Hermosa set to legalize coastal short-term rentals, betting on tax windfall after court loss

Nearly a decade after banning vacation rentals citywide, Hermosa Beach is poised to formally reverse course Tuesday night, when the City Council discusses staff recommendations to legalize short-term rentals within the city's Coastal Zone and rewrite the municipal code to tax and regulate them — a reversal forced not by a change of political heart, but by a Superior Court judge. The debate takes on additional significance in light of the city's fiscal difficulties, and the potential new tax revenue on the table.

The council meets at City Hall on Tuesday to consider a staff report that recommends repealing the city's short-term rental ban and its narrow 2019 pilot program, and replacing them with a new ordinance that recognizes short-term rentals (STRs) as legal in the Coastal Zone, continues to prohibit them everywhere else in the city, and sets up registration, business-license, transient occupancy tax (TOT), safety and nuisance rules for operators.

A lawsuit the city didn't win

The catalyst is Koerner v. City of Hermosa Beach, brought by Manhattan Avenue homeowner Todd Koerner, who had rented out a room in his home since 2012 and was cited $2,500 by the city's code enforcement division for violating the STR ban. Koerner's attorney, Frank Angel — who won the parallel case against Manhattan Beach and has litigated similar disputes against other South Bay cities — argued that Hermosa Beach's ban amounted to a change in land use within the Coastal Zone that the city was never authorized to make on its own.

Los Angeles County Superior Court Judge James C. Chalfant sided with Koerner. In a ruling issued in late March 2026, later entered as a formal judgment in April, the court found that Hermosa Beach's 2016 ban — like its 2019 pilot program restricting STRs to a handful of commercial and specific-plan zones — constituted "development" under the California Coastal Act because it changed the intensity of allowed land use, and it applied the same reasoning the Court of Appeal had used four years earlier in Keen v. City of Manhattan Beach. Because the city never obtained a Coastal Development Permit or Coastal Commission approval for the restriction, the court ruled it unenforceable, dismissed Koerner's citation and issued an injunction blocking the city from enforcing the ban anywhere in the Coastal Zone unless and until the Commission signs off on new rules.

Notably, the code enforcement officer who cited Koerner did so not long after an appeal hearing had already ruled the same ban invalid in a separate appeal — and knew about that prior ruling when he issued the citation anyway. Koerner's attorney seized on that timeline, arguing the city's continued enforcement was a choice to keep fining residents after its own hired hearing officer had already told it the ban wouldn't hold up.

Tuesday's staff report puts it bluntly: STRs "may operate within the Coastal Zone unless and until the City obtains California Coastal Commission approval for additional Coastal Zone STR regulations." The ban is gone unless and until the city runs a lengthy Coastal Commission process to replace it — and even a replacement would need Commission sign-off.

A familiar playbook in Manhattan Beach

Hermosa Beach is retracing steps its northern neighbor took first. In 2022, the Court of Appeal ruled in Keen v. City of Manhattan Beach that a citywide STR ban Manhattan Beach adopted in 2015 and tightened in 2019 was also an unpermitted Coastal Act "development," because the city's own certified zoning code never distinguished between long- and short-term rentals. "If long-term rentals are legal, so too are short-term rentals," the panel wrote in affirming an injunction against the city.

Manhattan Beach responded by allowing STRs in its Coastal Zone — generally west of Highland Avenue, where roughly 191 properties are now licensed — while keeping the ban elsewhere. Those licenses brought in about $1.7 million in TOT revenue last fiscal year, a benchmark Hermosa Beach officials have cited for their own Coastal Zone. Four years later, Manhattan Beach still hasn't sought Coastal Commission approval for caps or other restrictions, leaving the more permissive, court-imposed status quo in place; its council even rejected a proposal this January to temporarily expand STRs citywide for next summer's World Cup, citing quality-of-life concerns.

Hermosa Beach staff are recommending the same trajectory: legalize in the Coastal Zone, keep the ban outside it, collect the tax revenue, and revisit tighter rules — rental caps, primary-residence or hosted-stay requirements, buffer zones — only later, through the Coastal Commission process those rules would require.

One name threads through both chapters of this fight. Before he ran the city, Steve Napolitano was a private attorney Hermosa Beach occasionally hired as an administrative hearing officer to decide code-enforcement appeals. In 2024, in that role, he heard an appeal from the owner of the Vurpillat, a 28-unit building on the Strand fined for renting units short-term — represented by Frank Angel, the same attorney who later brought Koerner. Napolitano ruled for the owner, writing that "the City's prohibition of STVRs in the coastal zone is invalid and does not apply to the Property" because the city had never obtained Coastal Commission approval — the identical theory a Superior Court judge would apply citywide about two years later.

The city kept enforcing the ban against other operators anyway. Napolitano, meanwhile, left private practice to become Hermosa Beach's own city manager, first on an interim basis and then permanently. So the official whose name is now on Tuesday's staff report (recommending the council concede the ban was unenforceable) is the same person who, as a hired hearing officer, told the city exactly that two years earlier.

Money, at a moment the city badly needs it

The timing isn't incidental. Hermosa Beach's finances are under significant strain. City Manager Napolitano told the council in April that "doing nothing is no longer an option" on the budget. Mayor Detoy warned in March that rising county fire and lifeguard contract costs, on top of new labor agreements and pension obligations, "will bankrupt us. We're at the point of no return." The city posted a mid-year shortfall of roughly $548,000 and has leaned on one-time reserves to stay balanced. By May, officials were citing a $3.2 million structural deficit, projected to grow to $4.2 million within five years absent changes.

Against that backdrop, Tuesday's staff report casts the STR reversal as a fiscal opportunity as much as a legal necessity. Staff estimates the city can collect up to roughly $1.025 million in new annual General Fund revenue — TOT plus business-license fees — once coastal STRs are registered. That's on top of a separate collection effort already underway: an online STR tax and registration portal launched this year, targeting an estimated 180 to 250 previously unlicensed operators for several years of back taxes, with total collection estimated near $5 million. Operators who paid what they owed by a summer deadline had interest and penalties waived.

What's still undecided

The ordinance up Tuesday skips some of the more restrictive tools other cities use. A proposed no-fault eviction waiting period — barring STR approval for a period after a landlord evicts a long-term tenant without cause, modeled on rules in Goleta and Berkeley — is discussed as a future option but isn't part of the ordinance itself. Staff is also recommending the city adopt a 2025 state law requiring platforms like Airbnb and Vrbo to share host addresses, listing URLs and booking data on request, to aid enforcement.

Council members will choose Tuesday among three options: coastal-only STRs with a one-year evaluation period before considering more rules (staff's recommendation); the same approach on an interim basis while immediately drafting a fuller program for Coastal Commission review; or citywide STRs — legalizing them outside the Coastal Zone too — while pursuing Commission approval. Staff notes the citywide option would generate the most revenue but also the greatest enforcement burden and largest risk of tenant displacement.

Staff doesn't put a number on that citywide upside — the report only calls it the "greatest potential for TOT revenue" — and the reason may be that the real pool of potential operators is hard to bound. Nothing in the ordinance limits an STR to a dedicated, whole-home rental property. The definition carried over from the city's tax code covers any dwelling unit "or portion thereof," meaning a homeowner who lists a single spare room qualifies just as much as one who rents out the entire house — which is exactly what Todd Koerner, the man who beat the city in court, had been doing with a bedroom since 2012. Under that definition, the pool of potential landlords isn't the roughly 65 rentals currently active in the Coastal Zone, or even the city's approximately 9,000 housing units — it's every homeowner who might rent a now-empty room, or hand over the whole house for a few weeks each summer while they vacation elsewhere. Nobody can put a precise number on how many owners would actually do that, citywide or otherwise, but even scattered, occasional participation across the housing stock could plausibly push total STR-related revenue well past $2 million a year — nearly double the $1.025 million coastal-only estimate actually on Tuesday's agenda.

For now, the vote is really about ratifying what a judge already ordered: for the roughly 5,400 residential units in Hermosa Beach's Coastal Zone, the city's decade-long experiment in banning short-term rentals is over. What comes next — how many rules, how fast, and how much of the budget gap they can fill — is what Tuesday's hearing is meant to begin sorting out.

READ MORE:

Transient Occupancy Tax (TOT)

Use our interactive model to easily generate different scenarios for revenue generated by tax on hotel beds and short-term vacation rentals. Move each slider to dynamically create a scenario. The defaults are set roughly at today’s current levels, but you can model different room rates, tax rates, enforcement

The Hermosa ReviewHermosa Review

Court Rules Hermosa Beach Short-Term Coastal Rental Ban Unenforceable

A Los Angeles Superior Court judge tentatively sided with a local homeowner on Wednesday, finding the city acted outside its authority when it banned short-term rentals without state approval.

The Hermosa ReviewHermosa Review

City Will Not Appeal Landmark Short-Term Rental Ruling

After nine years of trying to enforce a short-term rental ban that courts have now declared illegal, Hermosa Beach is poised to start collecting hotel-tax revenue on roughly 200 coastal-zone rentals it has spent the better part of a decade trying to shut down.

The Hermosa ReviewHermosa Review