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Hollywoodians Encouraging Rental Opportunities v. City of Los Angeles (2019) 37 Cal.App.5th 768, 772-773.

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 The initial study rationalized that the units had already been withdrawn from the market, so no displacement would result.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 The Court considered this to be a purely speculative argument, given the reality that the units had been withdrawn from the market and the building sat vacant for two years.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.