June 22, 2016

San Francisco still trying to force landlords to pay for tenants' high rent

By Caleb R. Trotter Attorney

In 2014 PLF successfully asked a federal court to strike down a San Francisco ordinance that required landlords to pay their tenants the difference between the rent they charged (often low due to rent control policies) and the current market rent for two years if the landlord removed their property from the rental market under California’s Ellis Act. Under the ordinance, some property owners were required to pay out hundreds of thousands of dollars, and in some cases, millions, just to stop being landlords. After PLF’s victory on behalf of the Levins, San Francisco amended its ordinance to cap the amount landlords could be forced to pay at $50,000 per rental unit.

But the amended ordinance is also problematic, and as a result, a group of property owners sued in state court. The property owners won at the trial court, and San Francisco appealed. This week, PLF filed a brief in support of the property owners in the case of Coyne v. City & County of San Francisco, pointing out that the same issues that doomed the ordinance in 2014 are still present in the amended ordinance, so it too, should be struck down.

The focus of PLF’s brief is whether San Francisco can require a person seeking a permit–in this case, landlords seeking a permit to remove their property from the rental market–to pay money to solve a problem not caused by that person. In the Levin case, the federal court found that there is no evidence that landlords removing property under the Ellis Act cause San Francisco housing costs to be so expensive. Instead, the court found that typical market forces and the City’s own failed housing policies are to blame. In other words, even though San Francisco remains a popular city to live in, if the City hadn’t implemented rent control and would allow substantially more housing development, the cost for housing would decrease. Since property owners don’t cause the City’s affordable housing deficiencies simply by choosing to stop being landlords, the cost for solving the problem cannot be laid at their doorstep.

Unfortunately, the City continues to ignore this reality. Rather than limit its new ordinance to require landlords to pay relocation costs like moving expenses, deposits, and the like–something California courts have held to be permissible under the Ellis Act because those costs do result from the landlord evicting the tenant to remove the property from the rental market–San Francisco continues to require outgoing landlords to pay some of their tenants’ future housing costs as the price of leaving the market. In so doing, it apparently assumed that merely lowering the cost imposed on landlords would remedy the constitutional problems with its approach. Not so.

The United States Supreme Court held in the Nollan/Dolan/Koontz line of cases that “unconstitutional conditions” exist when the government requires payment in exchange for a government benefit in order to mitigate for problems not caused by the activity taken under the permit–regardless of amount. Also worrisome, the Ordinance applies the payment requirement on landlords retroactively. This violates the Due Process Clause because it is fundamentally unfair to increase a landlord’s legal liability for actions already undertaken that can’t be undone.

Nevertheless, PLF’s brief reminds the Court that it can avoid these serious constitutional difficulties with San Francisco’s ordinance by agreeing with the trial court in holding the Ordinance to be preempted (not allowed) by the Ellis Act. The Ellis Act recognized the right of property owners to stop being landlords in California. But, municipalities do have the ability to create ordinances to mitigate for problems caused by property owners exercising that right. As mentioned earlier, one of those mitigation measures may be able to require payment to tenants for actual relocation costs. The trial court in this case held, and San Francisco admits, that requiring landlords to pay tenants the difference between their current rent and market rent is not intended to mitigate for relocation costs, but for a housing affordability issue not caused by withdrawing landlords. Therefore, the payment mandate is not a power granted to municipalities under the Ellis Act, and the San Francisco ordinance must be struck down.

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Levin v. City and County of San Francisco

Dan and Maria Levin live in the upstairs unit of their two-story home in San Francisco, California. They would like to use the lower unit for friends and family, but a city ordinance required them to pay their tenant $118,000 to withdraw the unit from the rental market. This amount represents the difference between the tenant’s existing, rent-controlled rate and the cost of acquiring a comparable unit at open market rates, for two years. Representing the Levins and others, PLF successfully sued to strike down this ordinance as an unconstitutional taking in violation of the Fifth Amendment and violation of California’s Ellis Act, which guarantees to property owners the right to take property off the rental market.

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