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First District Affirms San Francisco Housing Court on Small Property Owners’ Challenge to Enhanced Relocation Assistance Payment Ordinance: Coyne v. CCSF

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“We conclude the prohibitive price standard is the appropriate standard to determine conflict preemption under the Ellis Act. It is the measure appellate courts consistently adopt to determine if a challenged ordinance contradicts the state law.”

Today, Division Five of the First District Court of Appeal affirmed Judge Quidachay of the San Francisco Housing Court, who previously held that San Francisco’s enhanced relocation assistance payment ordinance was not a “reasonable” means of mitigating the impact of tenant displacement by the Ellis Act. In 2015, plaintiffs, including individual landlords and the Small Property Owners of San Francisco, argued in Coyne v. CCSF that an enhanced relocation assistance payment regime was preempted by the Ellis Act. The payment amounted to a subsidy of a tenant’s new rent for two years after displacement under the Ellis Act.

Division Five affirmed the ruling, but determined that the correct standard was whether a local ordinance places a “prohibitive price” on a landlord’s ability to exit the rental market. “Like provisions in past City-enacted ordinances which have been invalidated, the City’s Rental Payment Differential obligation places conditions on a landlord’s right to go out of business that are not found in the Ellis Act. The Ellis Act contains no requirement that obliges a landlord to pay their former tenants future rental subsidies so that they can leave the residential rental business.” Division Five agreed with its colleagues in Division Three, which recently applied the “prohibitive price” standard to invalidate San Francisco’s prohibition on the merger of rental units for 10 years after an owner has invoked the Ellis Act.

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Costa-Hawkins.com Coverage of AB 1506 Featured in Small Property Owners of San Francisco March 2017 Newsletter

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Justin Goodman’s thoughts on AB 1506 – an assembly bill aimed at repealing the Costa-Hawkins Rental Housing Act – were featured in the March 2017 Newsletter of the Small Property Owners of San Francisco.

The non-profit SPOSF Institute describes its mission as providing owners of small rental properties in San Francisco with the tools and information necessary to conduct business successfully in a difficult regulatory climate, through educational programs, publications, and workshops that seek to help members better understand their rights and obligations, how to work constructively with city and state officials, and how to deal effectively with their tenants. SPOSF also seeks to protect the rights of small property owners against unfair and burdensome regulations through legal advocacy.

SPOSF holds monthly meetings at St. Mary’s Cathedral, located at 1111 Gough Street in San Francisco. You can join SPOSF by clicking here. Members have access to the full monthly newsletter.

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Board of Supervisors Seeks To End Transient Use of SRO Units

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San Francisco may soon prohibit transient use of residential hotels (also known as “SRO” (single room occupancy) units). Sponsored by a swell of Supervisors – Aaron Peskin, Jane Kim, Ahsha Safai, Jeff Sheehy, Malia Cohen, Hillary Ronen, Norman Yee, and London Breed – the proposed Ordinance, if passed, would amend Administrative Code, Chapter 41 (i.e., the Hotel Conversion Ordinance) to prohibit the “conversion” of SRO units to Tourist or Transient Use, defined as “any use of a guest room for less than a 32-day term of tenancy by a party other than a Permanent Resident”.

By hosting guests instead of providing housing to residents, SRO owners can avoid the creation of a tenancy and the application of local eviction and rent controls to the units.

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SocketSite Reports SF Rents Slide Back Down to 2014 Levels

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Having “only” increased by 4.5% in 2015, early 2017 rents have reportedly dropped 8% since the same time last year, and SocketSite reports that San Francisco rents have fallen back down to 2014 levels.

Only time will tell if this is a function of peak unaffordability, the inevitable realization of the development pipeline from the recent housing boom, or a decline in the number of San Francisco residents with jobs.

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San Francisco Academy of Art Settles Lawsuit with the City

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SFGate reports that the Academy of Art University has reached a settlement of the lawsuit by the City for unlawful conversion of housing units. According to SFGate, the Academy has agreed that it will do the following:

•Pay the city $20 million in fines and fees over five years — $7 million of which would go into a city fund to buy rent-controlled apartment buildings and maintain them as low-cost housing.

•Provide and maintain at least 160 units of low-income housing for senior citizens on two adjacent sites that the academy owns on Nob Hill near Chinatown. Some of the units would be new construction. The Mayor’s Office of Housing and Community Development estimates the deal will be worth $40 million to the city over the 66-year life of the agreement.

•Shut down school operations at three sites the academy owns, at 2295 Taylor St. on Russian Hill, at 2340 Stockton St. near Fisherman’s Wharf, and at 700 Montgomery St. in the Financial District.

•Limit future enrollment to the amount of housing that the academy has on hand.

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SFGate: Artist Gets Eviction Notice in the Wake of Ghost Ship Tragedy

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It is not uncommon tenants of non-residential rental spaces to actually be living in the unit. These occurrences can range from the innocent (landlord doesn’t realize they never obtained a certificate of final completion on the new construction) to the handshake deal (tenant renting a logically divisible portion of a single family home with its own sink and stove) to the aggressive, unapproved highest use of a property.

In the wake of the tragic Ghost Ship fire, Bay Area landlords are cracking down on unpermitted use. The SF Chronicle reports on a use of a warehouse as an apartment/dance studio, and a landlord’s efforts to terminate the tenancy and end the unpermitted use.

In this particular case, the landlord is relying on a 30-day notice of termination. Generally, an established residential tenancy requires a 60-day notice, and, in San Francisco, also requires “just cause” (for instance, that the landlord is taking it off of the residential rental market or has permits to demolish the space).

It has been evident for some time that an unpermitted space may still be subject to residential rent control ordinances if it is rented to a residential tenant for residential use. A recent Appellate Division case out of Los Angeles has also clarified that a landlord may not enforce conventional lease obligations – like paying rent – against a residential tenant in an unpermitted unit, because the contract is considered void.

It is very likely that a court would consider the residential use of this dance studio sufficient to earn the hallmarks of residential tenancies in San Francisco – namely, that they require just cause to terminate. (It would follow that, under state law, 60 rather than 30 days’ notice to vacate for residential tenancies would be required.) The landlord may need conditional use to remove the “unauthorized unit” or have to invoke the Ellis Act to remove the building from the residential rental market.

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San Francisco Legislative Update (2016): Landlord Discrimination in Internet Service Providers Prohibited

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The San Francisco Board of Supervisors unanimously passed Ordinance 250-16, prohibiting ISP monopolies in “multiple occupancy buildings” (meaning more than four residential units), in what the SF Chronicle believes to be the first of its kind enacted by a U.S. city.

Ordinance 250-16 adds article 52 to the SF Police Code and mandates such bold edicts as “No property owner shall interfere with the right of an occupant to obtain communications services from the communications services provider of the occupant’s choice”.

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SFAA v. CCSF – First District Court of Appeals Affirms Challenge to San Francisco Planning Code Ellis Act Discrimination

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“[R]ather than regulating the particulars of a landlord’s proposed merger (or demolition or conversion) of a residential unit, section 317(e)(4) prohibits a landlord withdrawing a residential unit from the rental market from merging the unit with another unit for 10 years. In doing so, section 317(e)(4) imposes a penalty on the very class entitled to protection under the Ellis Act – to wit, landowners seeking to exit the residential rental business. As such, under the legal authority cited above, section 317(e)(4) is indeed invalid.”

Division Three of the First District Court of Appeal affirmed the San Francisco Superior Court’s determination that San Francisco may not deny applications to merge dwelling units, under Planning Code section 317(e)(4), by property owners who have invoked the Ellis Act.

In San Francisco Apartment Association v. City and County of San Francisco, the SFAA challenged San Francisco Ordinance 287-13, which regulated the merger (i.e., joining) of two existing dwelling units, and which specifically prohibited approval for such merger when there had been a non-fault eviction within the ten years prior to the application (or an owner/relative move-in eviction within five years).

The then-existing version of San Francisco Planning Code Section 317(e)(4) provided that, “The Planning Commission shall not approve an application for merger if any tenant has been evicted pursuant to Administrative Code Sections 37.9(a)(9) through 37.9(a)(14) where the tenant was served with a notice of eviction after December 10, 2013 if the notice was served within ten (10) years prior to filing the application for merger.”

The challenge focused exclusively on the Ellis Act (as opposed to other non-fault evictions under the Rent Ordinance) because the Ellis Act is a state (not local) law (Cal. Gov., §§7060, et seq.) that “‘completely occupies the field of substantive eviction controls over landlords’ desiring to exit the residential rental market.”

Courts have traditionally viewed substantive eviction controls as the purview of local governments, while viewing state law (e.g., the unlawful detainer statutes) as occupying the field of procedural rules for evictions. This ruling illustrates the Ellis Act as an exception.

Division Three noted that, “the issue is whether the Ordinance enters into the field of ‘substantive eviction controls over landlords’ that has been reserved for the State”, essentially scrutinizing the impact of local laws imposing a penalty on the exercise of this particular type of eviction. In other words, cities can otherwise enumerate the allowable bases to terminate residential tenancies, but they must include the Ellis Act and they may not discriminate against it.

This decision potentially opens the door to challenges to a variety of Ellis Act “penalties”, including the recent “Accessory Dwelling Unit” ordinance, which allows property owners to create dwelling units out of unused space in existing properties… unless they’ve invoked the Ellis Act within the last ten years.

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San Francisco Legislative Update (2016): Accessory Dwelling Unit Ordinance Finds Additional Housing Stock in Existing Space

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San Francisco’s new “Accessory Dwelling Unit” law – adopted in Ordinance 162-16 – is another effort in the City’s broader plan of trying to squeeze additional dwelling units out of existing inventory. Accessory Dwelling Units (also known as “ADUs”, “Secondary Units” or “In-Law Units”) are defined as dwelling units entirely within the existing built “envelope” of an existing building. (In other words, with the exception of allowing small height increases when ADUs are built in conjunction with seismic retrofit work, the addition cannot increase the size/height of a building.)

The Planning Code distinguishes between buildings with four or fewer existing dwelling units and those with more than four. For the former, one ADU is permitted, while there is no limit for the latter, so long as the additions conform with the ADU rules. These rules include the following:

• An Accessory Dwelling Unit cannot be constructed using space from an existing dwelling unit. They also cannot be merged with another dwelling unit;
• They cannot be created in certain Neighborhood Commercial Districts;
• They cannot be used for Airbnb/short term residential rentals;
• They cannot be converted to condominiums;
• While ADUs are necessarily “new construction”, they are exempted from vacancy control prohibitions under Costa-Hawkins, and this is the case whether or not the building in which the ADU is located is also “new construction”;

ADUs are, however, prohibited where the property owner has performed an owner/relative move-in eviction within five years or any other non-fault eviction – like the Ellis Act – within ten.

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