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
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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.
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
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