Small Property Owners of San Francisco v. City and County of San Francisco (2018) – Cities May Not Impose Land Use Penalties on Property Owners Who Have Invoked the Ellis Act

“By imposing a 10-year waiting period on alterations to non-conforming units where property owners have exercised their Ellis Act rights, the ordinance penalizes property owners who leave the rental market. The ordinance does not regulate the particulars of the remodeling of a nonconforming unit, but rather prohibits any such changes for a period of 10 years after the property owner exits the rental business. By imposing such a prohibition on property owners who have left the rental market, the ordinance challenged here improperly enters the field of substantive eviction controls over such property owners.”

In SPOSFI v. CCSF (2018), the Small Property Owners of San Francisco challenged San Francisco Ordinance 286-13. Prior to that ordinance, Section 181 of the Planning Code prohibited the “enlargement, alteration or reconstruction” of nonconforming units. (These are legally constructed units in buildings that were “down-zoned” after the fact. As this is essentially a “math” problem, a property owner would designate the particular unit in the property that gets the “nonconforming” designation.)

Ordinance 286-13, however, allowed such modifications within the existing building envelop, so long as residential use was principally permitted in the zoning district and the owner had not performed a non-fault eviction at the property. In that circumstance, the owner could not make any changes for a period of ten years.

The Small Property Owners filed a lawsuit for writ of mandate and declaratory relief on three bases. First, they alleged that the City had not complied with its own procedures for enacting zoning ordinances (or making “material modifications to them”) without prior approval of the Planning Commission. The Court of Appeal affirmed the trial court’s determination that the Small Property Owners had had ample opportunity to challenge this at a Board of Supervisors Land Use Committee meeting, and they did not. Petitioners are required to timely exhaust administrative remedies. “In an action that challenges the adoption of a zoning ordinance, the issues are limited to those raised before close of the public hearing on the legislation”.

Second, the Small Property Owners argued that the Board did not comply with CEQA – the California Environmental Quality Act. CEQA has a process designed to ensure that public agencies consider the environmental impacts of their decisions. The first step is to determine whether the proposed action is a “project” for the purpose of CEQA. The Court of Appeal again affirmed the trial court determination that the Small Property Owners had not timely raised this concern before public comment was closed.

Finally, the Small Property Owners challenged the ordinance on the basis that it is facially preempted by the Ellis Act. The Court of Appeal agreed, reversing the trial court. It relied on the reasoning of a recent case, SFAA v. CCSF (2016) finding that, “The 10-year waiting period, however, was more akin to a substantive requirement triggered upon a landlord’s notice of intent to remove a rental unit from the rental housing market than to local regulation of the particulars of the demolition and the redevelopment of the property after it is withdrawn”.

SFAA challenged a similar San Francisco ordinance prohibiting the “merger” of residential units in a building where the landlord had invoked the Ellis Act. Like the ordinance enjoined in SFAA, Ordinance 286-13 “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, the ordinance is indeed invalid.”

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