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Naylor v. CCSF (Hirsch): Welcomed Clarity for Landlords in Withdrawing Rental Units under the Ellis Act

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Last week, the Appellate Division of the San Francisco Superior Court provided some much needed clarity on the provision of the San Francisco Rent Ordinance that requires a landlord to notify tenants of certain information about the proposed withdrawal of their rental units, in Naylor v. CCSF

Prior to withdrawing rental units under the Ellis Act, a landlord must serve termination notices on the tenants. The court ruled that, while the landlord is required to notify the tenants of their rights to re-rent the units from the landlord (if those units are put back on the market within ten years), he is not required to inform the tenants that they have these same rights against future owners of the property, because the Rent Ordinance does not require him to.

That said, the requirements of initiating and carrying out a withdrawal of residential units from the San Francisco rental market is highly technical, and challenges to the sufficiency of notice can be comically granular. (Or, in the words of the court, the nature of the disputes can be “quite focused”.) While Naylor seems to suggest (at least in dicta) that the proper measure of sufficiency is “strict compliance” with the noticing requirements, sometimes even that isn’t enough. Last week, the San Francisco Housing Court held that the landlord in Halprin v. Wolkenstein did not properly comply with the withdrawal provisions because, while he tendered relocation checks along with the notice of termination – as required by the Rent Ordinance – the tenants did not pick up the certified letters, containing those checks, from the post office, when they missed the original delivery.

This leads to “damned if you do” situations, where a landlord could find herself arguing that she complied by sending the tenants “replacement checks”, so that they would receive their relocation payments in time to spend that money relocating, but where the tenants argue that this replacement payment did not “strictly comply” with the Rent Ordinance because it came after the notice of termination.

And this is a tough break for a landlord who waited the required one year before testing the sufficiency of her compliance with the Rent Ordinance and who must start over again from scratch – tougher still when the earth can move under her feet in the middle of the process. As Surreal Estate posted last week, the Board of Supervisors passed a diluted version of last year’s Campos Amendment, increasing the standard relocation payment due to tenants from roughly $5,500.00 per tenant to $50,000.00 per rental unit. It is unclear based on the current language how a landlord, who has already started the withdrawal process under the current rules, is expected to retroactively comply with the new ones.


Supervisor Campos’ Strategy for the SF Housing Crisis: Mission First


Supervisor Campos is receiving a lot of press lately for his unconventional position that may be heading to the ballot this November. In an effort to mitigate displacement of rent-controlled tenants in the Mission District, and address the SF housing crisis generally, he is aiming to impose a moratorium on market-rate housing developments in the Mission.

According to the San Francisco Business Times, Campos and his camp have a counterintuitive view of the affect of market-rate housing in the Mission. Of course more housing means less pressure on pricing. But they say “demand for housing in the Mission is so high that increasing supply will never push down prices. It only raises property values near new development, ripening the appetites of developers looking to make a bundle from developing more high-end condos and apartments”. In other words, gentrification is a domino effect.

Campos has plenty of political momentum on this issue. The SF Examiner reports 65% voter approval for a one-year moratorium, based on a recent poll. Last week, a mob of supporters flooded City Hall to demand a dialogue with Mayor Ed Lee, and apparently wanted him to declare a state of emergency to halt evictions in the Mission.

Even with all this energy, Campos’ measure could have a branding problem at the ballot box: he’ll need to convince all the voters who don’t live in the Mission that less housing means lower prices. This is a difficult task, to be sure – especially when his own colleague, Supervisor Weiner, thinks “his moratorium is an awful idea”.

Economics aside, the goals of this effort may also a bit ironic. Existing development policy generally requires builders to create a certain number of inclusionary units. While Campos hopes the moratorium will buy time for the Planning Department to modify its inclusionary housing policy, others, like Edwin Lindo of the San Francisco Latino Democratic Club, apparently envision a market solution to emerge from the frozen market: “Our goal is not to stop all development. Our goal is to stop incredibly large development that focus exclusively on market-rate housing . . . We need a pause to ensure that if developers are going to build in our city they’re going to figure out a way to build affordable housing, even if that could be cutting into their 15 to 20 percent profit margins”.


San Francisco, Number One! (in Rents)


We did it, you guys… We’re still on top. SocketSite reports a record-setting asking price for apartments in San Francisco, as of first quarter 2015, of $3,458 per month. San Francisco renters may have reasons to be optimistic though. The rate of increase appears to be slowing (at least compared to rates in Oakland), and new construction projects should cause prices to at least flatten out eventually.


San Francisco Expected To Pass Second Attempt at Enhanced Relocation Payments for Ellis Act Evictions

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The Board of Supervisor’s Land Use and Transportation Committee passed a revised version of last year’s “Campos Amendment” to the Ellis Act on a first reading last week. The Campos Amendment provided for enhanced relocation assistance payments based on the difference between rent controlled and market rental rates, for two years. First the federal district court in Levin v. CCSF and then the Superior Court in Jacoby v. CCSF found that payment metric unconstitutional, for lacking both an “essential nexus” with and a “rough proportionality” to a landlord’s act of withdrawing units from the rental market.

The proposed legislation responds directly to the criticisms laid out in these rulings. Its much less ambitious relocation payments are capped at $50,000.00 per unit, and the enhanced relocation payments are not required until a tenant returns a signed Declaration, stating that they will use the money for relocation costs. That said, the Declaration is now made a prerequisite to terminating tenancies under the Ellis Act, which may raise preemption concerns. And the enforcement mechanism contemplated by the proposed legislation requires a tenant to keep track of expenditures so that their former landlord can request and verify that they’ve used the money for housing, which may raise privacy concerns.

The proposed legislation is expected to pass on its second reading this Tuesday, before the Board of Supervisors sends it to the Mayor.


San Francisco Lawmakers “Sharing” in the Task of Amending the New “Airbnb Law”


Mayor Lee and Supervisor Farrell introduced an amendment to the new “Airbnb law” this week. Currently, an overloaded Planning Department has been charged with regulation of Airbnb (and other short term rental) listings. This comes on the heals of another amendment proposed by Supervisors Campos and Kim, and mere months after the original ordinance took effect.

The Lee/ Farrell amendment would create a new office, the Office of Short-Term Rental Administration and Enforcement, which, as the name suggests, would be able to focus more singularly on this type of housing use, which The Chronicle estimates to affect 5,000 homes in the City for Airbnb listings and another 1,200 for VRBO.

Meanwhile, Airbnb CEO Brian Chesky appeared on APM’s Marketplace this week and explained that Airbnb’s own studies show that Airbnb either has no impact or a de minimis impact on rental prices and that it is actually allowing people to stay in their homes… so no one has anything to worry about.

The amendment would also increase the limit for allowable listings to 120 days per year, up from 90 in the existing version.


Rent Board Publishes Annual Report on Eviction Notices

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The San Francisco Rent Board recently prepared its Annual Report on Eviction Notices for the San Francisco Board of Supervisors, detailing the number of eviction notices filed with the Rent Board from March 1, 2014 to February 28, 2015, indexed by the “just cause” used by the landlord.

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The biggest change is a 117% increase in termination notices based on “illegal use of rental unit”. There was also a 48% drop in Ellis Act termination notices. Note: the San Francisco Rent Ordinance does not require landlords to file “non-payment of rent” notices with the Rent Board. While 145 notices were filed anyway, this is not believed to accurately reflect the number of notices for this period.


Senator Leno Gets Second Vote on Second Attempt to Curtail Ellis Act Evictions in San Francisco

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Senator Mark Leno presented SB 364 to the Senate Housing Committee today – his second effort to impose “anti-speculator” restrictions on Ellis Act withdrawals in San Francisco. Busloads of San Franciscans, on both sides of the issue, headed to Sacramento to share their opinions. Ultimately, the 6-5 vote against SB 364 maintains the status quo in the City, pending reconsideration, where the housing committee will hold a second vote (so stay tuned).

Leno’s SB 364 would add provisions to the Ellis Act providing that, in order to invoke the Ellis Act to “go out of the rental business” an owner would need to own the property for “five continuous years or more”. It would also provide that an owner who even initiated an Ellis Act withdrawal for one building could not do so for a subsequently-acquired building for another ten years (forcing owners to really stand behind the statement, “I don’t want to be a landlord”).