ABC News Interviews Andrew Zacks about the “Other Side” of the SF Rent Crisis

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ABC-7 News’ I-TEAM explores the San Francisco Housing Crisis from the rarely-told perspective of a local landlord. Attorney Andrew Zacks explains how the pendulum has swung too far against landlords in San Francisco. Mayor Ed Lee responds that the City emphasizes fairness, and the solution is more affordable housing. Lee recently stood behind this position, encouraging an unprecedented housing bond to subsidize affordable housing for San Francisco’s middle class.

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Supervisor Kim Proposes Discouraging Evictions Through Vacancy Control

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San Francisco Business Times reports that Supervisor Kim is in the process of drafting new legislation that would discourage evictions by imposing rent control on newly vacated units.

Costa-Hawkins already imposes “vacancy control” in the event that a tenancy is terminated following a “notice of rent increase” or a “notice of termination of tenancy” – the former discouraging abusive rent increases designed to obtain vacancy, rather than market rent, and the latter disincentivizing the termination of long-term rent-controlled tenancies. (Legislative intent is unclear on this point, but this language seems to have been to ward off a wave of landlords terminating grandfathered tenancies as Costa-Hawkins was coming on-line in the late 1990s.)

Supervisor Kim’s proposal, on the other hand, is more likely aimed at addressing the increasing number of evictions based on breach of contract and “nuisance behavior”, which skyrocked in the last year for which the Rent Board published data. Her legislation would presumably impose the same kind of “vacancy control” restrictions that Costa-Hawkins itself contemplates.

However, even if her proposed legislation passed, it is not expected to stay on the books for long. Costa-Hawkins was enacted, in part, to prohibit “vacancy control”, where cities would register rental units and impose rental rate restrictions, even when a newly vacated unit was placed on the open market. This deregulation applies, “notwithstanding any other provision of law“.

At least one other law “withstood” this plenary language. The court in Apartment Association of Los Angeles County, Inc. v. City of Los Angeles found that Costa-Hawkins did not repeal provisions of the Ellis Act allowing cities to restrict rental rates of rental units that were re-rented after a landlord “went out of the rental business”. However, the Ellis Act is state law, on equal footing with Costa-Hawkins. It is unlikely that a court would allow municipal law to carve out its own exception in an area already expressly governed by state law.

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Mayor Lee Proposes Unprecedented Middle Class Housing Subsidy

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How hard is it for San Francisco’s middle class? This November, Mayor Ed Lee will ask San Francisco voters to decide whether the City should issue a $250 million dollar “Affordable Housing General Obligation Bond”, where as much as $100 Million would go toward directly subsidizing the production of “middle class” apartments (units for households making between $100,000 and $140,000 per year).

The City already has a patchwork of other tools in its Inclusionary Affordable Housing Program, including the Downpayment Loan Assistance Program, which provides downpayment loans to middle class residents, the overseeing of Below Market Rate units, and the Small-Site Acquisition Program, which actually purchases multiunit residential buildings to preserve affordable housing stock (generally in response to Ellis evictions and “tenancy-in-common” conversions).

This bond, if successful, would allocate funds toward subsidizing “middle income units”, where “the city would pay about $150,000 to $200,000 per unit to restrict them at moderate-income rents for perpetuity”, as reported by the San Francisco Business Journal. No word yet on whether the process of renting one of these restricted units would be any less laborious than the process for renting below market rate housing.

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Surreal Estate Q&A #4: Deregulation of Mixed-Use Property

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“I have a building with a retail space on the bottom and a single apartment on top in San Francisco. The renter has been there for years, and I haven’t increased the rent yet. These days, his rent is well below market rate. I’m wondering if I can increase his rent, and by how much. ~ Michael”

Michael,
Thank you for your question. First of all, if his initial term lease has expired, you can always increase the rent by at least the annual allowable rent increase, as published by the San Francisco Rent Board. And if you haven’t done this for a few years, you can actually “bank” past year’s allowable increases and impose them all at once. (You lose out on the equivalent of rent increase “compound interest” by waiting, but you don’t actually forfeit your allowable increase by waiting.)

That said, I think your question is directed more toward whether the dwelling unit is rent controlled. My first follow up question would be whether the building was constructed after 1979. However, the profile of this building (one commercial, one residential) sounds like it is probably not “new construction”.

So the only real issue here is Costa-Hawkins deregulates this kind of unit. The language of Section 1954.52(a)(3) deregulates a dwelling unit that “is alienable separate from the title to any other dwelling unit . . .”. The building is multi-unit, but because only one of the units is a dwelling unit, the entire building is technically “separately alienable” from other “dwelling units”.

That said, I would want to double check zoning and make sure that there was never any residential use of the downstairs space, to avoid the imputing of “residential use” to a non-residential unit, as was the case in the recent decision, Burien, LLC v. Wiley.

~JAG

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Market Rate… Moratoria?

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Curbed SF reports that Bayview residents are rallying to extend the Mission’s proposed market rate housing moratorium to Bayview, the logic of a moratorium being all the more alluring to a community that saw a 75% increase in home values between 2010 and 2014, to the Mission’s 63%.

Supervisor Campos champions his proposed moratorium as a mechanism to slow gentrification in the Mission. However, as Grace Martinez of the Alliance of Californians for Community Empowerment urges, “If you do a moratorium in the Mission, they’re just going to build in the Bayview, so let’s protect our neighborhood as well”. That said, if Bayview were to successfully withstand the momentum of development deflected off of the Mission, one wonders which neighborhood would be up next.

Meanwhile, Supervisor Weiner continues to confront the concept of a moratorium generally, noting that such agendas undercut the City’s inclusionary housing program. See his recent post at Medium.com.

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Supervisors Farrell and Weiner Request Economic Report for Mission Market Rate Moratorium

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The SF Examiner reports that Supervisors Mark Farrell and Scott Weiner have requested an economic evaluation of the impact of Supervisor Campos’ proposal to stop market-rate housing developments in the Mission. In response, Campos requested a 45-day moratorium, which he urges will have no economic impact. Weiner has previously expressed his disapproval of Campos’ proposal.

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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.

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Residential Rent and Eviction Control Resources