Last June, the Beverly Hills City Council extended a 2021 moratorium on “Fractional Ownership” of homes or commercial properties. In this practice, multiple parties purchase usually a single-family home and take turns living in it during the year for various lengths of time based on ownership percentage. Fractional ownership exploded during the pandemic as wealthier families looked to shelter in new and different cities.
The council set the moratorium until an ordinance could be drafted for consideration. That ordinance was presented at Tuesday evening’s city council session.
The reason for their opposition to the practice is it creates a transient population that is not all that committed to or interested in the civic and community affairs of Beverly Hills. Thus, it removes available housing from families who want to live and build roots here.
There are other reasons for opposition. Reports of some homes being turned into loud “party houses” that disrupt neighborhoods is also an issue. These types of homes may also be profiled by criminals who are looking for periods of time where no party is living in the home.
If adopted, the ordinance would essentially put the moratorium language into the public code, with some slight adjustments to the wording made by the Planning Commission, which then unanimously approved it.
The central tenet to the new measure, according to a staff report, states, “The ordinance prohibits fractional ownership models from operating in the City if the fractional ownership includes ‘any arrangement, schedule, plan, scheme, or similar device, whether by agreement, sale, lease, deed, license, right to use agreement, or by any other means, whereby an owner of the property or a fraction thereof, receives ownership rights in, or the right to use, the property for a period of time less than a full year’, with the exception of those approved through a specific plan.” The report adds, “This means that the ordinance language essentially prohibits fractional ownership that correlates to a time-based occupancy agreement, such as one that would allow a part-owner to use a property for a specific and limited amount of time.”
Parties can request a city council hearing, however, if they believe this regulation was not intended to apply to them. A divorced couple, for example, may not wish dissolution of ownership when they part ways, but may instead agree to occupy the home at different times of the year.
There was no public comment on this item at the council meeting, nor did the city receive any inquiries or complaints on the matter leading up to the council session.
Councilmember Sharona Nazarian asked staff how the city is notified of a possible violation. Staff replied that a Community Enforcement Team responds to tips and complaints and investigates if an actual violation is taking place.
Councilmember John Mirisch wanted to distinguish between family members jointly owning a home and institutional investors, who he fears could go in on a home together only to lease it out. He discussed attending the League of Cities conference recently in Washington, D.C., and attending a forum put on by the Department of Housing and Urban Development. He says Secretary Martha Fudge remarked that they are seeing, all over the country, Wall Street and other global capital investors beginning to buy up single-family neighborhoods. He recognized that this larger issue wouldn’t be solved that night, but hoped the city will proactively look at ways it can ensure real people who can live in Beverly Hills homes are the ones buying them.
As for the issue on the agenda, Mirisch asked, “Let’s say we find out someone is doing this a-la a timeshare, and we find out that there is an ownership agreement that is counter to our rules, can we rescind the ownership?”
“We would take legal steps to force them to change the ownership,” responded City Attorney Larry Wiener.
Vice Mayor Lester Friedman asked Wiener why property titling companies aren’t helping prevent fractional ownership given the moratorium was almost two years old. Wiener responded that he thinks the companies will look at the title, but likely not be familiar with the city’s municipal code. But he later agreed that the titling companies “Are getting themselves into a legal morass.”
Mayor Julian Gold praised the addition of the council hearing aspect of the ordinance, suggesting it is important to allow the public some redress of a good explanation. He then inquired how property taxes and other fees would be paid. Wiener assumed each owner would have to be paying fractions of the property tax, and suspected that the county assessor would logically be dividing up the bill.
The council voted unanimously 5-0 to approve the ordinance.