"The courts have forced our hand on short-term rentals, and until we can get a proper policy in place through the California Coastal Commission, we will ensure that operators and visitors are paying their fair share of Transient Occupancy Tax."
That's Hermosa Beach Mayor Mike Detoy, announcing in June that the city would start registering short-term rentals and collecting back taxes on them. Read it again. A mayor is not saying the city changed its mind about short-term rentals. He's saying a judge changed it for them, and the city is still building the plane while flying it.
If you're an investor or a 1031 buyer looking at a coastal-zone property in Hermosa Beach with an eye toward nightly rental income, that distinction is the entire deal. "Legal now" and "settled" are not the same claim, and the gap between them is where a buyer can get burned.
Same Ordinance, Two Cities, Opposite Rulings
In 2016, Hermosa Beach and Manhattan Beach each passed nearly identical ordinances banning short-term vacation rentals in residential neighborhoods. Both cities got sued on the same theory: that regulating overnight stays near the coast is "development" under the California Coastal Act, which means it needs a coastal development permit before a city can enforce it.
For years, the two cities got different answers to that same theory, sometimes from the same judge. In 2016, Superior Court Judge James Chalfant denied a request to block enforcement of Hermosa's ban while a related challenge worked its way through the courts. That challenge reached the Second District Court of Appeal, which upheld Hermosa's ordinance, finding it was a valid exercise of the city's police power rather than "development" requiring a coastal permit. Four years after that 2016 ruling, Chalfant heard an identical challenge to Manhattan Beach's ordinance, brought by resident Darby Keen and represented by attorney Frank Angel, and this time he ruled the opposite way. In April 2022, the Second District Court of Appeal affirmed that decision, and the California Supreme Court declined to hear Manhattan Beach's appeal, closing the door for good.
Hermosa Beach | Manhattan Beach | |
|---|---|---|
2016 residential STVR ban | Passed | Passed |
Early legal challenge | Ordinance upheld | Not yet tested |
Later ruling | Ordinance found unenforceable in coastal zone (2026) | Found unenforceable in coastal zone (2022) |
City's response | Non-appeal, then registration and back-tax push | Dropped enforcement, opened TOT collection |
Recent coastal-zone TOT revenue | Retroactive collection in progress, targeting roughly $5 million | 191 licensed operators, about $1.7 million in fiscal year 2024-25, per figures cited at a Hermosa Beach council meeting |
Manhattan Beach had four extra years to work out the mechanics of taxing and licensing coastal-zone rentals. Hermosa is doing it in real time, in public, with attorneys on both sides still arguing about the details.
What "Legal Now" Actually Means on the Ground
Here's the sequence that matters for a buyer. Attorney Frank Angel, the same lawyer behind the Manhattan Beach win, filed a new suit against Hermosa, Koerner v. City of Hermosa Beach. In July 2025, Judge Chalfant issued a preliminary injunction stopping the city from enforcing its ban against that specific plaintiff. The city kept fighting, and by early 2026 Chalfant's ruling had broadened. On May 12, 2026, the Hermosa Beach City Council voted 4-1 in closed session not to appeal.
That vote didn't legalize short-term rentals in the way a new ordinance would. It created what one local news outlet accurately called a regulatory vacuum: the city cannot cite, fine, or force closure of a coastal-zone rental, but nothing affirmatively permits one either. The 2016 ban is still on the books for the rest of the city. It still applies in full outside the coastal zone, which in Hermosa runs roughly 1,000 feet inland from the mean high tide line and covers most of the town west of Ardmore Avenue and Valley Drive. Buy east of that line intending to run nightly rentals, and you're operating under a ban that remains enforceable today.
By June 4, 2026, the city moved from vacuum to administration. It launched a registration and tax portal built with Deckard Technologies and announced that every short-term operator in the coastal zone now has to register the property, obtain a business license, and pay Transient Occupancy Tax back to May 2022. Pay everything owed by August 1, 2026, and the city waives interest and penalties. That deadline has already passed as of this writing, which means anyone catching up now is doing so without the amnesty, and should confirm current penalty terms directly with the city before assuming a clean number.
The Retroactive Tax Bill Nobody Has Actually Settled
This is the part that gets glossed over in most summaries of the ruling, and it's the part a buyer actually needs.
Hermosa's Transient Occupancy Tax is governed by Measure H, a ballot initiative voters approved in November 2015. Angel has argued publicly that Measure H's language taxes only "permitted" short-term rentals, and that unlicensed, unpermitted units were never legally on the hook for TOT in the first place. In March 2026, the city council tried to close that gap by striking the word "permitted" from the ordinance text. Angel's position is that the council doesn't have the authority to do that on its own, because voter-approved initiatives can only be amended by voters, not by council action.
The city's own councilmembers aren't unified on how hard to push. At the June 9, 2026 council meeting, Councilmember Michael Keegan suggested a wait-and-see approach, pointing to Manhattan Beach's more hands-off posture after its own ruling. Meanwhile, the city has told property owners that disputed lookback amounts can be challenged through a formal administrative hearing, and city staff have acknowledged the lookback period itself is unusual enough that disputes are likely.
Put plainly: the city is trying to collect an estimated $5 million in back taxes from operators who were never licensed, using a legal theory that the plaintiff's own attorney says doesn't hold up. If you're buying a property where the seller ran an unpermitted short-term rental at any point since May 2022, the tax status of that history is not resolved. It's being argued over right now, and it could still change depending on how that dispute plays out.
Why the City Needs This Money to Work
None of this is happening in a vacuum of its own. Hermosa Beach closed its Fiscal Year 2026-27 budget with a $3.2 million structural deficit, addressed through roughly $4.5 million in spending reductions, and separately moved about $2.07 million from the General Fund into the Capital Improvement Fund. The council has also directed staff to draft a half-cent sales tax measure for the November 3, 2026 ballot to address longer-term financial pressure. Short-term rental tax revenue is one of several levers the city is actively working, which is part of why the retroactive collection effort is unlikely to quietly fade even if the legal theory behind it is shaky. The city is also weighing whether to opt into Senate Bill 346, which would let it compel booking platforms to hand over listing and operator data, a sign that enforcement infrastructure is being built up, not scaled back.
Before You Price an STR Income Line Into Your Offer
- Confirm the parcel's location relative to Ardmore Avenue and Valley Drive. East of that line, the 2016 ban is still enforceable. West of it, you're in the current coastal-zone framework, which is registered and taxed but still legally unsettled.
- Ask directly whether the property has ever operated as an unlicensed short-term rental since May 2022, and get documentation of any TOT already paid or disputed. Don't assume a clean city portal record means the underlying tax liability question is closed.
- Treat any nightly-rate income projection as provisional against a policy that could shift again. Because Hermosa has no certified Local Coastal Program, any future ordinance the city passes to regulate STVRs more tightly will need Coastal Commission review before it can take effect, which cuts both ways for an owner hoping for more certainty.
- Build permit and business license costs into your underwriting rather than assuming current registration requirements are the final version. The framework has changed twice in six months already.
A Few Direct Questions
Is it legal to run a short-term rental in Hermosa Beach right now? In the coastal zone, roughly west of Ardmore Avenue and Valley Drive, the city cannot currently enforce its 2016 ban and requires registration, a business license, and TOT payment. Outside that zone, the ban remains in effect.
Could a past owner's unpaid short-term rental taxes become my problem after I buy? That depends on how the current legal dispute over retroactive TOT collection resolves, and on what the seller discloses. Get documentation before you close, not after.
Will these rules still be in place next year? Possibly not. The underlying legal theory on retroactive taxes is contested, the city lacks a certified Local Coastal Program, and any new ordinance will need Coastal Commission review before it's final.
If you're weighing a Hermosa Beach purchase against its rental income potential, the underwriting has to account for a policy environment that's still moving, not a settled one. The Michael Grady Group tracks these coastal-zone regulatory shifts across Venice, Marina del Rey, and the Beach Cities as part of how we price and structure deals for investors. Work with us to get access to exclusive off-market listings and a clear read on what a property's income potential actually depends on before you write the offer.
This post was written by Michael Grady of The Grady Group at The Agency. For more insights, visit grady-group.com/blogs or contact us at 310-995-8774.
