After a long court battle, U.S. District Court Judge Charles Breyer ruled that San Francisco's recently enacted 2014 Ordinance that mandates an "enhanced" Ellis Act Eviction payouts to affected tenants to be unconstitutional.
Ellis Act is a state law that allows landlords to remove a building (evicting all tenants) from the rental market, but it also permits local jurisdictions to enact laws that could help mitigate some of the adverse conditions caused by the eviction. Most common local laws are reasonable relocation payments, notice periods, and recording requirements. As to the relocation payments, in 2005, San Francisco enacted an ordinance that provided exactly that benefit. It gave affected tenants of an Ellis Act eviction the right to receive a modest relocation payment of approximately $5,265 (current amount), capped at $15,795 per unit. An elderly or disabled tenant is entitled to receive an additional premium of approximately $3,510. Challenges to this 2005 Ordinance were unsuccessful, because that ordinance's relocation payments had a direct link to the eviction, in that but-for the eviction caused by the Landlord, the Tenants would not have incurred certain expenses in order to relocate (moving expenses, taking time off work, putting down a security deposit elsewhere, etc.).
However, because of the recent surge in housing and rental prices in the San Francisco Bay Area, there has been tremendous economic and political forces to try to deal with the situation. As housing prices increase, it has given property owners opportunities to sell their house/property in order to realize a significant purchase price that were unheard of before. One way for property owners to sell their properties at the most optimal price is to sell the properties without any tenants, and property owners have tried to use different methods in order to either evict the tenants or offer a private buy-out. Ellis Act eviction provided some property owners an effective way to evict all tenants in the same building/property. The recent surges of Ellis Act evictions prompted the San Francisco Board of Supervisors to act.
The 2014 Ordinance passed in Spring of 2014, and it became effective on June 1, 2014. This Ordinance amended the relocation payments of Ellis Act evictions. Now, property owners must pay the higher of two amounts for the affected tenants. The old amount is still present to serve as the baseline relocation payment. However, the new calculation basically requires property owners to compensate the tenants with two-years of rental difference between what the tenants are paying now and what the current market rate is (using a multiplier schedule developed by the City). The longer the tenant has stayed at the unit, the higher the multiplier is (and the bigger the relocation payment). The result is dramatically increased relocation payments, at times triple or 4x the old amount. This has caused a property owner to file suit in Federal Court to challenge the constitutionality of the 2014 Ordinance.
However, after a bench trial on the merits, Judge Breyer ruled that the 2014 Ordinance unconstitutional, because the enhanced relocation payments were not "roughly proportionate" to the impact of the property owner's actions (of evicting the tenants), a 5th Amendment Takings Clause issue. The 2014 Ordinance practically required property owners to pay for a social problem (housing shortage, high rent, tenants losing rent control) not of their causing. Further, the 2014 Ordinance does not have any requirements that the tenant who would receive the enhanced relocation payments to use the money specifically for housing purposes. The court was concerned that the tenants would get a dramatic wind fall to the detriment of the property owners.
The judge did stay his ruling until Friday, October 24, 2014, in order to give the City time to file an appeal, should they decide to. This fight is probably far from over, and the likely appeals will give both sides pause for concern about the uncertainty of this case. This will be especially difficult for property owners already with an Ellis Act eviction pending (meaning the Notice has been served), because the property owners are and probably will still be unsure how much to pay for the relocation payments.
The City has announced that they are planning to appeal Judge Breyer's ruling to the Ninth Circuit Court of Appeals.
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