May 22, 2014

SF orders landlords to pay off tenants when taking property off the rental market

By J. David Breemer Senior Attorney

The famous 1962 tune by Tony Bennett suggested we leave our “heart” in San Francisco. But today, if you live by the Bay, you should expect to give up your wallet and your property rights, too.

This is apparent from San Francisco’s newest rental property ordinance, which seeks to punish landlords who exercise their state law (Ellis Act) right to take their property out of the rental market.   The new SF ordinance specifically requires the owners of rental properties to give their tenants a “relocation payment” — calculated as the difference between the tenant’s rent controlled rate and the price to rent a comparable unit on the open market– if the owner decides to take his property off the rental market.  The owner must hand over half of this tenant pay-off when giving notice of eviction, and half when the tenant leaves.  Given San Francisco’s inflated housing market, this can be a substantial and insurmountable sum.

Indeed, the law applies to both high income pent-house renters as well as low-income ones.   Thus, a rental property owner in Nob Hill would have to pay his rich tenant hundreds of thousands of dollars (to cover the cost of a renting a comparable unit on the open market for 2 years) just to take the property back so he could live there himself.

But there’s more: the law allows the tenant to use the Landlord’s “relocation payment” for anything. There is no requirement that the tenant use his “relocation” pay off to relocate elsewhere. Let the good times roll! Need funds to sit on the dock by the bay, just wasting time? Get evicted in SF and this problem is over.

Better yet, because the tenant receives half of his relocation pay-off before he must actually leave the property, he can use the dough to throw a nice, big party in the unit, or perhaps, stay in the unit and use the Landlord’s money to hire a lawyer to fight the Landlord.  In the case of high income rentals, an evicted tenant could use the “relocation” money for a down payment on a new yacht.  The possibilities are endless when the government gives you free, no-strings attached money siphoned from property owners.

This is how socialist economic policies often end. First, you regulate every aspect of property development and use. This drives away investment and growth, so that housing demand outpaces supply, and prices rise accordingly. In response, you impose more rules- like rent control – to try to hold down costs and make it hard to evict tenants.  Then, when this causes even more landlords to threaten to abandon the rental market, you pass laws to force them to keep their properties as rental units or simply steal their property to give to those who will use it the way you want.

That is what SF’s new relocation payment ordinance is all about. The City’s and State’s own regulatory policies are responsible for the Bay area housing shortage and high rental prices. The City government feels sorry for those who have to look for housing in its over-regulated, shrinking, high-priced market, so it seek to coerce people to serve the City as permanent landlords by demanding they pay ridiculous sums of money before they can regain their property for personal use.

But the City is still a part of the United States, and the United States is still governed by a Constitution that forbids the government from forcing people to submit to the unwanted occupation of their property.

Note: This post has been updated from a previous version.

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