9 Cal. App. 5th 1215
Cal. Ct. App.2017Background
- The Ellis Act (Gov. Code § 7060 et seq.) allows residential landlords to withdraw units from the rental market and prohibits cities from compelling owners to continue offering rentals; it contains a savings clause permitting local mitigation of displacement impacts (Gov. Code § 7060.1(c)).
- San Francisco enacted a series of local relocation-assistance ordinances (1994, 2000, 2005) increasing payouts to displaced tenants; Ordinance 54-14 (2014) added a Rental Payment Differential (two years’ difference between controlled rent and prevailing market rent) with no cap.
- Federal district court (Levin) enjoined Ordinance 54-14 as an uncompensated taking; San Francisco responded with Ordinance 68-15 (2015), which kept the Rental Payment Differential but capped it at $50,000 and added tenant declaration and documentation requirements plus Rent Board hardship procedures.
- Property owners (Jacoby and Coyne plaintiffs) sued in state court challenging Ordinances 54-14 and 68-15 as preempted by the Ellis Act and facially invalid; superior courts granted writs enjoining enforcement.
- The Court of Appeal consolidated the appeals and reviewed whether the City’s enhanced relocation payments and related procedures are preempted because they impose a “prohibitive price” on owners exercising Ellis Act rights.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether San Francisco’s enhanced relocation payments (Rental Payment Differential) are preempted by the Ellis Act | Coyne: The payouts are unreasonable, effectively compulsory subsidies that condition exiting the rental business and thus conflict with the Ellis Act | City: The Ellis Act’s savings clause authorizes mitigation of adverse displacement impacts (including increased market rent); payments are permissible and not compulsion | Held: Preempted — payment differential imposes a prohibitive price and cannot be required under the Ellis Act |
| Proper legal standard for conflict preemption under the Ellis Act | Coyne: Use a reasonableness test (payments must be reasonable) | City: Only direct compulsion to continue renting is forbidden; otherwise not preempted | Held: Apply the established “prohibitive price” standard (pricing that effectively bars exit); this encompasses the reasonableness inquiry |
| Whether the City may treat future rent increases (market-rate differential) as an "adverse impact" attributable to an individual landlord’s Ellis Act withdrawal | Coyne: Future market-rent increases stem from rent-control policy, not the individual owner’s decision; thus subsidies for market-rate rent are not proper mitigation | City: Rent increase is an obvious adverse impact of eviction and fits within §7060.1(c) mitigation authority | Held: City’s theory faulty — increased market rent is a product of rent-control policy, not the individual owner’s withdrawal; treating market-rate subsidies as mitigation improperly enlarges the savings clause |
| Whether procedural requirements (tenant declaration, fee calculation, Rent Board hardship process, three-year monitoring) are preempted | Coyne: These procedures create delays, uncertainties, and substantive obstacles that impose a prohibitive price on exercising Ellis Act rights | City: Procedural safeguards and administrative relief avoid hardship and save the ordinance | Held: Court did not need to decide these fully because substantive payout provisions were facially preempted, but expressed concern that such procedures can likewise impose prohibitive burdens and may be invalid |
Key Cases Cited
- Nash v. City of Santa Monica, 37 Cal.3d 97 (Cal. 1984) (upheld local permit requirement; prompted Legislature to enact the Ellis Act)
- Javidzad v. City of Santa Monica, 204 Cal.App.3d 524 (Cal. Ct. App. 1988) (ordinance preempted because it imposed a prohibitive price on Ellis Act rights)
- Bullock v. City and County of San Francisco, 221 Cal.App.3d 1072 (Cal. Ct. App. 1990) (conditioning withdrawal on in-lieu payments/replace-or-pay requirement invalid as ransom)
- Pieri v. City and County of San Francisco, 137 Cal.App.4th 886 (Cal. Ct. App. 2006) (reasonable relocation assistance is permissible mitigation under §7060.1(c))
- San Francisco Apartment Assn. v. City and County of San Francisco, 3 Cal.App.5th 463 (Cal. Ct. App. 2016) (ordinance imposing 10-year restriction on merging withdrawn units imposed an impermissible penalty on Ellis Act exit)
- Johnson v. City and County of San Francisco, 137 Cal.App.4th 7 (Cal. Ct. App. 2006) (local notice/belief requirements preempted when they create substantive defences or burdens on Ellis Act exits)