Posts

Posted on

First District Affirms Invalidation of San Francisco’s Residential “Vacancy Tax” in Debbane v. City and County of San Francisco

While it may seem paradoxical for a property owner to choose to keep a unit vacant, the operation of the Empty Homes Tax was much more insidious than the terms “unoccupied, uninhabited, or unused” implies. For instance, a homeowner would be required to pay the tax if they let their mom live there, full time, instead of one of San Francisco’s tenants. 

This is because the tax applied (full stop) unless an owner qualified for one of the enumerated “vacancy exclusion periods”, which included certain logical things, like an owner living in the unit where they take the homeowner’s exemption, a unit with a bona fide lessee, or even an otherwise “vacant” unit being renovated during a one year period for permitted work. But an owner could not otherwise “occupy” a second unit (as additional living space, a home office, storage, etc.), and again, occupancy by a family member was also penalized, even if that family member was a bona fide tenant paying a market rate rent. 

There were also reasons a property owner may have wanted to keep a unit literally vacant at that time. Recall that San Francisco was, by many metrics, the US city that had the hardest time recovering from the pandemic. For rent controlled units, the “base rent” is set at initial occupancy, and it may only grow at a rate of 60% of regional CPI, and so many property owners also had a financial motivation to decline to set an artificially low “forever rent” for their units in a historic nadir. 

Individual property owners, the San Francisco Apartment Association and the Small Property Owners of San Francisco Institute, and the San Francisco Association of Realtors challenged the tax, arguing that it constituted a “taking”, that it violated privacy, equal protection and due process rights concerning the penalizing of families living together, and, importantly, that the right to choose not to rent one’s property is protected by the Ellis Act. 

The Ellis Act is a California law that dictates that “no public entity. . . [shall] compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease”. Since its adoption in 1985, the use of the Ellis Act has perhaps universally relied on the prohibition on cities requiring owners to continue to offer units. In other words, landlords are allowed to terminate tenancies. And while this statement sounds non-controversial, keep in mind that cities are permitted to narrow the grounds for eviction when the tenant is not at fault. 

In fact, this is exactly what Santa Monica did in its initial eviction control ordinance, essentially requiring property owners to maintain their rental business at a property, unless they established that they were entitled to permits to demolish the building on a showing that (among other things) demolition would not adversely affect the housing supply. When a landlord applied for such a permit, and was denied, he challenged the ordinance. But the Supreme Court of California held that such an eviction control ordinance was a lawful exercise of a city’s police power. That decision was Nash v. City of Santa Monica (1984) 37 Cal.3d 97, and the Legislature rebuked it the following year by adopting the Ellis Act. 

While rent and eviction controls operate to stabilize rental housing, the logic of the Empty Homes Tax worked differently: even when a property owner did not already have a tenant in a rental unit, the tax compelled them to convert the unit to rental property, providing a tenant with a right of exclusive possession, subjecting the return on investment to a scaled percentage of inflation, and subjecting them to all of the liability that comes along with providing housing in an overly regulated marketplace. In other words, where most uses of the Ellis Act are based on the landlord declining to continue to offer housing, this challenge relied on the right not to be compelled to do it in the first place. 

The lawsuit challenging the tax was granted at the trial court level on all grounds. The Court of Appeal affirmed along simpler lines: declining to reach the constitutional issues (finding it unnecessary), it simply found that the tax attempted to compel property owners to rent: “It is therefore ‘self-evident’ from the language of the Act that the Legislature intended to prevent owners from being compelled to rent their residential property by the actions of public entities.”

The opinion is available here. 

Facebooktwitterredditlinkedinmail
Posted on

Join Californians for Responsible Housing and Vote No on the Justice for Renters Act

The Justice for Renters Act is the latest attempt by Michael Weinstein to repeal the Costa-Hawkins Rental Housing Act at the ballot (following the defeat of Proposition 10 in 2018 and Proposition 21 in 2020).

Costa-Hawkins represents a balanced approach to rent control, allowing stabilized rents during a tenancy and market rate increases once the tenant voluntarily vacates. It also promotes development by exempting new construction and owner-occupancy opportunities by exempting single family homes and condos. It was enacted in 1995, in part, to avoid the harsh and unworkable application of “vacancy control” – the permanent control of rental units, even following the voluntary vacate of its tenants.

Vacancy decontrol has proven to be a necessary feature of a functioning market, promoting the investment in, and maintenance of, quality, affordable rental housing. Vacancy control would pick winners and losers based on chance (or worse, black markets, with the “selling” of low-rent housing by tenants to their chosen assignees), further alienating newer renters. It would discourage investment in rental housing, leading to further scarcity in housing at a time when California desperately needs more.

Costa-Hawkins.com encourages you to join the Californians for Responsible Housing and vote “no” on the Justice for Renters Act. You can read their fact sheet here. You can find out more at californiansforaffordablehousing.org. Please donate to the opposition campaign by contributing to the CAA Issues Committee, and most importantly vote “no” this November.
Facebooktwitterredditlinkedinmail

Posted on

640 Octavia, LLC v. Pieper – Court of Appeal delivers guidance on summary judgment in Ellis Act unlawful detainers

640 Octavia, LLC v. Pieper delivers a long overdue analysis of an owner’s “bona fide intent to withdraw” in the context of Ellis Act evictions. The Ellis Act was enacted in 1985 in response to the Supreme Court decision Nash v. City of Santa Monica (1984) 37 Cal.3d 97, which found that a city’s police power permitted it to eliminate the ability of landlords to terminate a tenancy in conjunction with exiting the rental market, unless the city permitted it. In that case, Santa Monica would only issue a demolition permit if “(1) the building is not occupied by persons of low or moderate income, (2) cannot be afforded by persons of low or moderate income, (3) removal will not adversely affect the housing supply and (4) the owner cannot make a reasonable return on his investment.”

The California legislature was quick to respond by enacting the Ellis Act to alleviate the plight of landlords and guarantee a “fundamental right” to cease doing business as a landlord. However, it took nearly two decades before the Supreme Court dictated the rubric for use of the Ellis Act in the context of a tenant’s defense of retaliation. In Drouet v. Superior Court (2003) 31 Cal. 4th 583, the Supreme Court determined that a landlord was permitted to retaliate, so long as they had a bona fide intent to exit the rental market. (As a practical example, “mom and pop” landlords should be permitted to exit the rental market even though their tenants complain about housing defects. (In fact, they can exit because of those complaints.)

Drouet set the framework for entry of judgment for the landlord as a matter of law, but remanded to the trial court to determine whether the particular case met the standard. It took another two decades to put that standard into practice.

In 640 Octavia, the Court rejected the evidentiary significance of two themes of arguments by the tenants. First, the Court clarified the primacy of a plaintiff’s establishing a bona fide intent to withdraw in the face of a retaliation defense under Drouet. Essentially, there is no “retaliatory withdrawal defense” when a landlord seeks to go out of business.
Continue reading “640 Octavia, LLC v. Pieper – Court of Appeal delivers guidance on summary judgment in Ellis Act unlawful detainers”Facebooktwitterredditlinkedinmail

Posted on

Ordinance 32-22: San Francisco Tenant Association Ordinance

Seal_of_San_Francisco

San Francisco now regulates “tenant associations”, dictating the procedures to create and maintain one, as well as the obligations of landlords to participate in meetings.

For buildings with five or more rental units, tenants who obtain approval from at least half of the occupied units may provide their landlord with a petition to create a tenant association. The association must hold regular meetings open to all building residents, and the tenant members must elect officers.
Continue reading “Ordinance 32-22: San Francisco Tenant Association Ordinance”Facebooktwitterredditlinkedinmail

Posted on

SFAA and SPOSFI Defeat San Francisco “Ten Day Cure” Prerequisite to “Three Day Notice To Pay Rent or Quit”

In February of 2022, San Francisco passed Ordinance 18-22, which required landlords to first serve a “ten day notice to cure” (before serving the requisite state law eviction notice) to avail themselves of the unlawful detainer statutes in fault-based evictions.

Case law has asserted the primacy of state eviction procedure over local law to the contrary, while local law has been able to infiltrate procedure if it’s merely incidental to timing.

The San Francisco Apartment Association and the Small Property Owners of San Francisco challenged the ten-day ordinance on the basis of state law preemption, and in particular that a landlord cannot be permitted to wait ten days before serving the three day notice to pay rent or quit (rent being the basic bargain of the tenancy – what the tenant exchanges for occupancy). (The petition for writ of mandate can be found here.)

The Real Property Department of the San Francisco Superior Court granted the petition in part. It agreed that the City could not interfere with the state law procedures for recovering rent or possession of a rental unit. As to other bases for eviction, the Court found itself bound by Rental Housing Ass’n of N. Alameda Cty. v. City of Oakland (2009) 171 Cal. App. 4th 741, which upheld (without much analysis) the authority of Oakland to require a seven day cure period before enforcing certain violations. Whether this too is susceptible to challenge will be up to the Court of Appeal.Facebooktwitterredditlinkedinmail

Posted on

SFAA v. CCSF (2022): Court of Appeal Affirms San Francisco’s Eviction Control Authority in Prohibiting Rent Increases that Coerce a Tenant To Vacate

california state seal

“Plaintiffs contend the amendment is preempted by Costa Hawkins because it seeks to regulate the rent a landlord may charge on exempt properties. The city contends and the trial court agreed that the amendment at issue here is a valid exercise of the city’s authority to regulate evictions. We agree that the amendment is designed to deter landlords from attempting to avoid local eviction rules by imposing artificially high rents in bad faith, and thus is a reasonable exercise of the city’s authority to regulate the grounds for eviction, which is not preempted. Accordingly, we shall affirm the judgment.”

The Court of Appeals upheld the San Francisco Real Property Court’s denial of the petition of San Francisco Apartment Association (and others) for a writ of mandate, enjoining Ordinance 5-19 – an amendment to the tenant harassment ordinance prohibiting increases for units exempt under Costa-Hawkins, if the increase coerced a tenant to vacate.

Petitioners argued that Costa-Hawkins’ preemptive effect on local price controls displaced local authority to circuitously discourage a landlord from exercising their rights. The panel was particularly focused, however, on the specter of the hypothetical “$1 million dollar a month” rent increase (which does not appear to have ever actually happened). It questioned why a local government would not have the authority to protect tenants from displacement, when the rent increase itself wasn’t the true goal. The ruling undercuts Costa-Hawkins and turns ordinary market transactions into jury questions. Landlords would be wise to obtain market advice from qualified experts – and perhaps even negotiate with tenants – before imposing increases. Facebooktwitterredditlinkedinmail

Posted on

Lara v. Menchini (2021): Appellate Division of San Francisco Superior Court Affirm’s Landlord’s Ability To Reject Coerced Creation of Rent-Controlled Subtenancy Following Rent Default

california state seal

“When Menchini failed to pay the rent for February and March 2019 before the three-day notice to pay rent or quit expired, he forfeited the lease, and the landlord was entitled to possession as against the sublessee. Lara was not required to accept rent from Menchini’s subtenants. (See Civ. Code, § 1947.3, subd. (a)(3)(A) [‘A landlord . . . is not required to accept the rent payment tendered by a third party unless the third party has provided to the landlord . . . a signed acknowledgment stating that they are not currently a tenant of the premises for which the rent payment is being made and that acceptance of the rent payment does not create a new tenancy with the third party.’]. Had Lara accepted rent directly from the subtenants without such a signed acknowledgment from them, she may have inadvertently created a new tenant-landlord relationship with them.”

In Lara v. Menchini, a landlord prosecuted an unlawful detainer for non-payment of rent, following non-payment by the master tenant. Subtenants approached the landlord in response to her initial rent demand, attempting to pay their rent directly to her. She refused.

The landlord prevailed at trial and the subtenants appealed on the basis that unlawful detainer law and Civil Code §1947.3 required her to accept their rent to cure the notice. The court of appeal rejected this contention.

It held that the non-payment of a master tenant effected the forfeiture of the lease, except in previous, distinguishable cases, where the landlord demanded rent from the subtenants. Further, Civil Code §1947.3 (which allows third party rent payers to help tenants avoid default) did not apply, because the landlord was permitted to require that they declare they are not “occupants”. (After all, occupancy coupled with payment of rent to the landlord creates a tenancy.)

Of course, the subtext of this dispute is that the subtenants were attempting to usurp their departed master tenant’s rent control, but without a basis for doing so. The court concluded that the landlord was entitled to demand the subtenants enter a new lease at market rent if they were going to remain in possession and then to proceed in unlawful detainer, when they declined.
Facebooktwitterredditlinkedinmail

Posted on

San Francisco Rental Unit Registration

Seal_of_San_Francisco

On December 18, 2020, San Francisco adopted Ordinance 265-20, which implements the City’s first rental unit registration ordinance. With Proposition 21 on the ballot in November of 2020, the Board of Supervisors was poised to implement vacancy control if the proposition had passed (and had effectively repealed the Costa-Hawkins Rental Housing Act).

Costa-Hawkins survived, as did a modified version of the rental unit registration ordinance. Commencing July 1, 2022 (for buildings with 10 or more units) and March 1, 2023 (for all other residential units), owners must provide the following information to the Rent Board:
Continue reading “San Francisco Rental Unit Registration”Facebooktwitterredditlinkedinmail

Posted on

Ordinance 216-20 (2020): San Francisco Prohibits Recovering Possession of Rental Units During Pandemic

Seal_of_San_Francisco

San Francisco landlord-tenant relationships have been anything but predictable in the last year. Governor Newsom enacted Executive Order N-28-20 on March 16, 2020, which suspends certain state laws to open the field for local regulation on evictions. Mayor Breed declared a local state of emergency on February 25, 2020 (with several dozen supplements through the rest of the year) seeking to curtain efforts to recover possession of rental units, other than for health and safety reasons or pursuant to the Ellis Act (which the City can’t prohibit). The California Judicial Council even stepped in (arguably in excess of its authority or even any authority that Gov. Newsom could delegate under the Emergency Services Act) to prohibit the issuing of summonses in residential eviction lawsuits through August of 2020.

California enacted AB 3088 on September 1, 2021, as a comprehensive scheme to address the patchwork efforts of the different branches and different levels of government. It prohibited cities from adopting, extending, renewing local regulations protecting tenants from evictions, imposing its own.

Not to be deterred, the Board of Supervisors passed Ordinance 216-20 (known colloquially as “Preston 2” following the supervisor’s previous legislation prohibiting evictions for non-payment of rent at the local level). Ordinance 216-20 prevents landlords from recovering possession of a rental unit “on or before March 31, 2021 unless necessary due to violence, threats of violence, or health and safety issues”. The restriction even applies to owners who rent out individual rooms in their homes. Deferential to (some of) AB 3088, the ordinance acknowledges that it does not apply to “evictions due to unpaid rent or any other unpaid financial obligation of a tenant under the tenancy that came due between March 1, 2020 and January 31, 2021” or evictions under the Ellis Act, but it otherwise fails to address the comprehensive prohibition on local eviction regulations imposed by AB 3088.
Facebooktwitterredditlinkedinmail