Update: San Francisco is going to appeal.
It cost a lot to live in San Francisco, these days. A whole lot, whether you own, or rent.
If you're a renter, however, you should hope and pray that your landlord wants out of the rental business. Because under a San Francisco ordinance, property owners who rent their properties but then decide they don't want to continue to do so must get a permit from the City in order to quit. Another requirement of the ordinance is that the owner pay cash to a displaced tenant -- a lump sum "relocation payment" of 24 times "the difference between the units' current monthly rent and an amount that purports to be the fair market value of a comparable unit in San Francisco, as calculated by a schedule developed by the Controller’s Office."
The Levins wanted out of the rental business, and the "relocation payment" they were required to pay to a tenant under the ordinance was nearly $118,000. Another property owner's relocation payment was calculated at over $1 million for the tenants in its 13 units. The owners sued the City in federal court.
In this opinion, the court held the ordinance was unconstitutional under Nollan-Dolan-Koontz:
The Court turns, then, to evaluating under the Nollan/Dolan framework whether the payouts required by the Ordinance have an essential nexus with, and are roughly proportional to, the harm caused by a property owner’s withdrawal of a unit from the rental market. See Koontz, 133 S. Ct. at 2600. The Ordinance on its face fails both the essential nexus and rough proportionality tests. It requires that property owners seeking a permit to cease renting their property pay the evicted tenant an amount equal to two years’ worth of the alleged gap between the reduced rent the tenant was paying the property owner and the market rent for a comparable unit. In other words, according to the City, because the eviction is the but-for cause of the tenant being exposed to perhaps unaffordably high market rents, the property owner must pay for two years of that rent differential.But the property owner’s decision to repossess a unit did not cause the rent differential gap to which the tenant is now exposed. Two variables, neither of which is attributable to the property owner, give rise to the rent gap differential. One variable is the market rate. The limited supply–and correspondingly high price–of rental units in San Francisco is, on the City’s own evidence, caused by entrenched market forces and structural decisions made by the City long ago in the management of its housing stock. See, e.g., Tr. Ex. 16 at 12; Tr. Ex. 13 at 2, 4. The market effect of an Ellis Act withdrawal–indeed, of all Ellis Act withdrawals, which number on the order of a few dozen every year among a housing stock of hundreds of thousands of units–is nifinitesimally small. See Tr. Ex. 13 at 14. The record shows that in 2013, for example, less than five one-hundredths of one percent of the City’s rental housing stock was affected by an Ellis Act withdrawal. See Tr. Ex. 13 at 6-7, 14. On this record, it is indisputable that Ellis Act withdrawals do not cause high market prices.
The other variable is the regulated rent that the tenant currently enjoys. This is, of course, a creature of regulation that the City imposes on the property owner as rent control. Had the City regulated all rents or none, there would be no rent differential gap to which an evicted tenant would be exposed. Having chosen to regulate only some rents in the manner that it did, the City’s rent control scheme results in many tenants, but not all, temporarily enjoying a lower-than-market rent.
Against the infinitesimally small impact of the withdrawal on the rent differential gap to which a tenant might now be exposed, the Ordinance requires an enormous payout untethered in both nature and amount to the social harm actually caused by the property owner’s action.
Slip op. at 16-17 (footnote omitted).
There's more to the court's opinion, of course, and we highly recommend you read the entire thing.
Will there be futher action? The court apparently thought there might be: it stayed enforcement of the decision for until October 24, 2014 "to allow the City to seek any relief to which it is entitled in the Ninth Circuit." Slip op. at 24.
More here from Pacific Legal Foundation, which represents the prevailing property owners/plaintiffs.
