BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          SB 364            Hearing Date:     4/14/2015
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          |Author:   |Leno                                                  |
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          |Version:  |2/24/2015                                             |
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          |Urgency:  |No                     |Fiscal:      |No              |
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          |Consultant|Alison Dinmore                                        |
          |:         |                                                      |
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          SUBJECT:  Residential real property:  withdrawal of  
          accommodations


          DIGEST:  This bill allows San Francisco to prohibit, by  
          ordinance or ballot measure, 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: 
          
          Existing law, under the Ellis Act (Act), prohibits a public  
          entity, by statute, ordinance, or regulation, from compelling an  
          owner of any residential real property, except for a residential  
          hotel, to continue to offer the rental units for rental housing.  
          The Act maintains the authority for a public entity to regulate  
          the subsequent use of the property and mitigate any adverse  
          impacts on people who are displaced from the withdrawal of a  
          property from the rental market.  The Act only applies when an  
          owner seeks to remove all units from rent or lease in a  
          building, or all units on a property with a building containing  
          three or fewer units.
          
          In rent-control jurisdictions, such as the city and county of  
          San Francisco, the Act established procedures that public  
          entities can impose upon owners prior to withdrawing property  
          from the rental market.  If a city or county requires the owner  
          to give notice before withdrawing the building from the market,  
          the owner must provide 120 days' notice - or one year's notice  







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          in the case of tenants who are disabled or more than 62 years  
          old - before terminating the tenancy.  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 prior  
          rent-controlled lease terms.  Public entities may also require  
          an owner for up to 10 years to offer re-rented units to  
          displaced tenants.  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 San Francisco, by ordinance or ballot measure,  
          to:

          1.Prohibit an owner from withdrawing a property unless all the  
            owners have been owners of record for five continuous years or  
            more.  This five-year ownership requirement does not apply to  
            an owner who is a natural person, who owns no more than two  
            properties and no more than four total residential units.
           
          2.Prohibit an owner who withdraws a property under the Act from  
            withdrawing a subsequently acquired property if it is  
            purchased within 10 years of the initial filing. 

          3.Prohibit any person with an ownership interest in a property  
            from acting in concert with a co-owner, successor owner,  
            prospective owner, agent, employee, or assignee to circumvent  
            the above provisions.

          4.Require an owner notifying the city and county of San  
            Francisco of an intention to withdraw a property under the Act  
            to include in the notice the identity of each person, entity,  
            and members of the entity with an ownership interest in the  
            property. 

          5.Provide that a person or entity that violates the provisions  
            above is liable to the tenant or lessee for actual damages,  
            special damages of no less than $2,000 per violation, and  
            reasonable attorney's fees and costs determined by the court.   
            This remedy is not exclusive and shall not preclude the tenant  
            or lessee from pursing any other remedy provided by law. 

          COMMENTS:









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          1.  Purpose of the bill.  According to the author and sponsors,  
            this bill closes a loophole in the Act and will prevent the  
            displacement of long-term San Franciscans by real estate  
            speculators looking to re-sell rent-controlled buildings at a  
            higher price.  The Act was intended to allow landlords to exit  
            the rental business and is being misused to evict tenants such  
            as families, seniors, teachers, and the disabled, groups that  
            are generally unable to afford to relocate within the city.   
            To date, 3,610 units have been subject to Ellis Act evictions.  
             In 2014, these evictions tripled and 300 units were taken off  
            the market.  In 2013, the city states that 50% of evictions  
            were by owners who had owned the property for less than one  
            year before invoking the Act, the majority occurring during  
            the first six months of ownership.  While the city has seen a  
            decline in Ellis Act evictions so far this year, this bill  
            would allow San Francisco to respond in the future to the  
            unique conditions it is experiencing by authorizing the city  
            to enact additional measures to stop misuses of the Act by  
            speculators.
            In addition to this bill, the city has set an ambitious plan  
            to build and rehabilitate 30,000 more homes by 2020, with at  
            least one-third available at below-market rates and more than  
            half at an affordable rate to lower- and middle-class  
            families.  This bill will help protect the city's existing  
            affordable housing stock and keep long-term residents housed.

          2.  History of the Ellis Act.  The Act was adopted in response  
            to the California Supreme Court's decision in Nash v. City of  
            Santa Monica, 37 Cal.3d 97 (1984).  In that case, the court  
            upheld the power of a city, through a land use ordinance, to  
            require a residential real property owner to obtain a removal  
            permit, under specified criteria, before the owner could  
            demolish his or her rental property and cause its removal from  
            the marketplace.  The next year, 
          SB 505 (Ellis, Chapter 1509, Statutes of 1985) preempted that  
            ruling by providing that no public entity shall "compel the  
            owner of any residential real property to offer, or to  
            continue to offer, accommodations in the property for rent or  
            lease."  Effectively, SB 505 gave landlords a statutory right  
            to exit the rental housing business.

            The Act only applies when an owner seeks to remove all units  
            within a building or all units in a property with a building  
            containing three or fewer units, from the market and only has  
            real effect in cities and counties with rent control and  








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            just-cause evictions.  Additionally, the Act authorizes local  
            governments to place restrictions on how property owners can  
            "Ellis" a building and exit the rental housing market. 

          3.  Limited to San Francisco.  While there are about a dozen  
            cities in the state that have rent-control laws, this bill  
            expressly applies only to the city and county of San  
            Francisco.  Arguably, San Francisco has one of the most  
            competitive housing markets in the nation.  The influx of  
            high-paying technology jobs in the city and surrounding  
            communities has drastically expanded the housing demand even  
            as housing developers are struggling to build rental units  
            with the loss of redevelopment funding. This has resulted in  
            greater Ellis Act activity in San Francisco than other  
            affected cities.  

          4.  Exemption for small property owners.  This bill would exempt  
            from the five-year ownership requirement a property owner who  
            is a "natural person," owns no more than two properties, and  
            who owns no more than a total of four residential units.   
            "Natural person" is not defined in the bill and could be  
            interpreted to limit the exemption to one person (i.e., would  
            not include properties that are owned by a married couple).   
            This exemption might also not cover a living trust established  
            for the benefit of family members.  The author will accept  
            amendments in committee clarifying that the exemption may  
            cover more than one person and living trusts.  

          5.  Clarifying the owner of record clock.  This bill would allow  
            the city and county of San Francisco to require that all  
            owners of record of a rental property hold their interest in  
            the property for five continuous years or more before  
            withdrawing the property from the rental market.  If, after  
            five years' time, a property owner places the property in a  
            living trust, this may trigger a change in "owner of record"  
            and start the five-year clock again.  Additionally, a child  
            inheriting property from their parent may not be treated as  
            having owned the property for the time it was owned by their  
            parent and the clock would restart.  The author will accept  
            amendments in committee to clarify that the creation of a  
            living trust and inheriting property would not be considered a  
            change in "owner of record" and would not restart the  
            five-year ownership clock.  

          6.  Opposition.   According to opponents, there has been a  








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            decline in the number of owners who have used the Act.  From  
            July 2014 through January 2015 there were only 33 units  
            converted, which, in a city of 281,000 rental units, amounts  
            to 0.015% of all rental units.  Opponents contend that this  
            bill would reduce the value of rental property by limiting the  
            ability of owners to sell or convert their properties.   
            Additionally, the exemption would fail to protect small  
            property owners. 

            Opponents also state that this bill would prevent small  
            property owners from moving into their own homes.  According  
            to the opponents, under San Francisco's Owner Move-in Law: 1)  
            only one owner per building can move in; 2) the owner must  
            occupy the property for at least three consecutive years and  
            move in within three months of the tenant moving out; and 3)  
            the owner must own at least 25% of the property to reside in  
            the building.  This means that if two or more owners purchase  
            a property, these owners together may only occupy one unit.   
            Furthermore, opponents state that there are already strong  
            protections in place that local governments can impose on  
            owners who desire to exit the rental market. 

          7.  Double-referral.  The Senate Rules Committee has referred  
            this bill to both this committee and the Judiciary Committee.

          



          RELATED LEGISLATION:
          
          SB 1439 (Leno, 2014) - would have allowed the city and county of  
          San Francisco to prohibit, by ordinance or ballot measure, a  
          rental housing owner from removing a building from the market  
          pursuant to the Act unless all owners in the property have held  
          their ownership interest for at least five years.  This bill  
          failed passage in the Assembly Housing and Community Development  
          Committee. 

          SB 464 (Kuehl, 2007) - would have limited the ability of a  
          rental property owner to exercise their Ellis Act rights to  
          cases where the owner has owned the property for at least three  
          years and acquired ownership of the property on or after March  
          27, 2007.   This bill died on the Senate Floor. 









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          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             No           Local:          No


            POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,
                          April 8, 2015.)

          SUPPORT:  

          San Francisco Mayor Ed Lee (Sponsor)
          Asian Americans Advancing Justice - Asian Law Caucus
          California Alliance for Retired Americans
          California Federation of Teachers
          California Labor Federation
          California State Association of Counties 
          California State Association of Electrical Workers
          California State Pipe Trades Council
          Causa Justa - Just Cause
          Council of Community Housing Organizations
          Housing Rights Committee of San Francisco
          San Francisco Citizens Initiative for Technology and Innovation
          San Francisco Labor Council
          Tenants Together
          Tenderloin Housing Clinic
          Urban Counties Caucus
          Western Center on Law and Poverty
          Western States Council of Sheet Metal Workers

          OPPOSITION:

          Apartment Association, California Southern Cities
          Apartment Association of Greater Los Angeles
          Apartment Association of Orange County
          California Apartment Association
          California Association of Realtors
          California Building Industry Association 
          California Chamber of Commerce
          Civil Justice Association of California
          East Bay Rental Housing Association
          Nor Cal Rental Property Association
          North Valley Property Owners Association
          Small Property Owners of San Francisco Institute
          San Diego Apartment Association 
          Santa Barbara Rental Property Association








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