Feature

McTic Ruled Unconstitutional

by James B. Kraus

To paraphrase former President Gerald Ford, our long, local nightmare is over—almost. Although Judge Robertson orally ruled that Supervisor Jake McGoldrick’s tenancy-in-common ordinance (McTIC) violates the constitutional rights of privacy and equal protection, he has yet to sign the order or enter final judgment. For those of you who may be unfamiliar with McTIC, let me provide some background. In July 2001, the city attempted to prevent or discourage Ellis Act evictions by prohibiting owners from forming tenancies in common (TICs) with exclusive rights of occupancy (EROs), unless they went through the condominium conversion process. Sounds great, doesn’t it? The catch, however, was that in order to convert, the building had to have at least one tenant. Thus, if you had to use the Ellis Act to occupy the building, you could not convert. If there were equal numbers of owners and units, you could not convert. The long and short of McTIC proved that it was an attempt to thwart the Ellis Act and compel residential rental use.

The genesis of McTIC should not surprise any property owner. For years the city has been passing more and more legislation designed to force property owners to provide low-income housing to the public at the owners’ expense. In 1994, the voters narrowly passed Proposition I which brought two-to-four unit owner-occupied buildings under rent control. In 1998, the Board of Supervisors limited owner move-ins to one unit per building. During the same year, the city attempted to create a zoning classification that would have required a conditional use permit for people to live in their own homes. This state of affairs has led many property owners to invoke the Ellis Act and remove their properties from residential rental use. They have done this either to free themselves from San Francisco’s regulatory yoke, or simply because they had no other way to live in their buildings. Of course, the city has reacted to its own “crisis” by continually making things worse. Instead of passing laws to encourage property owners to enter the rental market, the city stuck with business as usual and passed McTIC.

In August 2001, the SFAA, along with the San Francisco Association of Realtors, the Small Property Owners of San Francisco and several individual plaintiffs sued the city. The goal of the suit was to enjoin McTIC and declare the ERO restrictions unconstitutional. McTIC clearly violated the Ellis Act by compelling residential rental use. It also violated the TIC owners’ right of privacy by preventing consenting adults from organizing their living arrangements without intrusive interference from the government. The city argued that McTIC qualified as an exception to the Ellis Act, because TICs with EROs were subdivisions. According to this logic, parents whose kids have their own rooms are illegal sub-dividers and could be thrown in jail. The case was originally assigned to Judge David Garcia. In California, each side in a litigation dispute gets one free challenge to a judge that might rule on part of the case. Not trusting the city to defend its ordinance (I suspect the city probably knew the law was unconstitutional), The ironic aspect of the challenge to Judge Garcia, a former attorney for the San Franciscod provided them with numerous fair hearings. In fact, he initially dismissed the privacy argument in line with some property rights attorneys who had done likewise.

In March 2002, after months of hearings and briefings, Judge Robertson granted our petition for writ of mandate commanding the city not to enforce McTIC against the named plaintiffs and anywhere else “where Ellis Act application is involved.” In other words, if you Ellis’d your property, you could have a TIC with an ERO, which is exactly the opposite effect that the city was trying to achieve. Undaunted, the city argued before Judge Robertson that he should not invalidate the entire ordinance because the rest of the non ERO-related provisions helped tenants and owners, and these were being enforced. A strange aspect to consider is that the three tenant plaintiffs (who want to become owners) were given relief, even though they had not Ellis’d any property (because they were tenants). Unfortunately, that result may always remain a mystery.

Judge Robertson’s ruling in March did not resolve our case because in allowing enforcement of the law against all but Ellis’d properties, the city would achieve a partial victory. The Ellis Act is not a magic wand that eliminates all tenants. Tenants with lifetime or long-term leases would prevent a building from being Ellis’d. Furthermore, some property owners may depend on rental income to help pay mortgages. Thus, we went forward with the privacy and equal protection arguments to protect all property owners, regardless of their desire or ability to invoke the Ellis Act.

Our arguments were solely based on the California Constitution, which unlike the U.S. Constitution has an explicit privacy provision. It states right up front that Californians have a right of privacy. We relied on California cases that interpreted the California Constitution very favorably. In response, the city only cited federal law that interpreted the U.S. Constitution. In other words, we argued that the California Constitution prevents cities from interfering with agreements between co-owners regarding who may live in which unit in a multi-unit building. We stuck to our guns, focused our arguments and prevailed. After more hearings and analogies, Judge Robertson found that McTIC’s anti-ERO provision was unconstitutional. The only issue remaining is the scope of the order. We are arguing that only the anti-ERO provision in McTIC should be struck down, which ironically is nearly the same position the city took last year. Now the city says that the whole ordinance should be invalidated—including the condo conversion-friendly parts—because the city would not have passed it without the anti-ERO provision. If it seems to you that the city previously argued the rest of the ordinance was good for everybody, this also appears the same to us. We have pointed this out to Judge Robertson, and we hope that we will get a very favorable final judgment in the next few weeks.

The opinions expressed in this article are those of the author and do not necessarily reect the viewpoint of the SFAA or the SF Apartment Magazine. James B.Kraus is an associate with the Law Offices of Andrew M. Zacks. He may be contacted at 415.956.8100.