sr-090881-7cCA:RFC:se
City Council Meeting 8-25-81
T0; Mayor and City Council
FROM: Raymond F. Correio, Hearing Examiner
SUBJECT: Supplemental Report, Claim for Vested Rights,
M-038, Manouchehr and Ezatolah Barcohen, claimants.
Property location: 211 California Avenue
BACKGROUND
Claimants filed their claim for vested rights on
June 11, 1981. A hearing before the City Council was
scheduled for July 14, 1981. However, pursuant to a
request by Sherman L. Stacey, claimants' attorney, no
action was taken at the July 14, 1981 Council meeting.
Claimants requested a hearing before a hearing examiner.
On August 14,1931 a hearing was held at the City
Attorney's Office. One of the claimants, Manouchehr
Barcohen, claimants' attorney Sherman L. Stacy, and a
court reporter retained by claimants appeared at the
hearing. Claimant Manouchehr Barcohen testifie3 under
oath.
PROPS°.TY .ACQUISITION AND ORIGINAL FIr7ATdCI"1G
Claimants purchased the property on February 13, 1976.
The purchase price was $225,000.00. Claimants made a do~•m-
payment of $92,163.00. Each of the two claimants supplied
one-half of the downpayment and hold the Property in joint
tenancy (exhibit 7).
An initial loan for $135,000 was obtained from Santa
Monica Bank in order to cover the balance of the purchase
price. The terms of the note reflect a 9o interest rate
with quarterly interest payments of,$3,206:00. The entire
principal was due in three (3) years, in February 1979
(exhibit 8).
Claimant blanouchehr Barcohen ("M. Barcohen") testified
that the property was zoned R-4 at the time of acquisition.
He stated that he had extensive soil testing done prior to
the close of escroca in order to ensure that the property was
suitable for a six-story building with subterranean garage
(exhibit 7).
PERMITS APdD APPROVALS
Claimant M. Barcohen testified that he employed
Robert w. 49oodbury, a civil engineer and surveyor for prepara-
tion of a tentative tract map application (original exhibit, 14).
Claimants applied for a tentative tract map on August 7, 1976.
Due to problems related to setback requirements, claimants
appeared four (4) times before the Planning Commission. On
December 6, 1976 claimants received approval of their tentative
tract map. However, it should also be noted that exhibits
submitted by claimants with their claim indicate that they
requested an extension of their tentative tract map which was
granted for one (1) year on January 8, 1979 by the Planning
Commission (original exhibits, 1 and 2).
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On January 5, 1977 claimants received conceptual approval
from the Architectural Review Board for their project with
final approval reserved pending Coastal Commission approval
(original exhibit 4). Following modification related to the
height of the building, claimants received approval by the
Coastal Commission on April 11, 1977.
Final approval was granted by the Architectural Review
Board on August 16, 1978 on the condition that claimants
resubmit revised landscape plans and building colors (original
exhibit 6). Claimant *Q. Barcohen testified that the architec-
tural drawings were completed in late 1978. Claimants expended
a total of $59,314.00 for architectural fees between
June 24, 1976 and November 2, 1979 (exhibit 9).
Claimants received demolition permits on February 21, 197
for demolition of three (3) structures on three (3) separate
lots (original exhibit 13). Demolition began on March 19, 197
and according to D?. Barcohen's testimony, it was completed on
approximately March 27,1979 (exhibit 2).
Mr. M. Barcohen testified that claimants received $1050.00
in rental income per month from the occupants of the units from
February 1976 through January 1979. The original escrow state-
ment substantiates this figure. The hearing examiner has calcu-
lated that claimants received approximately $36,750.00 in rental
income from the purchase date until January 1979.
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Claimants received a building permit on March 5,1979
(oricinal exhibit 12). Claimant A4. Barcohen testified that
after the building permit was issued claimants demolished the
existing structures and negotiated an agreement with Morley Con-
struction Company for construction of the project (exhibit 4).
However, the agreement was never executed due to the claimants'
failure to quality f_or a construction loan from Union Bank.
NI. Barcohen stated that claimants' failure to qualify
for the construction loan was directly attributable to the
political situation in Iran. Claimant M. Barcohen testified
that his brother Ezatolah came to the United States in 1978.
He stated that the principal source of income for his family
was the rental income from a five (5) story office building
located in Tehran. The property-was originally purchased
by claimants' father in 1944. In 1957 the original building
was demolished and a new office building 5 stories in height
with 40,000 square feet of office space Baas constructed.
Claimant M. Barcohen testified that the property was located
in a prime commercial location in Tehran and was only five (5)
minutes from the American Embassy.
M. Barcohen testified that a resolution approving claimants'
final tract map was unanimously approved by the City Council on
September 11, 1979. ^:r. M. Barcohen stated that in 1979 nego-
tiations for construction of the condominium project had
virtually ceased.
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Attempts to sell claimants' Tehran office building in
1977 failed. In 1979 the office building was seized by the
new revolutionary government. Mr. T2. Barcohen testified that the
reason the building was seized was that it had been leased from
1957-1959 to SAVAK, the former secret police and intelligence
agency under the Shah. Even after SAVAK relocated their head-
quarters elsewhere subsequent to 1959, they continued to occupy
some office space in claimants' building.
Claimants contend they were forced to rent to SAVAK and
could not have evicted them even if they chose to. Claimants
contend that their inability to sell the Tehran property and
its ultimate seizure resulted in their failure to secure
construction financing necessary to proceed with their condo-
minium project.
REFINANCING AND EYPIRATION OF ORIGINAL BUILDING PFR_M IT
Subsequent to claimants' receiving their final tract map
approval on September 11, 1979 they refinanced the property and
received a loan of $65,000.00 on February 23, 1979 (exhibit 10).
As of this date the new loan balance of the property amounted
to $200,000.00. Claimants were obligated to make interest payments
of $6,000 quarterly. Claimant M. Barcohen testified that the
proceeds received `rom this first refinancing loan were utilized
for costs related to the project. He stated that if_ he had been
successful in obtaining, a construction loan he would have
commenced construction of the project.
On September 5, 1979 the original building permit issued
to claimants expired due to their failure to begin construction.
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Claimants were without a building permit for thirteen (13)
months until they applied to renew their original building
permit on October 27, 1980 (original exhibit 14). Claimants
received the renewal of their building permit on October 27, 1930.
Claimants cite an inter-department memorandum dated
October 14, 1980 from the Acting City attorney to the Director
of Planning which exempts condominium projects with final tract
maps issued prior to July 1 and July 8, 1980 from the requirements
imposed by Ordinances 1162 and 1166. They contend that this
memorandum indicates that the possession of a valid building
permit is regarded by the City as vesting a property owner
with certain legal rights that cannot be impaired by the
adoption of subsequent ordinances.
Claimant M. Barcohen asserted that claimants always
caanted to be up to date with respect to all necessary permits
in the event that a construction loan could be obtained and
construction commenced. However, the thirteen (13) month
period in which claimants were without a valid building permit
undercuts this assertion.
On approximately April 20, 1981, seven (7) days prior
to the expiration of their renewed building permit, ;claimant
M. Barcohen testified that he personally visited the Department
of Building and Safety in order to renew his building permit.
He testified that officials of that department refused to renew
his permit because of the possibility that a building moratorium
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would be adopted. On April 27, 1981 on the last valid day
of the building permit issued six (6) months earlier,
claimant M. Barcohen attempted-to-renew his building permit.
Department of Building and Safety personnel refused to issue
a new permit since the moratorium was then in effect (exhibit H).
On March 21, 1981 claimants refinanced the property for
a second time by receiving a $200,00.00 loan (exhibit 11).
Claimants are obligated to pay $18,000.00 quarterly in interest
only payments which represents an 18~ interest rate. The
principal of all three loans which totals $400,000.00 is
due in March of 1933. ($135,000 original loan, $65000
first refinancing, $200,000 second refinancing.)
In response to a question by the hearing examiner as to
whether all of the proceeds from the three loans had been
utilized for expenses related to the subject property, claimant
M. Barcohen responded that approximately $20,000-$25,000 of
the loan proceeds had been utilized for expenses unrelated to
the subject property. He refused to detail the nature of these
other expenses.
Claimants assert that they could not have maintained the
ownership of the property without refinancing. It is also their
contention that they will be unable to pay back the $400,000.00
loan due in 1983 unless they sell other property or they enter
into a joint venture with respect to the subject property.
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EXPENDITURES
At the hearing, claimant M. Barcohen stated that
Section IX of the original claim contained an error on
line 3. Instead of "June 24 to Nov. 2, 76," it should
read, "June 24, 1976 to November 2, 1979."
Claimants list $97,666.00 as expenditures exclusive
of property acquisition, interest, finance charges, taxes,
etc. A detailed breakdown of the time sequence and specific
expenditures is set forth in Section IX of the original claim
and in staff report prepared by the City Attorney dated
July 14, 1981.
COST OF DEVELOPMENT
In the application for a building permit and in their
claim for vested rights claimants list the cost of development
at $1,700.000.00. At the hearing claimant estimated that the
present costs of development would be approximately 2.5 million
dollars. Claimants could not provide any specific data as to
cost per unit, sales price, etc., and declined to discuss the
feasibility of inclusion of low/moderate income housing.
HARDSHIP
In addition to the political events in Iran which led to
the seizure of their property, claimants cite other events which
they contend establishes substantial hardship.
Claimant M. Barcohen testified that he was married in
April of 1979. After six (6) months the marriage failed and
divorce proceedings were initiated. As as result of claims
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of his former wife with respect to marital property, he had
to expend a considerable amount of time and money in the
divorce proceedings and property settlement agreement.
He was also prevented from devoting time to the condominium
project.
Claimant M. Barcohen testified that he was currently
unemployed. He stated that he has been involved in real
estate investments since arriving in the United States in
1975. He testified that his other property holding includep
(1) his residence which is a condominium located at 101
California in Santa Monica, (2} a two-bedroom condominium
located at 100790 Wilshire Boulevard, which is currently
vacant, (3) a one-bedroom condominium located at 10104
Emperian Way in Los Angeles (up for sale currently in escrow).
mhe hearing examiner queried claimant M. Barcohen as to
why he had waited until June 11, 1981 to file a claim for vested
rights. He responded that it took a considerable period of time
to prepare the claim and assemble the supporting documents.
Mr. Barcohen also stated that he delayed hoping that the City
Council would either revise the ordinance so as to exempt his
project or that it would not apply to projects which had received
a final tract map prior to the passage of the moratorium.
Claimant M. Barcohen referred to the certification set '
forth in Section 3 of the resolution, approving his final tract
map which led him to believe that this was the last governmental
approval necessary. ~'
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Claimants' attorney stressed his belief that the City had
a purely ministerial duty to issue a building permit to claimants.
He stated that case law support claimants' position in that a
final decision by a City is manifested when the City has
examined a project in sufficient detail and has made some
approval on this detailed examination.
Mr. Stacy stated that the City of Santa Monica had conducted
a detailed review much earlier than the issuance of a building
permit. He stated that when the Architectural Review Board
issued the Tentative Tract Map this was the last necessary
discretionary approval. Issuance of the final tract map and
building permit were characterized as merely ministerial.
Since claimants expended money in reliance on the issuance
of the tentative tract map then they have a legal right to
proceed notwithstanding a change in the law in the form of
the adoption of the moratorium.
Claimants' attorney stated that claimants had plans on
file with the City since 1976 and from this date on they could
rely on what he argues is "final" governmental approval without
the artificial requirement of obtaining a building permit.
Mr. Stacey stated that claimants expended $100,000.00 subsequent
to 1976 and this expenditure coupled with the loss of rental
income entitles claimants to proceed with their project.
With respect to the hardship factors, Mr. Stacey stated
that the ordinance speaks of unfair hardship. He stated that
this case involves both current loss in the form of expenditures
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as well as future hardship in the potential loss of the property
or claimants' other real estate holdings.
Mr. Stacey stated that claimants will suffer extreme hard-
ship if they are not allowed to proceed with their project
and that it would be unreasonable if they were forced to sell
their residences and other real estate holdings. He wondered
whether a person had to become impoverished in order to satisfy
the hardship requirement.
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