Over the past several years, the already high cost of housing in Silicon Valley and the Bay Area has risen precipitously, which has made the subject of rent control an unavoidable topic of discussion here, including in my blog. Nowhere in the region is this issue more contentious than in San Francisco, where landlords, tenants, lawmakers and the courts have been grappling with it since the late 1970s. In this latest chapter of the City’s seemingly never-ending rent control saga, its beleaguered efforts to impose a burdensome increase of the relocation payment required to be given to tenants by landlords exiting the rental market pursuant to the state Ellis Act have suffered yet another setback, this time at the hands of California’s First District Court of Appeal.
As many of you may be aware, the Ellis Act was adopted by the California legislature in 1985 for the purpose of superseding the California Supreme Court’s ruling in Nash v. City of Santa Monica (1984) 37 Cal. 3d 97, which upheld a local ordinance limiting landlords’ ability to remove their units from the local rental market stock. Codified at California Government Code Section 760 et seq., the Ellis Act bars local governments from enacting legislation to compel owners of residential property to rent or lease their property.
In 2014, the San Francisco Board of Supervisors amended the existing provisions of its rent control ordinance that required landlords who withdraw their property from the rental housing market to make a relatively modest relocation payment to their displaced tenants (Section 37.9.A of the City’s Administrative Code). This amendment increased the relocation payment for evictions under the Ellis Act to an amount equal to 24 times the difference between the unit’s current rental rate and the market rate for a comparable unit, fixed under a preset schedule.
This new legislation was immediately challenged in federal court. In Levin v. City and County of San Francisco (N.D. Cal., Oct. 21, 2014) Case No. 14-03352, Judge Charles Breyer held that the ordinance was unconstitutional on the grounds that it failed to meet the “nexus” and “rough proportionality” standards established by the U.S. Supreme Court in the Nollan and Dolan cases for exactions being imposed for land use purposes. Judge Breyer ruled that these requirements were not met because the rent differential that a landlord would be forced to pay to a tenant under this amendment was not caused by the landlord’s having taken the property off the market, it was instead due to market forces beyond the landlord’s control. As noted previously in this blog, “nexus” and “rough proportionality” are critical limitations on fees and other impositions mandated upon land use activities set down by the late Justice Antonin Scalia in Nollan and Dolan.
In an attempt to address the deficiencies called out by Judge Breyer in his decision in Levin, San Francisco’s Board of Supervisors once more amended the tenant relocation payment provisions of its rent control ordinance in 2015. Among other limitations, the new amendment placed a cap of $50,000 on the amount that a landlord must pay a tenant for removing a rental unit from the market under the Ellis Act.
While the Levin federal litigation was moving forward, two state court lawsuits were also filed with regard to the 2014 and 2015 amendments. After injunctions were issued in both of those lawsuits and judgment was entered against the City (on the basis of the Levin ruling as well as preemption by the Ellis Act in the 2014 amendment case and on the basis of Ellis Act preemption alone in the 2015 amendment case), the two cases were consolidated for appeal. While the state court appeal was pending, in early March 2017, the Ninth Circuit dismissed the City’s appeal of Judge Breyer’s ruling in the Levin case on the ground that it was moot, based on the fact that the 2015 amendment of the tenant relocation payment ordinance was adopted specifically in response to the Levin ruling, sufficiently altering the amended ordinance from the one at issue at trial to present a substantially different controversy on appeal.
Finally, late last month, the First District Court of Appeal affirmed the judgments of the trial court and ruled against the City. The Court of Appeal found that the both the 2014 amendment and the 2015 amendment conflicted with the stated purpose of the Ellis Act, namely, to allow landlords to exit the rental market, by imposing a “prohibitive price” on the landlord’s exercise of its rights. As such, the two amendments were preempted by the Ellis Act and were invalid as a matter of law.
The case is Coyne v. City and County of San Francisco (First District Court of Appeal, March 21, 2017) Case Nos. A145044 and A146569.