BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
SB 1439 (Leno)
As Amended April 1, 2014
Hearing Date: May 6, 2014
Fiscal: No
Urgency: No
NR
SUBJECT
Residential Real Property: Withdrawal of Accommodations
DESCRIPTION
This bill would allow the City and County of San Francisco to
limit the ability of a rental property owner to exercise its
"Ellis Act" rights (which allow a property owner to get out of
the rental business and in the process evict all tenants from
the rental property, notwithstanding any local rent control
laws) to cases where the owner has owned the property for at
least five years.
This bill would additionally allow the City and County of San
Francisco to:
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 former
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 prohibitions;
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; and
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 as determined by the court.
BACKGROUND
(more)
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The Ellis Act was adopted in 1985 by SB 505 (Ellis, Chapter
1509, Statutes of 1985) following the California Supreme Court's
decision in Nash v. City of Santa Monica (1984) 37 Cal.3d 97,
which upheld the power of a city, in the context of a land use
ordinance, to require a residential property owner to obtain a
removal permit under specified criteria before the owner could
demolish the rental property and remove it from the rental
marketplace. SB 505 preempted the ability of local governments
to adopt a local ordinance that prohibited rental property
owners from removing a rental property from the marketplace, and
specified certain procedures should a property owner decide to
exercise its "Ellis" rights.
Reports indicate that evictions in San Francisco are at their
highest level in over a decade, and "that use of the Ellis
Act-which allows a property owner to oust tenants in order to
get out of the rental business-nearly doubled for the third
straight year. City officials and tenant advocates say most
uses of the Ellis Act are by real estate speculators who have
just purchased a rent-controlled building. But while Ellis Act
evictions in the past year rose from 116 to 216, they only
represented about 11 percent of all evictions. Still, such
evictions remove rental units from the City's stock and make the
property much more valuable." (Chris Roberts, SF evictions keep
rising, latest report shows, SF Examiner, March 13, 2014.)
This bill seeks to ensure that real estate speculators in San
Francisco do not buy rent-controlled property and empty it of
long-term tenants. Accordingly, this bill would authorize San
Francisco to prohibit owners of less than five years from
invoking the Ellis Act, require disclosure of all owners in a
building which has invoked the Ellis Act, and provide a cause of
action with statutory penalties against owners who violate the
provisions of this bill.
CHANGES TO EXISTING LAW
Existing law generally prohibits public entities from adopting
any statute, ordinance, or regulation, or taking any
administrative action, to compel an owner of residential real
property to offer or to continue to offer residential property
for rent or lease. (Gov. Code Section 7060 et. seq.)
Existing law provides that a public entity with rental control
laws may require the owner to notify the entity of an intent to
withdraw residential property from rent or lease, and may
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establish the date on which the property is withdrawn from rent
or lease at 120 days from the delivery of that notice to the
public entity. However, if a tenant or lessee is at least 62
years of age or is disabled, and has lived in the rental
property for at least one year prior to the delivery date of the
notice of intent to withdraw, existing law extends the date of
withdrawal and the tenancy of that qualified tenant to one year
after the delivery of the notice, as specified. (Gov. Code Sec.
7060.4.)
Existing law authorizes a public entity having a system of rent
controls to require the following when the owner of a rental
property subject to rent controls has exercised his or her Ellis
rights:
If the property is returned to the rental market within five
years following the filing of the notice of intent to withdraw
or within five years after the property's withdrawal, the
rental unit must be offered at the rent level, as specified,
in effect when the withdrawal notice was filed; and further,
if that returned rental unit is offered again for rent at any
time during the five-year period, the rental rate for any
re-rental of the returned unit shall be that rent level.
If the property is offered for rent within two years the
property was withdrawn from the market:
o the property owner is liable to any evicted tenant for
actual and exemplary damages;
o the public entity may also sue the property owner for
exemplary damages for the displacement of tenants and
lessees; and
o the property owner must offer former evicted tenants the
right of first refusal to reoccupy the property pursuant to
a reinstituted rental agreement where the tenant has
advised the owner of this entitlement within 30 days of the
tenant's eviction from the premises when the property was
first withdrawn.
If the property is returned to the rental market within 10
years from the date of withdrawal, the owner must first offer
the returned unit to the tenant displaced by the withdrawal
where the tenant has requested the offer within 30 days after
the owner had notified the public entity of an intention to
offer the property again for rent. (Gov. Code Sec. 7060.2.)
This bill would authorize the City and County of San Francisco
to adopt an ordinance, resolution, or regulation to 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
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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.
This bill would authorize 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, and
this information shall be available for public inspection.
This bill would additionally authorize the City and County of
San Francisco to adopt ordinances, resolutions, or regulations
to:
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; and
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.
This bill would make uncodified declarations and findings
related to the increase in Ellis Act evictions in San Francisco.
COMMENT
1.Stated need for the bill
According to the author:
Ellis Act evictions have tripled in San Francisco in the last
year. More than 300 units were taken off the rental market.
But that figure understates the impact of the Act. Many
evictions occur off the books. Ellis Act threats lead many
tenants to vacate without paperwork actually being filed.
Neighboring tenants live in fear that the evictions occurring
around them will soon happen to them. Fifty percent of the
evictions in 2013 were done 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.
These are not the landlords the Act was designed to help.
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The spirit of the Act was to allow property owners a way out
of the rental business, not to give windfall profits to
speculators willing to exploit the Act by entering the rental
business just to exit it. This misuse of the Act does damage
to renters and their communities. Cities are already
empowered by the Act to adopt specified rules to mitigate the
impact of eviction and prevent re-rental in violation of the
Act. This bill will allow San Francisco to respond to the
conditions it is currently experiencing by authorizing the
city to enact additional measures to stop misuses of the Act
by speculators.
2.Applies only to the city and county of San Francisco
This bill would apply only "to a city that is also a county," or
San Francisco, and would allow San Francisco to adopt a local
ordinance or regulation prohibiting owners of rental property of
less than five years from invoking their Ellis Act rights with
regards to that property. This bill would also allow San
Francisco to adopt other measures to address the current housing
crisis including 1) restricting what options are available on
rental properties purchased after a notice of intent to withdraw
accommodations has been filed, 2) requiring disclosure of all
owners in any property that is "Ellised," and 3) damages for
violations of the provisions of this bill.
In October of 2012, the Huffington Post reported that San
Francisco was the most unaffordable city in the country for home
ownership, a problem which stretches to the rental market as
well. The article pointed to a number of contributing factors,
including the fact that it is a densely developed coastal area
with little room for new construction and geographic boundaries
preventing outward expansion. However, the problem is further
exacerbated "by the social-media fueled tech boom that has
brought lots of high-earners into the region?However, the city's
ability to construct new housing hasn't been able to keep pace.
In 2011, San Francisco only added 418 units for new housing over
the course of an entire year." (Aaron Sankin, Most Expensive
City in America: San Francisco Most Unaffordable City for Home
Ownership, October 22, 2014, found at
http://www.huffingtonpost.com/2012/10/22/most-expensive-city_n_
2002532.html as of May 1, 2013.) Mayor Edwin M. Lee, a
co-sponsor of this bill, writes:
The State Legislature passed the Ellis Act in 1985, allowing
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property owners to leave the rental housing business by
evicting their tenants. In San Francisco, the straightforward
law is being misused. Since emerging from the Great
Recession, the City has experienced a dramatic surge in Ellis
Act evictions. In the last year, Ellis Act evictions have
increased 86 percent, on top of an 81 percent increase in
2012. These evictions are not being carried out by long-term
property owners, leaving the rental business to retire from
being landlords. Instead, a small group of bad actors have
become serial evictors, buying tenanted, rent-controlled
buildings with6 the intention of invoking the Ellis Act and
reselling a vacant building at a higher price.
3.Limitation on subsequently purchased properties
The basic intent of the Ellis Act was to permit landlords to go
out of business. (See Gov. Code Sec. 7060.7.) This bill would
prohibit an owner who invokes his Ellis rights with regards to a
property, from "Ellising" a property purchased after the notice
of intent to withdraw accommodations on the former property was
filed. According to the author, this provision is intended to
prevent serial evictors from purchasing additional properties
which they intend to take off the rental market after noticing
their intent to exit the real estate business.
The California Association of Realtors writes in opposition that
this bill "prohibits an owner from applying the Ellis Act to
more than one rental property. This would require an owner to
remain in a money-losing investment for perpetuity and serves to
discourage new investment in such housing."
Staff notes that this prohibition applies only to properties
purchased after an owner has used the Ellis Act on a previously
owned property, and thus does not limit application of the Ellis
Act to only one rental property. Landlords who own multiple
properties may invoke the Ellis Act on as many as they find
necessary, as long as the property was not purchased after the
notice of intent to withdraw was filed. However, this
restriction could apply to more than just speculators by also
restricting those owners who purchase a property a significant
amount of time later which they wish to eventually remove from
the rental market as well. To ensure that this bill does target
speculators, the author should consider limiting the perpetual
effect of this provision while still ensuring that the ability
of speculators to purchase properties with the intention of
evicting tenants is curbed. The following amendment would place
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the prohibition only on rental properties purchased within ten
years of an owner's intent to withdraw accommodations on the
previously owned property.
Author's amendment
On page 2, line 21 after "accommodations" insert "within ten
years of that filing"
4.Opposition's remaining concerns
The Civil Justice Association of California (CJAC) argues that
this bill would create problems for landlords, their families,
and those who they contract with, and would encourage more
lawsuits against property owners. CJAC writes "Over the years
rental property owners have relied on the Ellis Act in order to
avoid the potential for bankruptcy or to move into their own
rental units. In order to address a housing shortage in San
Francisco, this bill would require landlords to 'stay in the
business' for five years before being able to sell or convert
the property."
In response to the above concern, the author writes "landlords
have presented no evidence to support this claim. Advocates who
have handled hundreds of Ellis cases have never seen one where
the Act was used to avoid landlord bankruptcy. Landlords are
free to sell their buildings. This bill stops evictions by
speculators. The bill does not stop sale of the property. With
a booming market for rental property in San Francisco, selling
rental property is not difficult."
The San Diego Apartment Association argues in opposition that
"rental property owners have relied on the Ellis Act in order to
avoid the potential for bankruptcy or to move into their own
rental units?While SB 1439 is specific to San Francisco, it
significantly amends the Ellis Act and we fear that such changes
will negatively impact rental housing and could eventually make
their way to San Diego." The California Chamber of Commerce
echoes these concerns and writes in opposition, "SB 1439 would
prevent families who own small rental buildings from, for
example, combining two or three small units into a larger one to
provide adequate home for a growing family. In San Francisco,
the Ellis Act is often the only way for small property owners to
move into their own units."
In response, the author writes "The Ellis Act has nothing to do
with owner-move-in evictions. Every jurisdiction with rent
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control allows owner-move-in evictions and the Ellis Act is not
needed for that." Furthermore, mergers in general are closely
monitored by the Planning Commission and discouraged both in the
Planning Code and through administrative policies due to the
scarcity of rent control housing in San Francisco. Under current
regulations, a property owner cannot merge a unit for 10 years
after an Ellis Act eviction. A P.O. who uses an OMI to evict a
tenant cannot merge for 5 years.
Support : Accela; Advent; Affordable Housing Alliance;
AfterCollege, Inc.; Airseed; Alliance for a Better District 6;
Apcera; AppMesh Inc.; Asian Americans Advancing Justice - Asian
Law Caucus; Asian Pacific Islander Legal Outreach; Asian
Southeast Asain Society International Policy Institute; Asian
Students Promoting Immingrants Rights Through Education;
Automatic Labs Inc.; Babelverse, Inc.; Bay Area Council; Bernal
Heights Neighborhood Center; Bill Sorro Housing Program; Box;
Brian Webster and Associates; Calle 24 Merchants and
Neighborhood Association; California State Association of
Counties; California Alliance of Retired Americans; California
labor Federation; California Music and Culture Association;
California Rural Legal Assistance Foundation; Cause Justa:: Just
Cause; Causes; Central City Democrats;; Chinatown Community
Development Center; Chinese Chamber of Commerce; Christ Our
Redeemer AME Church of Irvine; Cloudera; Community Housing
Partnership; Community Tenants Association; Couchsurfing; Crate
Labs, Inc.; Credit Karma; Crowdtilt; Data Elite; Deloitte;
Emenical Center for Black Church Studies; EchoUser; Events by
Vollette; Eviction Defense Collaborative; Expedia Inc.; Exygy;
Eyegroove;; Fido Labs; ForageSF; Generator Lab; Getable, Inc.;
GitHub; HandUp PBC; Home Ownership San Francisco; Housing Rights
Committee of San Francisco; iCloud; Inside; Jawbone; Jesse
Miranda Center for Hispanic Leadership; Keen IO; Kite Solutions,
Inc.; Lit Motors; Los Angeles Latino Chamber of Commerce; Lower
24th Street, Merchants & Neighbors Association; McElroy, Most
Reverend Robert W., Auxiliary Bishop of San Francisco;
Mesosphere, Inc.; Mission Cultural Center for Latino Arts;
Mission Economic Development Agency; Nashville West Studios;
National Asian American Coalition; National Housing Law Project;
Neighborland; Newsle, Inc.; Non-Profit Housing Association of
Northern California; North of Market Business Association;
Optimizely; Organizer; Path; Peers; Peerspace; PLAE, Inc.;
Project Homeless Connect; QuickPay; RivalMe Inc.; Salesforce;
San Francisco Board of Supervisors; San Francisco Building and
Construction Trades Council; San Francisco Citizens Initiative
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for Technology and Innovation; San Francisco Community Land
Trust; San Francisco Housing Development Corporation; San
Francisco Interfaith Council; San Francisco Labor Council; San
Francisco Latino Democratic Club; Social Bet, Inc.; Silicon Bet,
Inc.; Splice vine; Square Trade; StartUpers; St. Anthony
Foundation; SV ANGEL; Tagged; Tenant Associations Coalitions of
San Francisco; Tenderloin Housing Clinic; Tennis Round, Inc.;
TinyCo; TMG Partners; TRAIL; Treasure Island Homeless
Development Initiative; Trulia; Twilio; Twitter; Urban Counties
Caucus; WEbTalk; West Bay Housing Corporation; Western Center on
Law and Poverty; Xoom Corp; YELP; YouBetMe; Zackees, Inc.;
Zynga; a number of individuals
Opposition : Apartment Association, California Southern Cities;
Apartment Association of Orange County; California Apartment
Association; California Association of Realtors; California
Chamber of Commerce; Civil Justice Association of California;
East Bay Rental Housing Association; NorCal Rental Property
Association; San Diego County Apartment Association; San
Francisco Association of Realtors; Numerous individuals via
petition
HISTORY
Source : San Francisco Mayor Edwin M. Lee; Tenants Together
Related Pending Legislation : None Known
Prior Legislation : SB 464 (Kuehl, 2007) would have limited the
ability of a rental property owner to exercise its "Ellis Act"
rights to cases where the owner has owned the property for at
least five years. This bill was placed on the Senate inactive
file at the request of the author.
Prior Vote : Senate Transportation and Housing (Ayes 6, Noes 4)
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