Over the last several years, I have written a number of blog articles about rent control in the Bay Area. From time to time, these articles have focused specifically on San Francisco and its notorious approach to this question. Without a doubt, it is an unfortunate fact of life that being a residential landlord under San Francisco’s existing regime can be an Augean task.
One of the biggest bones of contention in the San Francisco landlord-tenant wars has been the Ellis Act, which the state approved in 1985 to prevent local governments from adopting laws that would bar residential landlords from leaving the rental business. By way of example, in 2014 and 2015, San Francisco passed ordinances that required landlords to provide tenants substantial relocation payments (24 times the difference between the rent control rate and the market rate) if they took their properties off the market. Those ordinances were later struck down by both state and federal courts as running afoul of both the Ellis Act and the Fifth Amendment’s requirements of nexus and rough proportionality, as previously reported in this blog.
In April, California’s First District Court of Appeal struck down another San Francisco ordinance that, while offering owners of certain substandard structures relief from a longstanding obstacle to bettering their properties, imposed harsh restrictions on exiting landlords. This ordinance, in spite of the asserted benefit of preventing such rentals from being priced out of the reach of tenants, as touted by the City’s attorneys, was held by the court to be an improper violation of the Ellis Act and struck down. The substance of this case is detailed below.
Prior to the adoption of San Francisco Ordinance No. 286-13 in December 2013, San Francisco Planning Code Section 181 generally prohibited the enlargement, alteration or reconstruction of housing units that were lawfully built under then-existing zoning but exceed the permitted density for the current zones in which they are located (commonly known as “nonconforming units”). After the adoption of this new ordinance, Section 181(c) permitted such modifications of nonconforming units located in residential zoning districts, so long as those modifications did not extend beyond the boundaries of the structure existing on January 1, 2013.
For those nonconforming units in which tenants had been evicted without fault pursuant to San Francisco’s Ellis Act ordinance, however, the owner would have to wait 10 years before being able to proceed with any such improvements. These severe restrictions under the new ordinance were immediately challenged on several grounds in a lawsuit filed by a local property owner’s rights group, which was rejected by the trial court. On appeal, while the group’s other arguments were summarily dismissed by the court, a three-judge panel unanimously held that the ordinance was preempted by the Ellis Act on its face, because it penalized landlords’ exercise of their rights under the Ellis Act by imposing a 10-year restriction on their ability to modify their units, and reversed the lower court’s judgment.
In response to the group’s position that the ordinance was preempted on its face by the Ellis Act, the City advanced three contentions. First, the City argued that a facial challenge was improper because the ordinance and the Ellis Act could be harmonized depending on the circumstances. Second, the requirement of a 10-year waiting period for making modifications to properties was a legitimate exercise of the City’s land use authority. Third, the ordinance did not impose an onerous price on landlords wishing to exit the rental business.
Relying substantially on the case of San Francisco Apartment Association v. City and County of San Francisco (2016) 3 Cal. App. 5th 463, however, in which another First District panel ruled that San Francisco Ordinance No. 287-13 (which placed similar waiting periods on mergers of units subject to Ellis Act evictions) was a facial violation of the Ellis Act, the court rejected the City’s claims and found that this ordinance imposed unreasonable burdens on those landlords attempting to avail themselves of Ellis Act protections, and was thus preempted by that law. The court was particularly unimpressed by the City’s view that the 10-year waiting period would alleviate any harm to renters displaced by the landlord’s exit from the rental market, finding this argument to be speculative as to its benefits and dismissive of the protections already afforded to tenants under the Ellis Act.
The case is Small Property Owners of San Francisco Institute v. City and County of San Francisco, Docket No. A145860, filed April 11, 2018. I would like to thank my friend and colleague Peter Brewer for bringing this decision to my attention.