Court rules against SF in Ellis Act apartment rental case

Supervisor David Campos, during a Board of Supervisors meeting at City Hall, on Tuesday, Nov. 15, 2016 in San Francisco, Calif. Supervisor David Campos, during a Board of Supervisors meeting at City Hall, on Tuesday, Nov. 15, 2016 in San Francisco, Calif. Photo: Santiago Mejia / The Chronicle Buy photo Photo: Santiago Mejia / The Chronicle Image 1 of / 28 Caption Close Court rules against SF in Ellis Act apartment rental case 1 / 28 Back to Gallery

When landlords decide to go out of the rental business, San Francisco can’t legally require them to pay their evicted tenants as much as $50,000 to cover the higher rents they’ll face on the open market, a state appeals court has ruled.

A never-enforced 2015 ordinance that would have required the payments was “a form of ransom which interferes and places an undue burden on landlords who simply seek to go out of business,” the First District Court of Appeal in San Francisco said Tuesday.

The court said the ordinance, scaled down from a previous measure that was also overturned in court, violated property owners’ rights under a 1985 state law called the Ellis Act.

That law, sponsored by the real estate industry, allows landlords to evict all their tenants when they leave the rental business, without having to show the usual legal grounds for eviction. Under a section of the law allowing local governments to require “reasonable” relocation assistance, courts have upheld a 2005 San Francisco ordinance that entitled displaced tenants to $4,500, adjusted annually for inflation.

But on Tuesday, the appeals court, upholding a decision by a Superior Court judge, said the 2015 ordinance imposed a “prohibitive price” on owners who exercise their rights under the Ellis Act.

Sponsored by then-Supervisor David Campos, the ordinance would require landlords to pay former tenants the difference between their current rent and the market rate for a similar unit in the city for two years, up to a maximum of $50,000. Tenants would have to show they were using the funds solely for relocation costs and rents, and landlords who faced hardships could appeal to the city Rent Board to reduce their payments.

Lawyers for the city argued that the ordinance was authorized by language in the Ellis Act allowing local governments to protect tenants from “any adverse impact” caused by their landlord’s decision to go out of the rental business. But the court said the “adverse impact” on evicted San Francisco tenants was not caused by their landlord’s decision, but instead by the city’s “policy decision to impose residential rent control.”

“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,” Presiding Justice Barbara Jones said in the 3-0 ruling.

Andrew Zacks, a lawyer for landlords who challenged the ordinance, said the ruling was “a complete victory for small property owners of San Francisco.”

“The city continues in an unfortunate pattern of trying to burden small landlords with the problem we have in San Francisco with respect to affordable housing,” Zacks said.

John Coté, spokesman for City Attorney Dennis Herrera, said his office was disappointed. San Francisco could ask the state Supreme Court to review the ruling.

Bob Egelko is a San Francisco Chronicle staff writer. Email: begelko@sfchronicle.com Twitter: @egelko

Online

Read the ruling: www.courts.ca.gov/opinions/documents/A145044.PDF