San Francisco’s attempt to extort landlords denied…again

Last week we announced that the 9th U.S. Circuit Court of Appeals rejected San Francisco’s attempt to undo PLF’s victory on behalf of San Francisco landlords in the Levin case. In that case, landlords who wished to remove their property from the rental market under California’s Ellis Act were subject to a San Francisco ordinance that attempted to force landlords to pay their tenants an amount equal to the difference between the monthly rent they charged (often low due to rent control policies) and the current market rent, multiplied by 24 months. The challenged law required some landlords to pay out hundreds of thousands of dollars, and in some cases, millions, just to stop being landlords. Fortunately, that law was held to be unconstitutional.

In response to the lower court decision in the Levin case, San Francisco amended its ordinance and capped the amount landlords could be forced to pay at $50,000 per rental unit. Martin Coyne and other landlords then challenged the revised ordinance, and last year, PLF filed an amicus brief in their support. I discussed the details of that case and brief here. Tuesday, in Coyne v. City and County of San Francisco, the California Court of Appeal ruled in favor of the landlords and invalidated San Francisco’s second attempt to force landlords to pay for a problem they didn’t cause.

The primary issue in the case is whether California’s Ellis Act (a law that prohibits government from stopping landlords from removing rental units from the market) preempts San Francisco’s ordinance that forces landlords to pay tenants to ease the burden of the lack of affordable housing in the city. The Court held that the ordinance is preempted. According to the Court:

“We see the increased rent payment the City’s ordinances obligate landlords to pay their former tenants as a form of ransom which interferes with and places an undue burden on landlords who seek simply to go out of business.”

As a result, the payment requirement “imposes a prohibitive price on the ability of landlords to exercise their rights under the Ellis Act.”

Importantly, the Court also rejected the City’s argument that landlords cause a tenant to face spiraling rent costs as a result of an Ellis Act eviction. To the contrary, the Court stated that the City’s argument

“ignores the impact of the City’s policy decision to impose residential rent control, creating a rent differential. That policy purposefully causes a tenant’s rent to be artificially below market rate, a gap that could be expected to increase with the length of the tenancy.”

In other words, if anyone has caused tenants to experience a rent hike, it’s the City, not landlords.

After this resounding series of victories for landlords and their property rights, hopefully San Francisco will finally get the hint that its own housing policies have had a direct impact on causing housing costs to skyrocket and will look internally to ease the pain, rather than to property owners.