BAXTER, J. I respectfully dissent from the majority’s holding that a compensable taking cannot occur even though the government, acting through its rent control board, deprives a landlord of the opportunity to earn a fair and reasonable return on the landlord’s property through unconstitutional and confiscatory application of its rent control regulations. I share Justice Croskey’s view, expressed in his dissent below: “I can perceive of no reason in law or logic why a confiscatory rent control regulation, found to be unconstitutional on due process grounds, would not result in a compensable taking if it were nevertheless enforced and a monetary deprivation resulted. I can imagine no clearer example of a case where compensation should be paid than where the government has illegally taken or diverted to its own social goals the private property of one of its citizens. Indeed, such a [793]common sense result and statement of principle should need no citation of authority.”
In a decision now final (Kavanau v. Santa Monica Rent Control Bd. (1993) 19 Cal.App.4th 730 [23 Cal.Rptr.2d 724] (Kavanau I), the Court of Appeal held that, as a result of the constitutionally impermissible action of defendant Santa Monica Rent Control Board, plaintiff was denied a fair and reasonable return on his rental property. As a result he allegedly suffered damages of $113,095 as of the date of his complaint. He sought to recover that amount plus interest, attorney fees, costs, and other sums from the governmental body responsible for his loss, the Santa Monica Rent Control Board (the Board), in a complaint stating a cause of action in inverse condemnation. His complaint was dismissed. The Court of Appeal affirmed the trial court judgment and a majority of this court now affirms that judgment on the grounds that plaintiff’s allegations, if true, do not establish a taking and, even if the Board’s action denied him due process because it denied him a fair return on his property, he has another remedy—increased rents—by which means third parties may eventually reimburse him for what the Board allegedly took from him.
The majority err. There has been a taking of a substantial property right—plaintiff’s right to seek a fair and reasonable return from his property. Plaintiff has both a federal and a state constitutional right to recover the loss he suffered as a result of that taking from the Board. By mandating rents so low that its action denied plaintiff due process of law, the Board took from him a significant stick in the bundle of sticks that together constitute ownership of real property (see Kaiser Aetna v. United States (1979) 444 U.S. 164, 176 [100 S.Ct. 383, 391, 62 L.Ed.2d 332])—the opportunity to earn a reasonable return on his property. Since the rent ceiling imposed by the Board denied plaintiff the reasonable return his property would otherwise have earned, it necessarily denied plaintiff economically productive use of his rental property and to that extent took a right to which he was constitutionally entitled. Under both the Fifth and Fourteenth Amendments to the United States Constitution (Fifth Amendment) and article I, section 19 of the California Constitution (article I, section 19), plaintiff must be compensated for that taking by the governmental entity that took his property. It is not sufficient that he is permitted to raise the rent paid by his tenants from which increases he may eventually recoup his losses.
I
The “Takings” Clause and Rent Control
The Fifth Amendment takings clause, incorporated into and made applicable to the states by the Fourteenth Amendment (Chicago, Burlington &c. [794]R’d v. Chicago (1897) 166 U.S. 226, 239 [17 S.Ct. 581, 585, 41 L.Ed. 979]), provides, inter alia, that “private property [shall not] be taken for public use without just compensation.” Article I, section 19 contains a similar command, providing inter alia, “Private property may be taken or damaged for public use only when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner.” When the government fails to meet its constitutional obligation under these provisions, an action in inverse condemnation lies against the government to recover “just compensation.” (Customer Co. v. City of Sacramento (1995) 10 Cal.4th 368, 377, fn. 4 [41 Cal.Rptr.2d 658, 895 P.2d 900].) And, even though the confiscatory rent ceiling imposed on plaintiff has been judicially invalidated, compensation must be paid for the income he lost while the impermissible rent ceiling was in effect, a period during which there was a “temporary taking.” (First Lutheran Church v. Los Angeles County (1987) 482 U.S. 304, 321 [107 S.Ct. 2378, 2389, 96 L.Ed.2d 250].)
The Board may not avoid either a finding that there has been a taking or the obligation to pay constitutionally mandated compensation on speculation that plaintiff’s loss may be reduced at some time in the future by increased rent paid by tenants who benefited from the reduced rent or, if those tenants leave, by new tenants who pay market rate rent. The question of whether there has been a taking must be decided independently of the value for just compensation purposes of any future monetary recovery from third parties allowed the owner whose property has been taken. (Suitum v. Tahoe Regional Planning Agency (1997) _ U.S. _ [117 S.Ct. 1659, 137 L.Ed.2d 980].)
The majority assume, but are reluctant to decide, whether a rent regulation which, as applied, denies a property owner due process constitutes a taking within the meaning of the Fifth Amendment and article I, section 19.1 do not share that reluctance and I disagree with the view that there has been no taking in this case. I would hold that, because the rent regulation was adjudicated in Kavanau I to be so arbitrary as to deny due process by preventing plaintiff from earning a fair and reasonable return on the property, a taking occurred for which just compensation must be paid by the Board.
The interests which enjoy constitutional protection as “property” are generally defined by state law. (Civ. Code, § 755; Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003, 1030 [112 S.Ct. 2886, 2901, 120 L.Ed.2d 798].) In California “[t]he right to acquire and possess property, guaranteed by the constitution, includes the right to dispose of it, or any part of it, and for that purpose to divide it in any possible manner, either by [795]separating it into estates for successive periods or otherwise, and to dispose of one or more of such estates.” (Tennant v. John Tennant Memorial Home (1914) 167 Cal. 570, 575 [140 P. 242]; Gregory v. City of San Juan Capistrano (1983) 142 Cal.App.3d 72, 88 [191 Cal.Rptr. 47].) Just as that right encompasses the power to grant a license to use a portion of the owner’s property temporarily (see Ex Parte Quarg (1906) 149 Cal. 79 [84 P. 766] [theater ticket]), it includes the right to create a leasehold estate.
Because the Board has not appropriated or physically invaded plaintiff’s property, his claim is that there was a “regulatory taking,” a restriction on his use of the property that went “too far” (Penna. Coal Co. v. Mahon (1922) 260 U.S. 393, 415 [43 S.Ct. 158, 160, 67 L.Ed. 322, 28 A.L.R. 1321] (Penna. Coal)), during the period for which he seeks damages. There was a “temporary taking.” The contrary conclusion implicit in the majority opinion is foreclosed by the final judgment of the Court of Appeal in Kavanau I, supra, 19 Cal.App.4th 730. The majority err both factually and legally therefore when they hold that there has been no taking because application of the Santa Monica rent control ordinance has not denied plaintiff “ ‘all economically beneficial or productive use of’ his property.” (Maj. opn., ante, at p. 780.) The Board did deny plaintiff all economically beneficial use of his property.
The legal conclusion that a taking occurred during the time that plaintiff was denied a fair and reasonable return on his rental property cannot be avoided under the United States Supreme Court precedent on which the majority rely. As the majority recognize, a regulatory taking may occur in a variety of contexts. The Supreme Court has identified many, implicitly concluding in some that because the governmental restriction went “too far,” the property owner had been unfairly called upon to sacrifice a property interest for the benefit of the public in circumstances in which the burden should be shared by the public as a whole. While the contexts in which the court has found a regulatory taking or rejected a taking claim differ, a common thread runs through the analysis. Although phrased somewhat differently in the court’s various decisions, the economic impact of the regulation on the property owner has been a determinative factor. When the regulation denies the owner economically productive use of the owner’s property for its customary use, the regulation goes too far. It is irrelevant in those circumstances that the regulation furthers or is necessary to accomplish a legitimate public purpose that is otherwise within the police power of the government. A taking occurs for which just compensation must be paid.
“[W]hen the owner of real property has been called upon to sacrifice all economically beneficial uses in the name of the common good, that is, to [796]leave his property economically idle,” a taking occurs. (Lucas v. South Carolina Coastal Council, supra, 505 U.S. at p. 1019 [112 S.Ct. at p. 2895], fn. omitted.) The same is true if a regulation deprives the owner of economic use to the extent that the owner is unfairly singled out to bear a burden that should be borne by the public as a whole. (Yee v. Escondido (1992) 503 U.S. 519, 522-523 [112 S.Ct. 1522, 1526, 118 L.Ed.2d 153.)1 A taking also occurs if a land-use regulation extinguishes a fundamental attribute of ownership. (Agins v. Tiburon (1980) 447 U.S. 255, 262 [100 S.Ct. 2138, 2142, 65 L.Ed.2d 106]; Kaiser Aetna v. United States, supra, 444 U.S. at pp. 179-180 [100 S.Ct. at pp. 393].)
The takings clause necessarily applies to rent control ordinances which affect the ability of a property owner to earn a fair return on property which is generally used for rental purposes since the regulations restrict both the owner’s fundamental right to create leasehold estates and the owner’s right to make economically productive use of the property. The Fifth Amendment takings clause “is addressed to every sort of interest the citizen may possess,” including leasehold interests. (U.S. v. General Motors Corp. (1945) 323 U.S. 373, 378 [65 S.Ct. 357, 359, 89 L.Ed. 311, 156 A.L.R. 390].) That the Fifth Amendment takings clause applies to restrictions imposed by rent control ordinances has been acknowledged by the United States Supreme Court since at least 1921. In Block v. Hirsh (1921) 256 U.S. 135 [41 S.Ct. 458, 65 L.Ed. 865, 16 A.L.R. 165], the court upheld a rent control law applicable to the District of Columbia and made necessary by exigencies of the first World War. In so doing, the majority recognized that rent control regulations could be so restrictive as to amount to a taking. (Id. at p. 156 [41 S.Ct. at pp. 459-460].) In Bowles v. Willingham (1944) 321 U.S. 503, 518 [64 S.Ct. 641, 649, 88 L.Ed. 892], the court upheld a World War II price control act, some provisions of which applied to rental property, stating in reference to those provisions that “the restraints imposed on the national government in this regard by the Fifth Amendment are no greater than those imposed on the States by the Fourteenth.”
The protection afforded by article I, section 19 is, of course, even broader than that of the Fifth Amendment. (Varjabedian v. City of Madera (1977) 20 Cal.3d 285, 298 [142 Cal.Rptr. 429, 572 P.2d 43].)
It is beyond dispute, therefore, that a rent control regulation that denies due process may also violate the takings clause of the Fifth Amendment, and [797]article I, section 19. That being so, it is necessary to determine whether denying plaintiff the right to seek a fair return on his property did so. None of the decisions to which the majority look for identification of the factors relevant to determining whether a taking has occurred support the conclusion that no taking occurred here. It is clear to me that there has been a compensable taking.
In Penna. Coal, supra, 260 U.S. 393, a seminal decision in the regulatory taking area, the Supreme Court considered the application of a Pennsylvania statute prohibiting anthracite coal mining in such a manner as to cause subsidence to a parcel of property. The property was subject to a deed executed by a coal company conveying the surface but expressly reserving the right to mine coal. TTie grantee of the surface interest expressly assumed all risk and waived all damage claims arising from the mining. The court held that application of the statute in these circumstances exceeded the police power of the state and constituted a compensable taking.
In reaching that conclusion the court recognized that property interests must yield “to some extent” to the police power, but this implied limitation on the police power itself has limits imposed by the due process and contracts clauses of the Constitution. When exercise of the police power exceeds those limits, the government must exercise its power of eminent domain and pay just compensation. The “extent of the diminution” of the values incident to property determines when the limits of the police power have been exceeded. (Penna. Coal, supra, 260 U.S. at p. 413 [43 S.Ct. at p. 159.) The coal company’s reserved mining rights were recognized under Pennsylvania law, and therefore by the high court also, as a valuable estate in land. The extent of the taking was great, as application of the statute abolished that estate. (Id. at p. 414 [43 S.Ct. at pp. 159-160].)
In Penna. Coal the court stated the general rule which continues to guide regulatory takings jurisprudence: “[W]hile property may be regulated to a certain extent, if regulation goes too far, it will be recognized as a taking. ... [A] strong public desire to improve the public condition is not enough to warrant achieving the desire by a shorter cut than the constitutional way of paying for the change.” (Penna. Coal, supra, 260 U.S. at pp. 415-416 [43 S.Ct. at p. 160].)2
Subsequent decisions applying and further explicating that general rule make it clear that the property interest at issue here is a valuable right and [798]that the manner in which the Board applied its rent control ordinance to plaintiff went “too far.”
In Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104 [98 S.Ct. 2646, 57 L.Ed.2d 631] (Penn Central), application of a landmark preservation law to plaintiff’s property precluded a proposed development of the airspace above an historic railroad terminal building. The law did award transferable development rights to owners of landmark properties that could not be further developed. The court recognized that the availability of those rights was relevant in determining the economic impact of the regulation when deciding whether application of the law effected a taking. (See also Suitum v. Tahoe Regional Planning Agency, supra, _ U.S. _ [117 S.Ct. 1659].) The question before the court was whether denying the owner the right to build above the existing landmark structure constituted a taking. The court again recognized that whether a taking has occurred depends on the circumstances of the individual case, and requires what is essentially an ad hoc, factual inquiry. It identified as a factor to be considered the “economic impact of the regulation on the claimant and, particularly, the extent to which the regulation has interfered with distinct investment-backed expectations.” (Penn Central, supra, 438 U.S. at p. 124 [98 S.Ct. at p. 2659].)
In applying its takings jurisprudence to Penn Central’s property the court refused to consider the interest in airspace in isolation. It explained, “this Court focuses rather both on the character of the action and on the nature and extent of the interference with rights in the parcel as a whole—here, the city tax block designated as the ‘landmark site.’ ” (Penn Central, supra, 438 U.S. at pp. 130-131 [98 S.Ct. at p. 2662].) After rejecting arguments that application of the landmark law to the property had diminished the value of the site and burdened Penn Central more than other property owners subject to it, noting that in these respects, the law was similar to a zoning ordinance, the court turned to the severity of the impact of the landmark law on the parcel as a whole. In concluding that the impact was not such as to constitute a taking the court observed that the law did not interfere in any way with the existing use of the property, thus Penn Central’s “primary expectation” about use of the parcel was unaffected. (Id. at p. 136 [98 S.Ct. at p. 2665].) It also noted that there had been no determination that all use of the airspace [799]was prohibited since there had been no application for scaled-down development. Thus in this case there had been no taking because “[t]he restrictions imposed are substantially related to the promotion of the general welfare and not only permit reasonable beneficial use of the landmark site but also afford appellants opportunities further to enhance not only the Terminal site proper but also other properties.” (Id. at p. 138 [98 S.Ct. at p. 2666], fn. omitted, italics added.) The court emphasized that this holding assumed Penn Central’s “present ability to use the Terminal for its intended purposes and in a gainful fashion.” (Id. at p. 138, fn. 36 [98 S.Ct. at p. 2666].)
The importance of the right to use one’s property in an economically viable manner as the determinative factor in assessing whether a taking has occurred was again emphasized by the court in Agins v. Tiburon, supra, 447 U.S. 255. There the validity of zoning ordinances which limited the number of homes that could be constructed on a five-acre parcel was challenged. Because the property owners had not sought a development permit, the only question before the court was whether enactment of the ordinances alone constituted a taking. In rejecting the property owners’ taking claim, the court stated: “The application of a general zoning law to particular property effects a taking if the ordinance does not substantially advance legitimate state interests, see Nectow v. Cambridge, 277 U.S. 183, 188 (1928) [48 S.Ct. 447, 448, 72 L.Ed. 842], or denies an owner economically viable use of his land, see Penn Central Transp. Co. v. New York City, 438 U.S. 104, 138, n. 36 (1978) [98 S.Ct. 2646, 2666, 57 L.Ed.2d 631].” (Id. at p. 260 [100 S.Ct. at p. 2141] , italics added.) Neither occurred as a result of the adoption of the Tiburon zoning ordinances. While they limited development, “they neither prevented] the best use of appellants’ land [citation], nor extinguished] a fundamental attribute of ownership [citation].” (Id. at p. 262 [100 S.Ct. at p. 2142] .)
Here, of course, the holding in Kavanau I, supra, 19 Cal.App.4th 730, establishes that plaintiff was not permitted “economically viable” or “reasonably beneficial” use of his property. Application of the rent control ordinance to the property seriously interfered with his, or any owner of rental property’s, “primary expectation” about the use of rental property, since the Board did not permit him to earn a reasonable rate of return. Moreover, by denying plaintiff that right, the Board effectively extinguished a fundamental attribute of ownership of rental property.
While the determination of whether a taking has occurred often does require weighing of private and public interests (Agins v. Tiburon, supra, 447 U.S. at p. 261 [100 S.Ct. at pp. 2141-2142]), outside the realm of measures [800]necessary to protect life and property (see, e.g., Miller v. Schoene (1928) 276 U.S. 272 [48 S.Ct. 246, 72 L.Ed. 568]), the balance has never been struck in favor of public interest when governmental action has denied an owner economically viable use of the owner’s property.
The importance of the impact of governmental action on the profitability of property in the weighing process appears in Keystone Bituminous Coal Assn. v. DeBenedictis (1987) 480 U.S. 470 90 [107 S.Ct. 1232, 94 L.Ed.2d 472]. There a state law, which required that 50 percent of extractable coal be left in place under specified structures to protect them against subsidence, was applied to property owned by the petitioners. The high court rejected a facial challenge to the law and distinguished Penna. Coal, supra, 260 U.S. 393, on the ground that the petitioners had not shown that their mining operations were not profitable under the restrictions imposed by the law. “The two factors that the Court considered relevant, have become integral parts of our takings analysis. We have held that land use regulation can effect a taking if it ‘does not substantially advance legitimate states interest, ... or denies an owner economically viable use of his land.’ Agins v. Tiburon, 447 U.S. 255, 260 (1980) [100 S.Ct. 2138, 2141, 65 L.Ed.2d 106] (citations omitted); see also Penn Central Transportation Co. v. New York City, 438 U.S. 104, 124 (1978). . . . [T]he character of the governmental action involved here leans heavily against finding a taking; the Commonwealth of Pennsylvania has acted to arrest what it perceives to be a significant threat to the common welfare. Second, there is no record in this case to support a finding . . . that the Subsidence Act makes it impossible for petitioners to profitably engage in their business, or that there has been undue interference with their investment-backed expectations.” (Id. at p. 485 [107 S.Ct. at p. 1242].)
Under any of the high court’s formulations of the test or factors relevant in assessing whether a regulatory taking has occurred, there has been a compensable taking in this case. When application of a rent control ordinance to a parcel of property is so arbitrary and unreasonable as to be confiscatory and deny due process, by definition that application has denied the owner all economically beneficial use of the property. When a rent ceiling is constitutionally impermissible because it denies a property owner a fair and reasonable return on the property, the owner’s investment-backed expectations have been extinguished as the state has made use of the property “commercially impracticable,” an action which constitutes a taking. (See Penna. Coal, supra, 260 U.S. at pp. 414-415 [43 S.Ct. at p. 160].)3 The character of the government action is placement of the burden of assuring [801]affordable rental housing, a burden that should be borne by the public as a whole, unfairly on the individual property owner. The owner is denied a reasonable return on his investment in order to benefit tenants. And, because the opportunity to lease property for an amount that will generate a reasonable return on the owner’s investment is a fundamental aspect of property ownership, application of a rent control ordinance in a manner which denies the owner that opportunity extinguishes that incident of ownership.
There can be no dispute over the fact that rent control is a taking for public use or common good. Rent control is constitutionally permissible precisely because it is perceived as a means by which the adverse impact on the public of a housing shortage may be cured or mitigated. (Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 160 [130 Cal.Rptr. 465, 550 P.2d 1001].) “[A] primary purpose of rent control is the protection of tenants.” (Pennell v. San Jose, supra, 485 U.S. at p. 13. [108 S.Ct. at p. 858].) It follows that when a rent ceiling is confiscatory the owner’s right to use the property in an economically beneficial way “is being pressed into some form of public service under the guise of mitigating serious public harm.” (Lucas v. South Carolina Coastal Council, supra, 505 U.S. at p. 1018 [112 S.Ct. at p. 2895].)
Application of the additional factors identified by the majority (maj. opn., ante, at pp. 775-776) as potentially relevant in determining whether a constitutional taking has occurred also leads ineluctably to the conclusion that there has been a taking in this case. The contrary reasoning of the majority is not supported by the authorities, discussed above, on which the majority rely. Those factors, in the order addressed by the majority, demonstrate the merit of plaintiff’s claim:
1. The regulation of plaintiff’s right to seek a reasonable return from his rental property does interfere with a property interest. Contrary to the majority view, the regulation did not simply delay the time at which plaintiff would receive the constitutionally adequate rents to which he was entitled. Application of the Santa Monica rent control ordinance by the Board has already denied plaintiff a fair return on his property. That temporary taking of this fundamental aspect of ownership allegedly cost plaintiff $113,095. Additionally, as his complaint alleges, the delay in receiving what would have been a fair return denied plaintiff the use of that money and interest of $30,956 that could have been earned.
Moreover, even assuming, as do the majority, that the government’s obligation to pay just compensation may be shifted to third parties, there is no assurance that plaintiff will ever recoup his losses. It is true that he [802]received some rental income, but that income was not a fair and reasonable return on the property. The complaint in inverse condemnation seeks to recover the rents that would have assured plaintiff a reasonable return, the amount taken from him by the Board’s illegal application of the rent control ordinance.
2. The regulation did affect the existing use of plaintiff’s rental property. It interfered to a constitutionally impermissible extent with his primary ownership expectation of receiving a reasonable return from rental property. Kavanau I, supra, 19 Cal.App.4th 730, determined this.
3. It may be assumed that Santa Monica has a substantial interest in maintaining an adequate supply of affordable rental units, but that establishes only that the rent regulation is not invalid per se and that plaintiff’s property was taken for a public purpose. None of the authorities on which the majority rely suggest that this factor may ever outweigh the denial of an economically feasible use of property for its customary purpose in determining whether a taking has occurred.
4. The regulation did abrogate a substantial interest plaintiff holds in the property—the use of the property to produce a fair and reasonable return on plaintiff’s investment. While he still owns the property, when rental property cannot be used to produce a fair and reasonable return, the only alternative to use of it for producing rental income is to sell it at a depressed price. Neither the Fifth Amendment nor article I, section 19 contemplates sale as an alternative economically feasible use. Both protect existing ownership interests.
5. The regulation has taken plaintiff’s property to serve a public purpose.
6. It is given that the regulation did not permit plaintiff to earn a reasonable return.
7. Unlike Suitum v. Tahoe Regional Planning Agency, supra, _ U.S. _ [117 S.Ct. 1659], and Penn Central, supra, 438 U.S. 104, which involved use retrictions, here the value of offsetting benefits such as the possibility that future increased rents permitted by the Board will offset some of plaintiff’s losses is relevant only to whether just compensation has been paid. The existence of that possibility does not negate the fact that a taking has already occurred.
8. As applied in the past to plaintiff’s property, the regulation did prevent the best and only economically feasible use of plaintiff’s property, i.e., use to produce a reasonable income from rentals.
[8039]. The regulation did extinguish a fundamental attribute of ownership— again, the opportunity to rent or lease the property for rents that produce a fair and reasonable return during the period for which damages are sought.4
I agree therefore with Justice Mosk, who, in his dissenting opinion in Pennell v. City of San Jose (1986) 42 Cal.3d 365, 376-377 [228 Cal.Rptr. 726, 721 P.2d 1111], expressed the view that a rent control ordinance which did not permit landlords with “hardship tenants” the same rental increases otherwise allowable, denied those owners a reasonable return on the property and thereby imposed on the owner what should be a public burden. The ordinance, he reasoned, created “forced subsidy imposed on the landlord in violation of the due process clauses of the United States and California Constitutions, which prohibit the taking of property without just compensation.” (Id. at p. 377.)
II
The Rental Increase Alternative to an Inverse Condemnation Remedy
The majority apparently assume that plaintiff’s rental units are and will continue to be occupied by some tenants who enjoyed the benefit of past impermissibly low rents. Therefore, the majority reason, we may justify compelling those tenants to pay rents which exceed the amount necessary to ensure plaintiff a reasonable return in order to reimburse plaintiff for what the government took.5 Additionally, new tenants who pay market rate rents will help to reimburse him since those rents also exceed the amount necessary to ensure a reasonable return. Because plaintiff may recover his losses in this manner, there has been no taking and there is no need for an inverse condemnation remedy. Again, I disagree.
The taking has already occurred. Plaintiff has already lost almost $150,000 because of the Board’s action. Both the Fifth Amendment and article I, section 19 impose the obligation to pay just compensation on the governmental entity that takes an owner’s property. Moreover, assuming either (1) that the availability of rent increases might create a benefit [804]adequate to permit a conclusion that there has been no taking, or (2) that the obligation to pay just compensation for a taking may be satisfied by shifting the burden to tenants through extraordinary rental increases, there is no assurance here that any present tenants on whom those increases fall will remain and pay the authorized increases. The majority’s assumption that they will do so is unfounded. Also unfounded is the assumption that because plaintiff is allowed to raise the rent for vacant units, he will be able to recover his past losses from new tenants. The higher, presumably market rate, rents paid by new tenants are those which plaintiff would receive in any event since vacant units are no longer subject to rent control except to the extent that the preemptive state law imposes transitional limits. By no stretch of the legal imagination do these higher rents include a premium that will reimburse plaintiff for the past rental income which the Board wrongfully denied him.6
Thus, the majority’s holding that increasing the rents allowed for plaintiff’s rental units is an adequate alternative to an action in inverse condemnation, rests entirely on speculation that plaintiff will someday recover the amount he allegedly lost from past tenants who will remain tenants even though the permitted rent increases will of necessity fix their rents at a figure above that otherwise permitted. It should be apparent to all that this illusory alternative remedy will not and cannot be considered an offsetting benefit that mitigates plaintiff’s loss and relieves the Board of its obligation to pay for taking plaintiff’s property. The increased rents “remedy” neither precludes a finding that there has been a taking nor satisfies the constitutional command that just compensation be paid when a taking occurs.
The judgment dismissing plaintiff’s cause of action for inverse condemnation should be set aside. For that reason, I would reverse the judgment of the Court of Appeal.
Brown, J., concurred.
The court noted in Yee that it had never considered whether a mobilehome rent control ordinance like that of the City of Escondido effected a regulatory taking, but refrained from addressing that issue only because the question has not been properly raised. (503 U.S. at p. 538 [112 S.Ct. at p. 1534].) The court expressed no doubt that a rent control ordinance could effect a regulatory taking. (Ibid., see also Pennell v. San Jose (1988) 485 U.S. 1 [108 S.Ct. 849, 99 L.Ed.2d 1].)
The rule actually appears earlier in Block v. Hirsh, supra, 256 U.S. at page 156 [41 S.Ct. at pages 459-460], the decision in which the court held that rent control, including vacancy control, is not a per se taking. The law in question, applicable to Washington, D.C., property, provided procedures to assure the owner a reasonable rent. There, Justice Holmes explained that rent control is permissible when a public exigency makes that form of land-use regulation necessary. Analogizing rent control to other permissible regulation of property he explained: [798]“We do not perceive any reason for denying the justification held good in the foregoing cases to a law limiting the property rights now in question if the public exigency requires that. The reasons are of a different nature but they certainly are not less pressing. ... All the elements of a public interest justifying some degree of public control are present. The only matter that seems to us open to debate is whether the statute goes too far. For just as there comes a point at which the police power ceases and leaves only that of eminent domain, it may be conceded that regulations of the present sort pressed to a certain height might amount to a taking without due process of law." (Ibid., italics added.)
An apartment building, unlike undeveloped land, is not amenable to a variety of uses or any alternative economically feasible use.
The 10th factor identified by the majority—permit-related requirements—is not involved here.
This assumption assumes in turn that rental increases sufficient to offset plaintiff’s loss are permissible under Civil Code sections 1954.50 through 1954.53, the Costa-Hawkins Rental Housing Act which, while abrogating local limits on rent increases for vacant rental units, also contains a transitional limit for vacancies in rent controlled units of 15 percent more than the prior rental rate or 70 percent of the prevailing market rent. (Civ. Code, § 1954.53, subd. (c).)
It might be argued that because market rate rents in a tight rental market exceed a fair return on investment, the amount of that difference balances the losses suffered by an owner of rent regulated rental property when rents are set too low—i.e., the overall return meets the fair and reasonable return criterion. It does not follow, however, that receipt of market rate rental income to which the owner is entitled when a vacancy occurs, may be treated as compensation for past losses. Income which would be received in any case does not replace lost income.