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Good news for San Francisco rental property owners: the California Court of Appeal tentatively affirmed the ruling striking down San Francisco's Prop. M (Empty Homes Tax). Prop. M imposed escalating taxes on owners of residential units in buildings with more than two units when a unit remained vacant for more than 182 days annually. The court held that the tax conflicts with and is preempted by California's Ellis Act, which protects a residential property owner's right to leave the rental business and not offer property for rent.

The court rejected San Francisco's argument that owners could avoid the tax simply by occupying or otherwise using their units, finding that Prop. M effectively imposes a substantial financial penalty on owners who choose to keep residential property vacant. The court concluded that local governments cannot impose such a financial burden on an owner's exercise of rights protected by the Ellis Act. Because the Ellis Act issue was sufficient to invalidate Prop. M, the court did not decide the plaintiffs' additional constitutional claims. The judgment prohibiting enforcement of Prop. M was affirmed.