Pillsbury Winthrop Shaw Pittman

Ocean Avenue LLC v County of Los Angeles Affirmed; AB 2372 passes assembly

By Matthew F Burke and Craig A Becker

On 3 June 2014, in a published decision, the California Court of Appeal for the Second Appellate District affirmed the Superior Court ruling in Ocean Avenue LLC v County of Los Angeles, holding that even though 100 per cent of an entity was sold, a reassessable change in ownership of the entity’s real property did not occur because no one person obtained more than 50 per cent of the entity. Assembly Bill 2372 would change that result by requiring reassessment of an entity’s realty if 90 per cent or more of its ownership interests were sold within a three-year period, even if no one owner acquired more than 50 per cent.

Ocean Avenue acquired the Fairmont Miramar Hotel in Santa Monica in October 1999 and continues to be the record owner of the hotel to this day. Before September 2006, Ocean Avenue was a wholly owned subsidiary of Hotel Equity Fund VII. In March 2006, Equity Fund put the hotel up for auction and MSD Capital, a company owned by Michael Dell, the founder and chief executive officer of Dell, was the winning bidder. The parties initially entered into a purchase and sale agreement for MSD Capital to buy the Hotel from Ocean Avenue, but then cancelled it before closing. Instead of Ocean Avenue selling the fee interest in the hotel realty, Hotel Equity sold 100 per cent of the interests in Ocean Avenue as follows…

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