This article was posted on Friday, May 01, 2015

When it comes to punishing property owners and giving tenants more rights over property they rent but don’t own, no one tries harder than Supervisor David Campos. In fact, Mr. Campos has a habit of bringing back legally flawed legislation in new forms, hoping that something will stick. In each case, proposals he’s put forward, and which the Board of Supervisors has passed, are short-sighted, unfair, and result in hurting the very people he says he wants to help – tenants -while also harming small property owners. Two recent examples follow. 

Enhanced Relocation Payment Ordinance Struck Down Twice in the Courts

In a February 19, 2015, court order, San Francisco Superior Court Judge Ronald E. Quidachay found that the relocation payments required by the Enhanced Relocation Payment Ordinance “are not ‘reasonable,’” and that the “Ordinance is preempted by the Ellis Act.” SPOSFI and a coalition of individual property owners, represented by the law firm Zacks & Freedman, P.C., filed the lawsuit challenging the Ordinance in July 2014 in Jerold Jacoby,et al. v. City and County of San Francisco.

This is now the second time the Ordinance has been successfully challenged in the courts. On October 21, 2014, Federal Court Judge Charles Breyer handed down a ruling striking down the law for a different reason. He ruled that the city’s requirement that a landlord pay two years of the differential in current rent versus market rent to tenants who are evicted under the Ellis

Act was an “unconstitutional taking of private property without just compensation,” adding that the Ordinance required an “enormous” payout untethered in both nature and amount to the social harm actually caused by the property owner’s action. Judge Breyer also found that a landlord’s action in evicting a tenant was not the cause of San Francisco’s difficult rental market. In other words, he implied that providing affordable housing is a social issue that the entire city must solve together, and that individual property owners could not be held responsible for “the infinitesimally small impact made by the withdrawal (of one housing unit) on the rent differential gap.” 

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Undeterred, Campos to Try Again

Not surprisingly, these court decisions are not stopping Supervisor Campos. In an attempt to address the courts’ objections, Campos and colleagues are submitting the following amendments to the Administrative Code that modify some provisions in the original law: 1) the payout to tenants would be capped at $50,000 (the original ordinance had no cap); 2) before receiving any money, the tenant would have to give a sworn statement that the money will be used only for “relocation expenses,” keep records (invoices, receipts, etc.) for three years, and provide them on request; 3) “relocation expenses” are redefined to include not only costs incurred in moving to a new apartment and rent payments for the replacement dwelling, but also the purchase price of a replacement dwelling and any costs that the tenant can demonstrate were incurred to mitigate the adverse impacts on the tenant; and 4) the tenant would be required to refund any of the money not used within three years for relocation expenses.

While these amendments may appear to make the law a bit more palatable, two things should be pointed out: 1) $50,000 is still an exorbitant sum to pay to recover possession of one’s own property; and 2) keeping track of a tenant for three years, obtaining invoices and receipts, and attempting to collect any refund owed is an onerous burden on any landlord, and for a city that already does a very poor job of it, an enforcement nightmare. So in practice, refunds will not happen and tenants’ sworn statements will be essentially worthless. And finally, there is no means testing to determine if a tenant really needs the relocation expense money. Landlords can file a hardship petition, but if a tenant has a higher income than the owner, and can afford to buy a replacement dwelling, where’s the fairness in requiring such large payouts?

We fully expect the amended law, if passed, to be challenged, and ultimately struck down as well. Mr. Campos is wasting the Board’s time when it should be addressing the housing shortage that helped create this problem. The city is still putting the onus on property owners to address the supply-and-demand issue that forces rents higher and higher while keeping many rents artificially low. We challenge the supervisor to look beyond his nose and find some real solutions, but we’re not holding our breath. 

Tenant Buyout Registration Ordinance: We’ve Seen This Before Too

On the one hand, Supervisor Campos is trying to get exorbitant payouts for tenants evicted via the Ellis Act while, on the other hand, his recently enacted Tenant Buyout Registration Ordinance (co-sponsored by Supervisors Avalos, Kim, and Mar) can only have the opposite effect by putting the kibosh on a perfectly legal process: a landlord and a tenant reaching a mutually-acceptable buyout agreement.

The Ordinance, which went into effect last December, requires all buyout agreements to be registered with the Rent Board. It also treats such agreements in the same punitive way the city treats evictions, by prohibiting future condo conversion.

What is particularly troubling, but not out of the ordinary,  is that the “evidence” provided to substantiate the need for such a law was nothing more than a few cherry-picked anecdotes about “some landlords employing high-pressure tactics” when offering buyouts to tenants, and from the increase in buyouts that resulted from passage of 1996 legislation prohibiting condo conversion of a building in which two no-fault evictions have occurred.

The Buyout Registration Ordinance is so unclear that even experienced attorneys are confused as to whether the prohibition on condo conversion applies if there are buyouts of two individuals or two separate units. Since there is a moratorium on condo conversion of any building of three units or more until at least 2024, the new law is clearly designed to stop the condo conversion of the last buildings that can still be converted – duplexes. But in keeping with the law of unintended consequences, that won’t be the outcome. If landlords are punished for paying tenants to move, they will turn increasingly to their option of last resort, the Ellis Act—resulting in much lower payouts and permanent TICs. No one wins: evictions will continue, tenants will get less money, and TIC owners will be forever stuck with less-than-favorable financing.

We believe that this onerous law should be challenged in the courts as a restriction on both freedom of speech and freedom to contract grounds. Similar legislation was found unconstitutional in Baba v. City & County of San Francisco in 2004. Sponsored by then-Supervisor Chris Daly that legislation tried to make settlement agreements between landlords and tenants court-supervised. Tenants would have been required to retain legal counsel, with criminal penalties against landlords who informed tenants that they were contemplating an eviction.

The new Campos law tries to do essentially the same thing, using the Rent Board as the enforcement body. Punishment isn’t jail, but rather a huge negative impact on the future of the building‘s ownership. Like his Enhanced Relocation Payment Ordinance, this one is also misguided, harmful, and wasteful of city resources and needs to go. 

Deborah Lopez is an  SPOSFI Business Member. Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at or call (415) 647-2419.