PLF challenges S.F.’s crushing new “relocation” money demand on rental owners

SACRAMENTO, CA; July 24, 2014: Pacific Legal Foundation (PLF) today filed a federal court challenge to San Francisco’s new “Relocation Assistance Payment Ordinance,” because it requires rental property owners to pay their tenants oppressive and unconstitutional sums of money before the owners can regain personal use of their property — money the tenants can use for any private purpose they wish.

PLF attorneys also represent two associations of residential rental property owners — the San Francisco Apartment Association and the Coalition for Better Housing — and Parklane Associates, owner of an apartment building subject to the ordinance. Donor-supported PLF represents all plaintiffs without charging attorneys’ fees. PLF attorneys filed the challenge on behalf of homeowners Daniel and Maria Levin, a married couple who own a small two-unit house on Lombard Street. They live in the upper unit, but are effectively denied the right to take occupancy of the lower unit, because of the costly payment — $117,000, in their case — required by the new ordinance.

“The city is essentially forcing people to become permanent landlords, by making it wildly expensive to withdraw a unit from the rental market and take possession of their own property,” said PLF Principal Attorney J. David Breemer. “This has nothing to do with ‘relocation assistance,’ because the money that people like the Levins are required to pay to their tenants doesn’t have to be used for relocation. It can be used for anything. In short, this law amounts to out-and-out confiscation. But the officials who passed it forgot about one thing: The U.S. Constitution. The Constitution protects property rights for everyone, including rental property owners. Government can’t pull a shakedown on anybody, not even folks who own rental property in San Francisco.”

Dan and Maria Levin would be forced to pay $117,000 to their tenant, to remove the lower level of their home from the rental market, so they can use it.

Under the new law, an owner who wants to withdraw a unit from the rental market must give the tenant a gigantic payment. The amount is the difference between the tenant’s current rental payment for the full year (usually at a rent-controlled rate) and the cost of a comparable rental property on San Francisco’s open market; this sum is then multiplied by two (years). This payment requirement is retroactive: It applies even to property owners who completed all legal processes to withdraw a unit from the rental market before the new law took effect.

“This outrageous scheme would force people like the Levins to pay tenants tens-of-thousands to hundreds-of-thousands of dollars simply so they can occupy their own home,” said Breemer. “Moreover, the payment requirement has no relation to the income of the tenant. Well-off tenants are as entitled to their landlord’s money as the less well-off. And because there are no rules on how tenants can spend the cash, it could be used for a new Porsche instead of a new apartment, for all the city cares.”

The Levins have their “backs against the wall”

“I am a third generation San Franciscan,” said Dan Levin. “Both my grandparents were in San Francisco predating the 1906 earthquake. I just want to use my property, but we have our backs against the wall with this new, unconstitutional law.

“We simply can’t afford to pay more than $100,000 as the price of occupying the lower unit of our own house,” Levin continued. “We own a small business and have worked seven days a week for the last 20 years, and are finally at a point when we are hoping to have some time and peace for ourselves. But we can’t see ourselves scuttling our retirement plans by having to pay over $100,000 to occupy our own property.”

The Levins live in their Lombard Street house and want to stay there. The tenant was in the lower unit when they bought the place, and they told the tenant at the time that their plan was to occupy the entire house. They would like to have family and friends stay with them, but have no room. So, in 2013, they went through the legal process to withdraw their unit (before the new ordinance was passed) — and now the city has slammed them with the new payment requirement that retroactively makes it prohibitively expensive to take their unit off the rental market.

“We do not want to be in the rental business,” said Dan Levin. “We want the lower unit for our own use. We want privacy. We want to be able to have family and friends stay with us occasionally. But the city is making this impossible.”

“The Levins’ frustrating story will be replicated hundreds of times across San Francisco, as property owners come up against this onerous new ordinance,” said Breemer. “State law gives property owners a right to take units off the rental market. But in San Francisco, they are denied this right — and control of their homes or buildings — because of the city’s demand that they write astronomical checks to their tenants, with no guidelines or safeguards on the use of the money. That’s ill-considered, unfair — and unconstitutional.”

PLF’s lawsuit: ‘S.F.’s relocation law collides with the Constitution’

PLF is advancing several core constitutional arguments against the ordinance. Among them are these two:

1. A shakedown for private parties. San Francisco is forcing landlords to make substantial payments to private parties — tenants — without any conditions on how the money is spent. This is a “taking” for private gain, not “public use,” as required by the Fifth Amendment.
2. A confiscatory exaction. PLF’s U.S. Supreme Court victories in Nollan and Koontz held that government can’t impose unjust conditions on the exercise of a state-law property right. In California, state law (the Ellis Act) allows landlords to withdraw their units from the rental market. But San Francisco is conditioning the exercise of that right on a demand that has no connection to the proposed change in the property’s use: The fee to the displaced tenant can be spent for anything, not necessarily for a new place to live.

The Levins have stated: “We are so disturbed by our city politicians using small property owners as pawns in their political pursuits. We are very grateful for PLF’s help in this important lawsuit for property rights.”

The San Francisco Apartment Association

Plaintiff, San Francisco Apartment Association is a nonprofit trade association of owners of residential rental properties in San Francisco. Founded in 1917, and currently with 2,800 active members, SFAA is dedicated to educating, advocating for, and supporting the rental housing community, and preserving the property rights of all residential rental property providers in San Francisco.

The Coalition for Better Housing

Plaintiff, Coalition for Better Housing (CBH) is a nonprofit trade organization representing the owners of over 10,000 residential rental units in San Francisco, many of whom are subject to the ordinance. Organized in 1979, CBH works to bring a healthier real estate climate to the rental housing industry.

About Pacific Legal Foundation

Donor-supported Pacific Legal Foundation (pacificlegal.org) is the leading watchdog organization that litigates for limited government, property rights, individual rights, and free enterprise, in courts nationwide. PLF represents all clients free of charge.