The Ellis Act is a California state law providing property owners with the ability to “go out of the rental business”. In cities with eviction control ordinances, landlords may only terminate tenancies for cause. The Ellis Act requires that these cities allow property owners to withdraw their property from the residential rental market, permitting them to terminate any residential tenancies in the withdrawn property.
What Rental Units Does the Ellis Act Apply To?
The Ellis Act allows owners to withdraw “accommodations”. The Ellis Act defines accommodations either as an entire building (if there is only one building on the parcel) or each building on the parcel if any one of the withdrawn buildings has three or fewer units.
The Ellis Act does not require landlords to terminate commercial tenancies. A landlord may terminate all of the residential tenancies in a mixed use property, leaving the coffee shop and dry cleaner in business. Or, in the case of unpermitted residential use of commercial/office space, a property owner could withdraw the rental units from the residential rental market but then rent them for their permitted, non-residential use, without restriction.
What Does the Ellis Act Do?
The Ellis Act resists local regulations designed to compel landlords to remain in the residential rental market. In simplest terms, this means that a property owner can evict their residential tenants. However, the Ellis Act also provides comprehensive and substantive rights to property owners, where local law comes into conflict with the right not to be compelled to be a residential landlord.
For instance, San Francisco previously would not issue permits to “merge” rental units (i.e., physically connect two distinct units) where the property owner invoked the Ellis Act within the last ten years. The San Francisco Apartment Association recently prevailed in a lawsuit against the City on the basis that this imposed a “prohibitive price” on a landlord’s substantive right to exit the rental business.
While cities may require a property owner to pay mitigation fees for displaced tenants to compensate them for relocation costs, those fees cannot take the form of “prospective rental subsidies under the guise of relocation assistance” (for instance, a two year subsidy for displaced tenants based on the difference between their former rent-controlled rental rate and the price for a market-rate unit).
In an effort to limit use of the Ellis Act so that multiple owners of multi-unit buildings could each live in their own unit (known as a “TIC” or “tenancy-in-common” agreement), San Francisco sought to prohibit this practice by prohibiting “exclusive rights to occupancy” (i.e., designating that a particular owner was allowed to use a particular unit) and requiring that TIC agreements be recorded. This restriction violated the Ellis Act (as well as the constitutionally-protected right to privacy).
What Is Required To Invoke the Ellis Act?
The Ellis Act is merely a basis to terminate a tenancy. If former tenants choose to remain in possession of their units after the property is withdrawn, the property owner needs to evict them. To do this, the property owner may need to establish a “bona fide intent” to exit the rental market. A property owner is likely to lose at trial where there is evidence of an existing, market rate lease agreement for the withdrawn rental unit. It is even possible that previous violations of the Ellis Act, even at another property, will serve as a defense.
As explained above, landlords must also pay relocation assistance to their tenants, and they must file, serve and record about half a dozen documents throughout a 120-day withdrawal process. In San Francisco, relocation assistance consists of a “base” payment per tenant (capped at three tenants per unit), along with an additional payment for tenants who are at least 62 or who are disabled.
How Long Does the Ellis Act Take?
The Ellis Act requires, by far, the longest notice of termination for a tenancy. Every other termination notice of a long-term tenancy requires 60 days. The Ellis Act requires at least 120 days. Tenants who are at least 62 or are “disabled” may claim an extension of the withdrawal date to a full year. (It is also important to note that this is just the timeframe for the transactional aspect of the Ellis Act. An eviction lawsuit could add months and considerable expense.)
The meaning of “disabled” in the context of an extension claim can be vague, and the Ellis Act provides no basis to challenge claims of extension, other than to “trust your gut”, and file a lawsuit on Day 121 if you do not believe the claim is valid. However, while a landlord who provides the full year will need to prove procedural compliance with the Ellis Act to win an eviction lawsuit, a landlord disputing a disability claim will need to prove procedural compliance and litigate whether the tenant is disabled. Further, failing to terminate the tenancy in a specific unit could possibly jeopardize compliance as to the whole building.
What Does the Ellis Act Do to My Property?
The Ellis Act allows landlords to exit the rental business by imposing “constraints” against residential rental use on the title to your property. These constraints are inevitable once the process begins, and as a practical matter, they are irrevocable and will continue to burden the property for the full statutory period.
The Ellis Act requires that a property owner file a document called a “notice of intent to withdraw residential units from the rental market” with the San Francisco Rent Board, and this document must contain the names, dates of commencement of occupancy and the rental rate for each tenant in the building.
The “withdrawal date” is the date that the Ellis Act procedure is complete (which is either 120 days or one year from the start of the process, depending on whether or not the tenant makes an extension claim). (A multi-unit property with one extension claim will have two different notices of constraint on title reflecting the two different withdrawal dates.) The constraints will apply as follows:
- For the first five years after the withdrawal date, a property owner may not re-rent the units, unless she first offers them to the displaced tenants at the former rental rate.
- For the first ten years after the withdrawal date, a property owner may not re-rent the units, unless she first offers them to the displaced tenants.
- For the first two years after the withdrawal date, a property owner really should not try to re-rent the units under any circumstances, because this will subject the landlord to prosecution by the city and liability to the tenant.
Political Problems with the Ellis Act
The Ellis Act is an often-maligned property right because it almost always displaces tenants paying under market rate and owners often use it to facilitate owner-occupancy, so it has an effect on the inventory of affordable housing. There have been efforts to affect use of the Ellis Act by punishing speculation, increase the cost-per-unit relocation payment to a prohibitive price, and penalize land use rights for Ellis’ed property. (There are even whispers that the Planning Department is less likely to issue permits for constrained property.)
Tenant groups protest withdrawn properties and the property owners who withdraw them. They monitor the level of Ellis Act evictions in the City over time. As a result of protests, First Republic Bank now requires property owners to sign a “no Ellis pledge” before they will finance the purchase of multi-unit property in San Francisco.
The strife calls to mind an old joke:
“Why is divorce so expensive?”
“Because it’s worth it.”
Does Using the Ellis Act Make Me a Bad Person?
You are not a bad person for using the Ellis Act. San Francisco regulates eviction and price controls for pre-1979 rental units, and there are about 176,000 of these units in San Francisco. Every year, there are more regulations imposing obligations on property owners who are in the residential rental business, and these landlords bear increased costs over time while rental incomes remain roughly the same.
Further, some property owners seek to actually live in their property (in a manner not contemplated by the regulations for an “owner move-in” eviction) or to sell multi-unit property to multiple owner-occupiers. Some owners also need to perform maintenance or renovation work, and while temporary displacement is a just cause for eviction, sometimes it is simply impracticable to perform this work on a rigid timeline with potential liability to the tenant if the owner has not completed work in time. The Ellis Act is merely a tool to allow property owners to reclaim possession of their rental units, free from a large swath of local regulation on its use.
Should I Choose Zacks & Freedman, PC for my Ellis Act Eviction?
The Ellis Act is the most complicated, onerous and difficult “just cause” for eviction in San Francisco. Zacks & Freedman, PC has a reputation for regularly succeeding in a process that many other landlord attorneys will not even attempt. We have a series of favorable published opinions on the Ellis Act spanning over a decade. We not only stay on the cutting edge of the Ellis Act, but also end up defining it.
If we can be of assistance with any of your Ellis Act needs, please call 415.956.8100 or email Justin A. Goodman at email@example.com to ask about a consultation.