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The Ellis Act acts as a check on California's fairly tenant-friendly landlord/tenant laws. Even notwithstanding tougher locals laws (like those in Los Angeles and San Francisco), the Ellis Act allows a landlord to evict a tenant if he's getting out of the landlord business altogether.
Here's the kicker: In San Francisco, where the median market rent is now almost $3,500 for a one-bedroom apartment, landlords often find that it makes more economic sense to get out of the landlord business and sell their properties to someone else -- rather than continue to collect rent from long-term, practically unevictable tenants paying much lower than market rate.
Supervisor David Campos changed all that in April. Under his ordinance, which passed the Board of Supervisors, landlords who wanted to evict under the Ellis Act had to pay tenants the difference between the tenant's current rent and the cost to rent a similar apartment at market rate for two years. In April, the City Controller calculated that amount to be $42,500, SFist reported.
Landlords at least have some reprieve. Last week, Judge Charles Breyer (the brother of that other Breyer) of the U.S. District Court for the Northern District of California said San Francisco's ordinance was unconstitutional.
Not the Landlord's Fault
Without "pass[ing] judgment on the wisdom of the Ordinance, nor doubt[ing] either the severity of the housing crisis or the sincerity of the City legislature's attempts to ameliorate that crisis' effects on some San Franciscans," Breyer said the law amounted to a Fifth Amendment taking that wasn't proportional or related to the harm it was trying to ameliorate.
The penalty might be justified if it were related to the actions of the property owners, said Breyer, but "the property owner's decision to repossess a unit did not cause the rent differential gap to which the tenant is now exposed." Both the market rate and the rent-controlled rate are outside the landlord's control, and while Ellis Act evictions do affect the market rate, "less than five one-hundredths of one percent of the City's rental housing stock was affected by an Ellis Act withdrawal" in 2013.
What of San Francisco's 2005 ordinance requiring landlord payouts for Ellis Act evictions? That one's still OK. The "crucial distinction," said Breyer, is the harm the payouts are tied to. The 2005 law's payouts are designed to compensate the tenant for the expense of moving out and can range from about $5,000 to $15,000. The 2014 law, on the other hand, is designed "to force the property owner to pay for two years of a theoretical rental market differential to which the tenant might now be exposed."
It's fine to make a landlord pay a tenant for the costs the landlord causes the tenant to incur, but not to make landlords shoulder the costs of San Francisco's housing market. City Attorney Dennis Herrera said he would appeal to the Ninth Circuit.