A fundamental principle of constitutional law is that the government may not take private property without just compensation. In the context of real estate, a taking may occur when the government occupies the property (to build a public road, for example). A taking may also occur through laws regulating the use of the property, even though the owner maintains physical possession of the property.
In Guggenheim v. City of Goleta, the property owners owned a mobile home park. The park consisted of spaces rented to owners of mobile homes. At the time the owners purchased the park, it was subject to a Santa Barbara County ordinance strictly limiting the owner’s ability to raise the rent for spaces in the park. The City of Goleta then incorporated the territory in which the mobile home park was located and adopted the county ordinance as its own ordinance.
The property owners sued the City, alleging that the City’s adoption of the ordinance constituted a regulatory taking of property. The owners alleged that without the rent control ordinance, they could obtain rents exceeding $1,000 per month per space in the park. With the ordinance, rents were approximately $275 per month per space.
The Ninth Circuit Court of Appeal rejected the owner’s claim. The court noted that the primary factor in a regulatory takings case is the extent to which the regulation interferes with property owners’ distinct investment-backed expectations. The court reasoned that since the owners bought the property subject to the county rent control ordinance, the purchase price must have reflected the burden of the rent control. Further, since the county rent control ordinance existed at the time of the owners’ purchase of the property, the owners could not have reasonably expected that they would have the ability to charge higher market rents at some point in the future. Thus, the court reasoned, the City’s adoption of the previously existing County rent control ordinance could not have interfered with the owners’ reasonable investment expectations. For that reason, the court found that no regulatory taking occurred.