CalRHA Affiliate Wins Court Battle Regarding Ellis Act Relocation Payments

The lawsuit challenged an ordinance that dramatically increased relocation payments that San Francisco rental owners must give to tenants. - Written by CalRHA - Posted Apr 11, 2017

March 22, 2017 – San Francisco – The Small Property Owners of San Francisco (SPOSFI) and a group of local property owners prevailed in the Court of Appeal against the City and County of San Francisco. The lawsuit challenged a recent ordinance that dramatically increased relocation payments that San Francisco rental property owners must give to tenants whose rental units are withdrawn under the state’s Ellis Act. (The Ellis Act is a California state law that guarantees property owners’ right to “go out of the rental business”.)

The Court of Appeal of California, First Appellate District upheld two superior court judgments invalidating San Francisco Ordinance No. 68-15 in Coyne et al. v. City and County of San Francisco (2017) A145044. The Court of Appeal held that the ordinance imposes a “prohibitive price” on an owner’s ability to exit the residential rental business, and therefore it is preempted by the Ellis Act. As a result, the City of San Francisco is precluded from enforcing Ordinance 68-15.

A copy of the Court’s decision is available at http://www.courts.ca.gov/opinions/documents/A145044.PDF.

Attorneys Andrew M. Zacks and Emily L. Brough of Zacks, Freedman & Patterson, PC represented the petitioners at both the trial court and the appellate level, winning in both instances. Andrew M. Zacks said, “This is a victory for all San Francisco property owners. The Court of Appeal’s decision makes clear: the City cannot force owners to remain in the rental business under threat of exorbitant fees and invasive administrative procedures.”

The Court held that the ordinance places unlawful conditions on an owner’s right to go out of the residential rental business that are not found in the Ellis Act. Writing for the Court, Presiding Justice Barbara Jones found that the ordinance’s Rental Payment Differential obligation – a requirement that landlords subsidize their former tenants’ new apartments for two years – is “a form of ransom which interferes with and places an undue burden on landlords who seek simply to go out of business.”

The ordinance “imposes a prohibitive price on the ability of landlords to exercise their rights under the Ellis Act.” The Court reasons, “A property owner’s lawful decision to withdraw from the rental market may not be frustrated by burdensome monetary exactions from the owners to fund the City’s policy goals.”

The Court finds that the City’s housing crisis is the not the fault of an individual owner who exits the residential rental business, but rather the consequence of the City’s rent-control laws. The Court writes, “We disagree with the City’s analysis that attributes a tenant’s future increased rent in new housing to his landlord’s decision to exercise Ellis Act rights. This analysis ignores the impact of the City’s policy decision to impose residential rent control, creating a rent differential.”

The Court also notes serious concerns regarding the ordinance’s procedure for owners to request a hardship-related fee reduction from the Rent Board: “Forcing an owner to endure an uncertain administrative procedure of unknown duration requiring the disclosure of sensitive personal information simply to find out whether relocation payments are financially prohibitive may impose a prohibitive price on Ellis Act rights.”

Noni Richen, president of the Small Property Owners of San Francisco Institute, said, “We are thrilled with the Court of Appeal’s decision. This was the right decision under the law and the right decision for San Francisco.”

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