BILL ANALYSIS Ó SENATE COMMITTEE ON TRANSPORTATION AND HOUSING Senator Jim Beall, Chair 2015 - 2016 Regular Bill No: SB 364 Hearing Date: 4/14/2015 ----------------------------------------------------------------- |Author: |Leno | |----------+------------------------------------------------------| |Version: |2/24/2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Alison Dinmore | |: | | ----------------------------------------------------------------- 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 SB 364 (Leno) Page 2 of ? 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: SB 364 (Leno) Page 3 of ? 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 SB 364 (Leno) Page 4 of ? 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 SB 364 (Leno) Page 5 of ? 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. SB 364 (Leno) Page 6 of ? 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 SB 364 (Leno) Page 7 of ? -- END --