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Stopping a City from Raffling Off Property Rights

Hobbs v. City of Pacific Grove

Case Status

Date Filed

June 27, 2018

Last Step

VICTORY! Trial court rules city’s anti-home-sharing rule violated California Coastal Act.

Next Step

Plaintiffs appealed ruling on due process.

Case Overview

As in Miami Beach and Seattle, home-sharing has long been a way of life in Pacific Grove, a small coastal city in Monterey County, California. Indeed, the city’s own website boasts of the availability of local vacation rentals for tourists. Visitors do not travel to Pacific Grove to party on Spring Break; rather, they come there to relax and enjoy an idyllic oceanside town. Tourism revenue allows Pacific Grove to meet its pension obligations, pave its roads, and make other city improvements.

In February 2018, the city imposed a 15 percent density rule, limiting the number of homes that can be used for home-sharing. Previously, people could share their homes so long as they got a city permit. Permits were renewable indefinitely and were irrevocable unless there was substantial evidence showing specific types of misconduct or violation. But the new cap is far stricter. It does not automatically grandfather in homeowners who already have permits; instead, the city held a drawing on May 22 to determine at random who could and could not continue using their property as they wish.

The city actually set up a ping-pong ball lottery machine usually reserved for bingo games—only in this case, the “winning” numbers corresponded to 51 devastated homeowners who, after April 2019, will be prohibited from renting their homes unless and until some other homeowner gives up his or her right to rent.

The process for stripping people of their right to share their homes was not based on how long the homeowner had been renting the home, or whether they or their guests had caused disturbances. Instead, the drawing was random, meaning that owners who had racked up numerous complaints were allowed to keep their permits, while responsible homeowners were stripped of theirs.


The Law

The city’s lottery system is not just devastating to home-sharers and detrimental to local tourism—it also violates California law. The state’s Coastal Act authorizes the Coastal Commission to regulate development in the state’s coastal zone for the purposes of protecting the coastline, maximizing public access, and balancing utilization and conservation of resources. While the Commission often imposes heavy restrictions on property owners, even it recognizes that home-sharing plays an important role in providing affordable access to the coast, while reducing the need for new kinds of public facilities. Thus, the Commission has declared that bans on home-sharing are inconsistent with the Coastal Act. The Coastal Commission has supported limiting the number of vacation rentals when necessary, but it has also implored cities to adopt only “reasonable and balanced regulations that can be tailored to address the specific issues” of the community, rather than banning the practice outright. Indeed, many of the home-sharing regulations the Commission has approved in the past focus on abating disturbances through nuisance restrictions, parking requirements, occupancy limitations, and mandatory emergency contacts, or mechanisms for tax collection, instead of one-size-fits-all prohibitions.

The Coastal Act requires local governments to submit a “local coastal plan,” including any changes to government-imposed land use restrictions and zoning ordinances, to the Commission for certification before those changes can become effective. Pacific Grove officials did not submit their new anti-home-sharing system or lottery to the Commission for approval before stripping homeowners of their home-sharing permits. And the city’s regulations aren’t tailored to address specific problems; rather, they abruptly and arbitrarily deprive responsible property owners of their right to let people stay in their homes.

Case Logistics

William and Susan Hobbs own “Sea Dance,” a beautiful oceanfront property that has been licensed to conduct short-term rentals since 2013. Susan’s family has owned Sea Dance since her parents purchased it over 50 years ago, when Susan was just a teenager. She has many sentimental memories of growing up in that home and in Pacific Grove. When Susan’s mother had to move into an assisted living facility, Susan obtained a short-term rental license from the city and began to offer Sea Dance for rent to help the family afford the considerable costs of that care. Based on the assurance that they would be able to recover the costs of repairs through short-term rentals, Susan and William worked daily for two months and overall spent an estimated $50,000, dipping into savings, to turn the aged home from an unmaintained eyesore to a beautiful oceanfront vacation home. Susan inherited the home when her mother passed away six months later. Because she had put considerable resources into fixing the home and because she wanted to keep the home for their own future use as a primary residence, Susan continued to offer the home for rent on a short-term basis. Sea Dance is a popular rental home and has received no formal complaints. Yet thanks to the city’s recent lottery, William and Susan will lose their short-term rental license next year. They fear they will have to sell the home because they will no longer be able to afford to keep it.

Donald and Irma Shirkey purchased a second home in 1999 for their children and grandchildren to use when they visit Pacific Grove. In order to cover the costs of their second home, and to help them maintain their primary residence, they decided to rent the home out when their family was not occupying it. Short-term rentals are more lucrative, but also more practical for Donald and Irma since they like to be able to offer the home to their children and grandchildren when they visit. So when the city began licensing short-term rentals in April 2010, Donald and Irma were one of the first to apply for and receive a license. To offer the home as a short-term rental, Donald and Irma made repairs and improvements, including installing new decks and replacing and upgrading appliances. Although they often rent their two-story, single-family home as a single unit, this year the city required them to obtain a second short-term rental license for the small guest quarters over the garage. While the upstairs guest quarters offer extra privacy for guests traveling in groups, it is very small and is not viable as a stand-alone rental for many guests. Yet because of the lottery, next year Donald and Irma will be limited to just renting out the small guest unit upstairs. If they can’t rent the main home as well, they may no longer be able to afford to keep their home.

The defendants are the city of Pacific Grove and Pacific Grove city officials acting in their official capacities.

The case was filed in Monterey County Superior Court, on June 27, 2018.

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