Last week, the United States District Court for the Northern District of California invalidated an amendment to the San Francisco Rent Ordinance requiring an increase to the existing relocation payments owed to tenants in non-fault evictions pursuant to the Ellis Act. The new, enhanced payments were calculated based on market rate differentials – the difference between the tenant’s rent-controlled rental rate and the cost of a comparable unit on the open market. In some cases, this number reached six figures per unit.
Finding that the new law constituted a monetary exaction, prohibited under the Takings Clause without the payment of “just compensation”, Judge Breyer found that there was no “essential nexus” between the right to change the use of property (i.e., to no longer allow rentals) and there was no “rough proportionality” between the costs a displaced tenant faced on the open market and the direct consequences of a decision by the landlord to go out of the rental business. (By contrast, challenges to the previous relocation payment scheme, requiring a payment based on the cost of first months’ rent, last months’ rent, and security deposit at a new rental unit, have been upheld as comporting with the Ellis Act.) The City is expected to appeal the decision to the 9th Circuit.