Encouraging Rental Opportunities v. City of Los Angeles
 (2019) 37 Cal.App.5th 768,

The owner of an occupied, 18-unit rent-stabilized apartment
building sought to demolish and replace the structure with a condominium
project. After the City adopted a mitigated negative declaration finding that
the project would not have a significant effect on the environment, the owner
withdrew the units from the rental housing market pursuant to the Ellis Act,
leaving the building vacant. Shortly thereafter, the developer backed out of the
project due to a lack of financing.

Roughly two years later, the owner filed a second application
with the City to convert the vacant building into a 24-room boutique hotel
(Project). An initial study concluded that the Project would not require further
environmental review, as it did not displace housing units or residents. The
initial study rationalized that the units had already been withdrawn from the
market, so no displacement would result. Following a public hearing, the City
adopted another MND and approved the Project.

Petitioners filed suit, alleging that the City was required
to prepare an EIR analyzing the Project’s potentially significant impacts on
the rent-stabilized housing supply and associated tenant displacement. Petitioners
argued that the City prepared a legally inadequate initial study and MND by using
the structure’s vacant status as a baseline for environmental review, rather
than adopting a baseline from when it was occupied. The trial court rejected
this argument, holding that the proper Project baseline was when environmental
review began for the second application. This set the environmental baseline at
the point where the building had been vacant for two years. The trial court found
Petitioners’ entire CEQA claim deficient because it used the wrong baseline, and
concluded that physical impacts trigger the preparation of an EIR, not
socioeconomic impacts with no secondary physical impacts.

The Court of Appeal agreed, focusing its Opinion on the proper
baseline. Petitioners argued that the decision to withdraw the rental units was
not irreversible if, for example, the City were to have denied the application.
The Court considered this to be a purely speculative argument, given the reality
that the units had been withdrawn from the market and the building sat vacant
for two years. The Court also rejected Petitioners’ argument that the Project
should be viewed cumulatively with consideration of prior rental unit withdrawal.
Thus, the Court upheld the use of the City’s baseline.