Action/Alerts

July 8, 2015—San Francisco

This week, the Small Property Owners of San Francisco Institute joined local property owners in filing a lawsuit against the City and County of San Francisco. The lawsuit challenges a new ordinance that dramatically increases relocation payments that San Francisco landlords must give to tenants whose rental units are withdrawn under the state's Ellis Act. (The Ellis Act is a California state law that guarantees property owners' right to "go out of the rental business.")

If this sounds familiar, that is because the City enacted a nearly identical law roughly one year ago. The new ordinance, San Francisco Ordinance No. 68-15, was introduced in February of 2015 by the sponsors of last year's ordinance—Supervisors David Campos, Jane Kim, John Avalos, and Eric Mar. The ordinance was passed on May 15, 2015, but it was made effective retroactive to June 2014.

Under the new ordinance, each relocated tenant will be entitled to the greater of either: a) the existing statutory relocation payment (currently $5,555.21 per tenant up to a maximum of $16,665.59 per unit, plus an additional $3,703.46 for each elderly or disabled tenant), or b) the difference between the tenant's current rent and the prevailing market rent for a comparable apartment, multiplied over a two year period.

The new law differs from last year's in two ways: first, this new enhanced relocation payments are capped at $50,000.00 (whereas the former scheme could easily hit six figures); second, to be eligible for the enhanced payment, tenants must return a "declaration" stating under penalty of perjury that they will use the payment for relocation costs. The term "relocation costs" is loosely defined in the new ordinance, but the constraint is likely directed at the ruling of Judge Breyer, who found that last year's enhanced relocation payment scheme differed in both amount and intent from the standard relocation payment and that the failure of that law to put any restrictions on use of the relocation funds made it difficult to prove that the monetary exaction furthered "the end advanced as the justification for the Ordinance." Judge Breyer found that Ordinance 54-14 constituted an unconstitutional "taking" of property without just compensation in the federal court case Lenvin et al. v. City and County of San Francicso.

The Small Property Owners of San Francisco Institute has been successfully litigating Ordinance 54-14 in the state Superior Court action Jacoby et al. v. City and County of San Francisco. Earlier this year, the Superior Court concluded that the enhanced relocation payments invalid under the Ellis Act and that they could not be applied retroactively to landlords who had already invoked the Ellis Act. We expect Ordinance 68-15 to meet the same fate (especially as it is made even more retroactive).

The Small Property Owners of San Francisco Institute is represented by Andrew Zacks of the law firm of Zacks & Freedman, P.C.