BILL ANALYSIS Ó SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 1439 SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: LENO VERSION: 4/1/14 Analysis by: Mark Stivers FISCAL: no Hearing date: April 8, 2014 SUBJECT: Ellis Act DESCRIPTION: This bill allows San Francisco to enact law or regulations to prohibit a rental housing owner from removing a building from the market pursuant to the Ellis Act unless all owners in the property have held their ownership interest for at least five years. ANALYSIS: The Ellis Act prohibits a local government from compelling the owner of a residential rental property, except for a residential hotel, to continue offering the property as rental housing. The act further maintains the authority of the local government to regulate the subdivision or subsequent use of the property and to mitigate any adverse impact on displaced tenants. The Ellis Act applies only when an owner seeks to remove all units within a building, or all units on a property with a building containing three or fewer units, from the market and has real effect only in cities or counties with rent control and just cause eviction ordinances. San Francisco has both rent control and just cause eviction ordinances. In rent control jurisdictions, the act provides that the local government may require the owner to give notice before withdrawing the building from the market. If so, the owner may withdraw the units 120 days after the notice is delivered, except that the act extends the notice period to one year for tenants who are disabled or over 62 and who have lived in the unit for at least one year. In addition, owners who seek to re-rent the units within two years after withdrawal are liable to displaced tenants for actual and exemplary damages and required to offer the units to displaced tenants under the old rent-controlled lease terms. The city or county may SB 1439 (LENO) Page 2 additionally require an owner for up to 10 years to offer re-rented units to tenants displace by the withdrawal. If the owner demolishes the old units and constructs new rental units on the same property within five years of withdrawal, a city or county may subject the new units to its rent control ordinance. This bill allows the City and County of San Francisco to adopt an ordinance, resolution, or regulation to: Require an owner submitting an Ellis Act notice to identify each person or entity with an ownership interest in the building, including persons with an ownership interest in a corporate entity. This information shall be available for public inspection. Prohibit an owner from submitting a notice to withdraw a building pursuant to the Ellis Act unless all the owners of the property have been owners for at least five continuous years. If the owner is a corporate entity, all persons or entities with an ownership interest must have held that interest for five continuous years. Prohibit any owner of a building for which an Ellis Act notice has been submitted from withdrawing any other property that he or she acquired after submitting the notice for the initial property. Prohibit an owner from acting in concert directly or indirectly with a co-owner, successive owner, prospective owner, or other person to circumvent the above two prohibitions. Provide that a violator of any of these provisions is liable to the tenant for actual damages, special damages of at least $2,000 for each violation, and reasonable attorney fees and court costs determined by the court. COMMENTS: 1.Purpose of the bill . According to the author and sponsors, this bill closes a loophole in the Ellis Act. The original Ellis Act was intended to allow long-term owners to exit the rental housing business, but now speculators are using the act to buy rent-controlled buildings, empty them of long-term tenants, and resell them at windfall profits. As a result, Ellis Act evictions have tripled to 300 units in San Francisco in the last year. A majority of these tenants are seniors and persons with disabilities, who cannot afford to relocate within San Francisco even with legally required cash payments. SB 1439 (LENO) Page 3 Owners with less than one year of ownership initiated fifty percent of these withdrawals. Serial evictors - owners who have used the Ellis Act to evict tenants in other properties - are responsible for 30% of withdrawn units. In addition, an owner's threat of invoking the act leads many tenants to leave without the formality of an Ellis Act notice. This bill will maintain the original intent of the Ellis Act while allowing San Francisco to stop misuse of the act and reduce the impact on renters. 2.San Francisco only . While there are a handful of cities in the state that have both rent control and just-cause eviction ordinances and are therefore affected by the Ellis Act, this bill expressly applies only to the City and County of San Francisco. Arguably, San Francisco has one of the hottest housing markets in the nation. The influx of high-paying technology jobs to the city and surrounding communities has dramatically increased housing demand at a time when housing developers are still recovering from the recession, resulting in greater Ellis Act activity than other affected cities. The bill's focus on San Francisco reflects the city's unique situation. 3.Properties purchased after withdrawal . This bill would allow San Francisco to prohibit any owner of a building for which the owner has submitted an Ellis Act notice from withdrawing any other property acquired after the owner submitted the notice for the initial property. To the extent that the Ellis Act is intended to allow owners to exit the rental housing business, the apparent thinking behind this provision is that anyone who buys a second property after providing notice to withdraw a first property is not truly interested in exiting the business. 4.Arguments in opposition . Opponents state that the 116 Ellis Act evictions in San Francisco in 2013 represent only 0.06% of rent-controlled units in the city. Moreover, they believe that sufficient tenant protections are already in place. An owner must provide all tenants with at least 120 days' notice and senior or disabled tenants with one year's notice. In addition, under the city's ordinance minimizing Ellis Act impacts on tenants, an owner in San Francisco must pay each tenant $5,265 when he or she withdraws a building. An owner must pay an additional $3,510 for each elderly or disabled tenant, for a total of $8,775 per person, per unit. SB 1439 (LENO) Page 4 Opponents argue that the primary reason for Ellis Act withdrawals in San Francisco is for owners to move into the property, because the city's owner-move-in ordinance is so restrictive. The bill would prevent families and small property owners from moving into units they have purchased for that purpose. In addition, under this bill rental property owners may no longer be able to sell a property even if they are losing money under the city's overly burdensome rent control law. Lastly, by limiting the ability of buyers to occupy or convert rental properties, the bill significantly reduces the value and marketability of a property. 5.Double-referral . The Senate Rules Committee has referred this bill to both this committee and the Judiciary Committee. POSITIONS: (Communicated to the committee before noon on Wednesday, April 2, 2014.) SUPPORT: City and County of San Francisco (co-sponsor) Tenants Together (co-sponsor) Accela AfterCollege Asian Americans Advancing Justice - Asian Law Caucus Bernal Heights Neighborhood Center Bill Sorro Housing Program California Alliance of Retired Americans Calle 24 SF Chinatown Community Development Center Chinese Chamber of Commerce Community Housing Partnership Community Tenants Association Crate Labs, Inc. Crowdtilt Data Elite Episcopal Community Services of San Francisco Eviction Defense Collaborative Exygy GitHub HandUp PBC Home Ownership San Francisco Housing Rights Committee of San Francisco Keen IO Kite Solutions, Inc. Mesosphere, Inc. SB 1439 (LENO) Page 5 Mission Economic Development Agency Nashville West Studios Newsle, Inc. Non-Profit Housing Association of Northern California Peerspace PLAE, Inc. Project Homeless Connect Salesforce San Francisco Building and Construction Trades Council San Francisco Citizens Initiative for Technology and Innovation San Francisco Community Land Trust San Francisco Housing Development Corporation San Francisco Latino Democratic Club Social Bet, Inc. Tenderloin Housing Clinic Treasure Island Homeless Development Initiative Twilio West Bay Housing Corporation Zackees, Inc. 4 individuals OPPOSED: Apartment Association, California Southern Cities Apartment Association of Orange County California Apartment Association California Association of Realtors California Chamber of Commerce East Bay Rental Housing Association NorCal Rental Property Association San Francisco Association of Realtors Numerous individuals via petition