Judge tosses S.F. law meant to shield evicted tenants

Jerrold Jacoby stands outside the Russian Hill home, where he recently evicted a tenant so that his daughter could move in and take care of him as he ages, on Friday, August 22, 2014 in San Francisco, Calif. Jerrold Jacoby stands outside the Russian Hill home, where he recently evicted a tenant so that his daughter could move in and take care of him as he ages, on Friday, August 22, 2014 in San Francisco, Calif. Photo: Lea Suzuki, The Chronicle Buy photo Photo: Lea Suzuki, The Chronicle Image 1 of / 1 Caption Close Judge tosses S.F. law meant to shield evicted tenants 1 / 1 Back to Gallery

San Francisco apartment owners scored a major victory Tuesday when a federal judge declared unconstitutional the city’s attempt to shield evicted tenants from soaring rents by substantially increasing the relocation fees the tenants must be paid by landlords who decide to get out of the rental business.

The law, which took effect in June, requires property owners to pay displaced tenants the difference for two years between the current rent and the amount needed to rent a comparable unit in the city at market rates. The amounts can exceed $100,000, though they are usually much less. That violates property rights, said U.S. District Judge Charles Breyer, because it requires owners to pay for conditions they didn’t cause — the skyrocketing prices of rental housing, and the gap between market rates and maximum charges under the city’s rent-control law.

The ordinance “seeks to force the property owner to pay for a broad public problem not of the owner’s making,” said Breyer, who held a one-day trial in the case this month. “A property owner did not cause the high market rent to which a tenant who chooses to stay in San Francisco might be exposed, nor cause the lower rent-controlled rate the tenant previously enjoyed.”

He said the city’s claim of a causal link between a landlord’s actions and the relocation fees was further weakened by the fact that the ordinance did not require tenants to spend the fees on replacement housing in San Francisco, or anywhere else.

Breyer stayed his ruling until Friday to give the city time to ask a federal appeals court to intervene. Gabriel Zitrin, spokesman for City Attorney Dennis Herrera, said Herrera was “very disappointed” by the ruling and would decide whether to appeal in the next few days.

Previous ordinance

An earlier city ordinance, enacted in 2005 and upheld by the courts, required landlords to pay displaced tenants $4,500 plus inflation adjustments, an amount that Breyer said was roughly equal to the expenses they face in moving out. But tenant advocates said it came nowhere near the actual costs of finding new housing.

The author of the new ordinance, Supervisor David Campos, urged Herrera to continue defending it.

“When you stand up against powerful special interests like San Francisco did, by demanding fair payments to tenants evicted under the Ellis Act, you can expect those interests to fight back,” Campos said in a statement. “That’s what we’re seeing right now. This is not a permanent setback.”

Dean Preston, executive director of Tenants Together, a statewide advocacy organization that filed arguments in support of the ordinance, criticized the ruling. He said the Ellis Act, a state law allowing property owners to evict all their tenants without cause when they leave the rental business, contemplated that local governments could pass laws to reduce the impact on tenants.

“There’s no reason why the city can’t tie that (landlord’s decision) to the cost of displacement,” Preston said.

But J. David Breemer of the Pacific Legal Foundation, a lawyer for landlords who challenged the ordinance, called the ruling “a great win for property rights.”

'Pay a ransom’

Campos’ measure “requires property owners to pay a ransom simply to stop being landlords and use their own property,” Breemer said. “Property owners didn’t cause the affordable housing crisis. The public should address it, not put it on the backs of property owners.”

The lead plaintiffs, husband and wife Daniel and Maria Levin, bought a two-unit North Beach building in 2008 with a single downstairs tenant. The Levins, who lived upstairs, filed an Ellis Act eviction in December, saying they wanted to use the lower unit for family members. The eviction was still pending when the new ordinance took effect, requiring the couple to pay their tenant nearly $118,000, the difference between the current rent and two years’ payments on a comparable unit elsewhere.

Breyer said the ordinance was unprecedented and violated a constitutional principle: When the government confiscates private property, by condemning land or exacting a fee for owners’ use of their property, the price must be at least “roughly proportional” to the impact of the owners’ actions.

Judge’s assessment

“The ordinance requires an enormous payout untethered in both nature and amount to the social harm actually caused by the property owner’s action,” the judge said. He said Ellis Act evictions — just over 200 in a recent 12-month period, in a city with more than 230,000 rental units — have little impact on the housing crisis or on tenants’ relocation costs.

“San Francisco’s housing shortage and the high market rates that result are significant problems of public concern, and the city (supervisors’) attempts to ameliorate them are laudable,” Breyer said. “But there are outer limits to how this may be done.”

Bob Egelko is a San Francisco Chronicle staff writer. E-mail: begelko@sfchronicle.com

Twitter: @egelko