David's Law Blog

Sunday, February 25, 2007

Beware Contractor Who Speaks With Forked Tongue

If you rely on a licensed general contractor to get your building permits, and he doesn't bother, are you out of luck?
Beware. In California, you've got trouble. Ciraulo v. City of Newport Beach (2007) 2007 DJDAR 2172 (4th Dist., Div. 3, No. No. G034963).

Joseph and Carole Ciraulo owned a duplex, and decided to build a two-story single-family home. They got a permit, which included a 25-square-foot rooftop structure to house the top of an elevator shaft, even though the structure exceeded the usual height limit.

The Ciraulos decided they wanted to include a fireplace, a bathroom, and other improvements on the roof, which would require a 125-square-foot structure. They asked their contractor to build it, but only if he obtained a permit from the city. The contractor took the easy way out in a California beach city--he went ahead and built the enlarged structure without a revised permit.

After the fact, the Ciraulos applied for variances, which the City refused. After the obligatory appeal to the City Council, the Ciraulos went to court, seeking a writ of mandate. "Tough luck," said the Court of Appeal.

Justice Bedsworth, writing for a unanimous court, said:

While it is clear the Ciraulos view themselves as innocent victims in this case -- and indeed, for all we know, they are -- it would appear the one who victimized them was their contractor, not the City. Apparently, the Ciraulos delegated the responsibility for ensuring the rooftop expansion was properly approved to the contractor. He gave them the impression he would take care of it, and they relied upon him to do it. This entire mess was created not because the Ciraulos relied upon the City's inspections as indicating approval for the expansion, but because they relied upon their contractor to actually obtain that approval.

Significantly, no one contends the contractor was unaware the expansion was not properly approved, or that he was otherwise "mistaken" about what was going on. And, no one contends the contractor himself was misled by anything the City's inspectors did, or that he reasonably believed the various inspectors were authorized to, in effect grant a "permit" for structural changes which violated the city codes. Because the contractor was the Ciraulos' agent, his knowledge (and misconduct) is legally attributable to them. (Civ. Code, � 2338; Powell v. Goldsmith (1984) 152 Cal.App.3d 746, 750.) The fact the Ciraulos themselves were, in effect, victimized by his misconduct {Slip Opn. Page 14} is of no moment. "Appellants state they relied completely on 'the honesty and integrity' of [their agent]. Their reliance and trust was misplaced. A principal cannot benefit from the fraud of its agent who is acting in the course and scope of his agency." (Id. at p. 751, italics added.)

Although this result is harsh, and puts a burden on homeowners who may be quite unsophisticated, the court could hardly have ruled otherwise without inviting collusion between homeowners and contractors, seeking to obtain advantages that they wouldn't be allowed under the normal planning process.

Whether planning and zoning restrictions in California beach cities are oppressive and excessive is a separate question. If a city is going to have any restrictions, as has been permitted by the U.S. Supreme Court for nearly a century under the local "police power," then owners have to be responsible for the acts of their agents who break the rules.

The rule of Ciraulo puts a burden on homeowners who may be naïve and inexperienced. If you build or remodel a custom house in California, you had better pile up reserves of both cash and patience, and make sure your contractor has plenty of insurance. You may need all three.

Incidentally, if there was no collusion between the Ciraulos and the contractor, the next lawsuit is likely to be one by the Ciraulos against the contractor, for breach of contract and negligence, asking for the cost of the roof structure back, as well as the cost of demolition and legal fees.

The more complicated the rules get, the better lawyers do. Sometimes "preventive law" before the fact can be a lot cheaper than litigatin after the horses have left the barn. And who knows? The barn may be illegal, too.

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Friday, January 19, 2007

Unfettered Discretion in BoBo Land

My office is right across from our City Hall. Last night, a client and his architect came in, disconsolate and angry. My client's deck leaks, and I'm suing the general contractor and a passel of other people. In the course of repairing it, my client wants to expand the area of the deck a bit. The expansion is consistent with the zoning.

Not so fast. In our town, you can't move a stick without going through a prolonged and expensive hearing process, called "Design Review." You have to notify your neighbors, put up stakes to show what's going where, and appear before five busybodies (the Design Review Board) to get permission.

My client's desolation and rage came about because the DRB denied his application, not because the deck would interfere with his neighbor's privacy, but because the DRB doesn't like "incrementalism," also known as "salami tactics"--a slice now, a slice tomorrow, and pretty soon I've got the whole salami. Now he can appeal to the City Council, and if they deny the project, sue. In the alternative, he can give up, or spend more money and try again.

All of this is done in the name of conservation and preserving the "village character" of our BoBo town.

In fact, what is being conserved is the high price of property; it's drawbridge politics. Aside from the property rights question as to whether these things should be regulated at all, other than by the law of nuisance, the vice of the process is that in spite of all pretensions, it's essentially standardless. If a neighbor complains, the powers-that-be don't like you, or one of the board members gets a wild hair, you're cooked.

The courts are reluctant to take on these issues. One could say this stance is due to respect for the democratic process, except that the courts don't respect the process when leftist doctrine, developed in the law schools, says that new rights are at stake. Perhaps it's mostly fear that there is so much arbitrariness in local government that if they interfered with this kind of abuse except in the most extreme cases (here's one involving private arbitration, and even there, the remedy was limited), they'd be swamped.

There has been so much frustration that the City Council appointed another committee (of course!) to review the process. Their solution: up the fees and appoint more staff. My solution: abolish the DRB and let property owners build what they want, so long as it complies with the written zoning rules. Clear guidelines and predictability. What a concept!

Until that millenial dispensation arrives, it will continue to suck.

UPDATE: Corrected link to "Drawbridge Politics."

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Saturday, December 30, 2006

Drawbridge Politics, or Zoning for BoBos

(Originally published March 5, 2006)

Courtesy of blogger Jane Galt, I had a chance to look at an article in the New York Times Magazine (free subscription) about the work of a Harvard economist, Edward Glaeser. Glaeser’s ideas confirmed much of what I have believed for some time about supposedly “liberal” planning and zoning restrictions. Such controls are particularly strong in places where affluent political liberals reside, what David Brooks called “BoBos in Paradise,” “BoBos” standing for “Bohemian bourgeoisie.”

In my own life, I’ve seen this phenomenon at work in two Southern California beach
cities, Santa Monica and Laguna Beach. In ‘80s Santa Monica, I served one term on the City Council of what then and now is often called the “People’s Republic” of Santa Monica, because of the affinity of the political leadership to certain kinds of left-wing nostrums like rent control for the benefit of retired communists and ex-graduate students and “inclusionary zoning.” In Laguna, an arbitrary and tyrannical Design Review Board stands athwart every property owner’s plans to remodel or build a home. All this in the name of protecting the environment. 

The Times Magazine article summarizes some of Glaeser’s ideas this way: Glaeser has come to believe that changes in zoning regulations may be the most important transformation in the American real-estate market since the mass acceptance of the automobile. In his view, these regulations have essentially created a "zoning tax" that has pushed prices far above construction costs. Very, very far above construction costs. It is not a perspective shared by all housing analysts; some economists have been far more inclined to blame high prices on high demand (spurred by low interest rates) or on rampant speculation. Others agree with Glaeser in emphasizing supply but not necessarily fixing on zoning. Karl Case, for instance, an economist at Wellesley College who counts himself a fan of Glaeser's, agrees that lack of supply has led to steep prices in the Boston area, but he attributes the housing shortage not just to zoning but also to the nature of the construction business and the scarcity of large desirable tracts of land. Still, among the half-dozen leading economists who study housing supply, there seems to be wide agreement that regulations have had a tremendous effect on prices. "I think the evidence is overwhelming," says John Quigley, an urban economist at Berkeley who has looked specifically at the effects of regulation on the California market. As Glaeser says: "It's so easy to forget the world that we were living in around 1970, when basically almost all of the value of houses was in the physical infrastructure. That was actually the cost. There was some land, and it was worth something, but it wasn't worth more than 20 percent of the value of the house."

Even in New York City, Glaeser says, the price of an apartment back then was essentially the cost of building the next floor. In researching New York City's housing prices, in fact, Glaeser and Gyourko discovered that over the past 30 years, the average height of new residential buildings in Manhattan decreased in size. "That's crazy," he insists, especially in light of how much the demand to live in New York has increased. "You know, if prices in Manhattan are skyrocketing, you should be building more and more at 50 stories, rather than at 30. Not the reverse." So is it his contention that Manhattan could build far more than it has recently? "Oh, for sure," he says. "Technologically? Certainly. No reason why you couldn't." Let's go back to Manhattan in the 1920's, Glaeser says. "New York in the 1920's is a pretty developed place, a pretty mature place. But they're producing a hundred thousand units a year. They're tearing up swaths of Manhattan and building higher buildings."

That would be legally and politically impossible today, but as he and Gyourko see things, it is precisely those legal and political roadblocks to "tearing up" the city that have made the place so expensive. Actually, in 2004, the two men took a close look at Manhattan and estimated that one half or more of the value of condominiums in the borough could be thought of as arising from some type of regulatory constraint preventing the construction of new housing. In short, zoning and other building restrictions are major factors in increasing house prices.

My own town, Laguna Beach, has become one of the most expensive cities in Orange County, as far as housing prices go. If the free market were allowed to function, its pleasant climate and coastal amenities would no doubt lead to the construction of high-rise condos as in Ipanema and the Barra de Tijuca in Rio de Janeiro. Zoning and design controls have made such an evolution impossible; Proposition 13 has reduced the pressure of market-driven property taxes to create the “highest and best use” of residential properties. The result has been to drive both the working class and industries that rely on working class labor out of Orange County, and to a degree, out of California. In a 1926 case called Village of Euclid, the US Supreme Court approved municipal zoning as a proper exercise of the police power, limited by later cases only to the extent that zoning must not deprive an owner of all economic use of his property. The phrase “Euclidean zoning” thus refers to the case, not to the logical nature of the process.

Nowadays, zoning and planning rules have become arbitrary and unpredictable, a different but related issue. What cannot be gainsaid is that they help them as has, and exclude them as would like to have--”God bless the child that has his own.” At least, following Glaeser, we should understand that despite the veneer of liberalism, the effect of most zoning is to exclude the young, the poor, and the aspiring, in favor of the old and the lucky, all of whom use zoning, environmentalism, and design controls to protect their turf against interlopers. “I’ve got my share of the castle. Let’s pull up the drawbridge!” Less hypocrisy. More understanding. Who knows where it will lead? But it’s a beginning.

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