Appeals court says SRO law violates owners’ property rights

FILE-- San Francisco City Attorney Dennis Herrera. A state appeals court says a San Francisco law designed to make thousands of single-room-occupancy units available to renters rather than tourists, by increasing the minimum stay from the previous seven days to 32 in most cases, appears to violate hotel owners’ property rights. less FILE-- San Francisco City Attorney Dennis Herrera. A state appeals court says a San Francisco law designed to make thousands of single-room-occupancy units available to renters rather than tourists, by ... more Photo: Paul Kuroda / Special To The Chronicle Buy photo Photo: Paul Kuroda / Special To The Chronicle Image 1 of / 5 Caption Close Appeals court says SRO law violates owners’ property rights 1 / 5 Back to Gallery

A state appeals court says a San Francisco law designed to make thousands of single-room-occupancy units available to renters rather than tourists, by increasing the minimum stay from the previous seven days to 32 in most cases, appears to violate hotel owners’ property rights.

The ordinance, which has been in effect since March 2017, “changes the fundamental nature of (the owners’) business, by making them landlords rather than hotel operators,” the First District Court of Appeal in San Francisco said Monday.

Reinstating a lawsuit that a Superior Court judge had dismissed, the appellate panel did not halt enforcement of the law.

But the justices ordered new hearings in Superior Court and indicated the city likely would be required either to compensate hotel owners for their lost revenue or delay enforcement long enough so that they could recoup their losses.

“This is about an effort by the city to devalue these properties and take them over,” said Andrew Zacks, a lawyer for hotel owners. “Take a property that’s a hotel and pass a law that says it has to be an apartment building.”

“While we are disappointed with the Court’s decision, this is not a ruling on the merits of the case,” said a statement released by the office of City Attorney Dennis Herrera. “The City will continue to defend the SRO hotel ordinance and its intended beneficiaries — the residents of San Francisco.”

SRO units are small rooms, usually without bathrooms or kitchens, and are commonly rented to low-income, elderly and disabled tenants. Zacks said there are about 18,000 such units in San Francisco hotels. But Randy Shaw, director of the Tenderloin Housing Clinic, a sponsor of the 2017 ordinance, said only about 12,000 rooms are in hotels covered by the ordinance, and the rest are in apartments.

“All we’re trying to do is make sure residential rooms are rented to residents,” Shaw said.

San Francisco has regulated SRO units since 1981, initially requiring them to be rented for at least seven days, in order to keep them available to local residents rather than short-term tourists. The pre-2017 ordinance allowed short-term rentals of up to 31 days without rent control, which kicks in at 32 days in the city.

Backers of the new ordinance, sponsored by Supervisor Aaron Peskin, said it was needed because owners were finding ways around the minimum rental periods to rent rooms to higher-paying tourists. It raised the minimum rental period to 32 days and stiffened enforcement provisions.

The appeals court said hotel owners were likely to prove that the new law violates their property rights by changing “the nature of their business in significant and detrimental ways” without compensation.

“Hotel owners will be subject to rent control at the end of the initial term of tenancy unless the occupant voluntarily vacates the premises or is lawfully evicted,” Justice Henry Needham said in the 3-0 ruling.

If the ruling stands, Zacks said, San Francisco will either have to pay substantial sums to compensate the owners or rewrite the ordinance to allow a grace period.

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