the ordinance thus accomplished was not a real reduction of rents, but a transfer of the landlord’s right to receive market rents to the tenant who could now disguise them as the “price” of the used mobile home and sell them to his successor, thus taking that money out of the landlord’s pocket.

Roberts offers a thorough, first class, three-part report on the oral argument. We recommend it — go to http://www.inversecondemnation.com/inversecondemnation/2010/06/ninth-circuit-rent-control-taking-case-guggenheim-en-banc-oral-argument-report.html

So the coin is in the air. Stay tuned.

What’s a puzzle to us is that no one, it seems, challenged the ordinance as arbitrary and irrational on its face. The essence of rent control ordinances is that they reduce rents. Here, however, the ordinance did not reduce rents for anybody except those few lucky tenants who happened to be in occupancy when the rent control ordinance was enacted. All other [successor] tenants had to pay market rent, albeit diguised as the artificially inflated price of the mobile home, that the departing tenants got to charge their successors. In other words,  the “price” of the used mobile home, was not really its price but the price of the right of occupancy at controlled low rents.

So it seems to us that a rent control ordinance that does not control rents and confers a windfall (at the landlord’s expense) only on the first generation of tenants  and soaks their successors is both irrational and invidiously discriminatory. Don’t you agree?

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