Court Talk
by Clifford E. Fried
Pieri v. CCSF (April 21, 2005)
The San Francisco Board of Supervisors passed legislation earlier this year requiring landlords to pay relocation benefits to tenants being evicted under the Ellis Act. Section 37.9A(e) of the Rent Ordinance now requires landlords who invoke the Ellis Act to pay $4,500 to each displaced tenant, or up to $13,500 per household.
The new relocation-benefits law was immediately challenged in court. On April 21, 2005, Judge James L. Warren ruled that the Board of Supervisors' new law offends the core purpose of the Ellis Act: to protect landlords' right to go out of business.
Judge Warren was concerned that the board's actions could potentially require property owners to pay displaced tenants at such a financially burdensome level that it would prevent all but the wealthiest landlords from going under. This was something the Ellis Act was designed to prevent.
In its ruling, the court offered the example of a landlord with seven units, each occupied by a young, wealthy married couple with a child, who were evicted under the Ellis Act. The landlord would have to pay $94,500 to mitigate the impact of those evictions. The city argued that each property owner who invokes the Ellis Act should go to court and make an “as-applied” challenge to the new law in order to show the required payments are too high. Judge Warren pointed out that forcing all landlords to go to court imposes a prohibited price on the right to exercise the Ellis Act.
Judge Warren ruled that San Francisco's new relocation-benefits ordinance, on its face, violates the Ellis Act. The city is appealing the ruling.
Pending an outcome on appeal, Judge Warren's ruling is stayed. Landlords invoking the Ellis Act may have to pay relocation benefits to displaced tenants until the appeal is decided. Assuming the appeal fails, landlords would have to pursue their evicted tenants and seek reimbursement of the benefits paid. Good luck.
Lingle v. Chevron U.S.A. Inc. (May 23, 2005)
Once again, the Supreme Court of the United States has declined to strike down a rent-control ordinance on constitutional grounds. In Lingle v. Chevron U.S.A., the court ruled that a Hawaii law regulating the rents that could be charged on gas stations was valid in a challenge based upon the Takings Clause of the Fifth Amendment.
Rent-control opponents were hoping the law would ultimately be struck down, for such a ruling could have had far-reaching implications for residential rent control in places like San Francisco and Oakland. It took eight years for the Lingle case to get from the trial courts of Hawaii to the Supreme Court of the United States. The wait was for naught.
At issue in the Lingle case was the appropriate test for determining whether a rent-control regulation affects a Fifth Amendment taking. The test applied by the court is a very important step in deciding whether a particular rent-control regulation is valid. A rent-control law could be upheld under a test that merely required some rational connection between the law and the harm the law intended to cure.
On the other hand, the same law might be struck down if a court closely scrutinized the relationship between the law and the harm to be corrected. Under a strict-scrutiny test, a court could look to see if the rent law “substantially advances” a legitimate government concern (for example, a severe shortage of affordable rental housing). Until Lingle, many courts, including those in Hawaii, were applying this strict-scrutiny test to regulatory-takings claims.
The Supreme Court ruled that the substantially advances formula isn't a valid method of identifying regulatory takings for which the Fifth Amendment requires just compensation. But such a test is still valid in other types of claims. The court said that stricter scrutiny would be required where there was a per se physical taking of property rather than a regulatory taking (mere rent control). In places like Oakland and San Francisco, where the laws prohibit owner move-in evictions when protected tenants occupy the property, there is a per se physical taking of property; under the substantially advances test, just compensation must be paid. In fact, this was Judge David A. Garcia's ruling in the Cwynar case a few years ago.
The Supreme Court also pointed out that the “substantially advances formula” may be the correct analysis where there is a due-process attack on a regulation. Unlike the Takings Clause of the United States Constitution, the intent of the Due Process Clause is to protect the individual against the exercise of power without any reasonable justification in the service of a legitimate government objective. Whether a rent regulation is effective in achieving some legitimate government objective is a relevant inquiry.
In a concurring opinion, Justice Kennedy stressed the importance of making a due-process claim (as opposed to a takings claim) in those cases where a regulation might be extremely arbitrary or irrational as to violate due process. In the Lingle case, Chevron voluntarily dismissed its due-process claim, apparently concluding the takings claim was stronger and, thus, made a tactical decision to focus its legal energy only on that.
Hawaii's rent control was based upon concerns over high retail-gasoline prices. Chevron's experts opined that the company would merely raise prices to offset any rent reduction required by the rent-control laws. They also said that even if rent caps reduced the costs to service-station dealers, the savings would not be passed on to consumers. The end result would not be lower gas prices. One wonders if the Supreme Court would have invalidated Hawaii's gas station rent-control law on due-process grounds.
Where local rent- and eviction-control laws are so arbitrary and irrational, there might be a valid due-process claim to make. And although Lingle put an end to generic regulatory-takings claims, per se physical-takings claims are still viable.
Bisno v. Santa Monica Rent Control Board (June 28, 2005)
A California Court of Appeal has upheld a rent increase awarded by Santa Monica's Rent Board on the basis that the rental unit's tenant no longer occupied the unit as his principal place of residence.
Santa Monica Rent Board's Regulation 3304 permits landlords to petition for a rent increase on the grounds that a tenant is not occupying a rental unit as his or her principal residence. Santa Monica's regulation is very similar to San Francisco's Rent Board Regulation 1.21.
Regulations 3304 and 1.21 allow landlords to increase the maximum allowable rent to the comparable market-rate vacancy increase allowable under the Costa-Hawkins Rental Housing Act. The rationale for both regulations is that when a rental unit is no longer a tenant's principal residence, the tenant really does not occupy the unit nor need the protection of the rent laws.
In the Santa Monica case, Robert Bisno and his wife rented an apartment together. Following Bisno's marital separation and living arrangements, the landlord petitioned the Rent Board for an increase in rent from $1,111 to $4,295 on the sole ground that Bisno's unit was not his principal residence. The Rent Board permitted most of the rent increase. The Court of Appeal upheld the Rent Board decision and the rent increase.
Like San Francisco's rent law, Santa Monica's law addressed a housing crisis. The design of both these laws ensures that their beneficiaries are those who principally reside in their rent-controlled units or have a genuine and reasonable justification for not doing so on a temporary basis.
Although many San Francisco landlords have successfully enforced their rights to rent increases under Regulation 1.21, other landlords are having difficulty when tenants claim a temporary relocation.
San Francisco's Rent Board regulations lack guidelines for distinguishing temporary move-outs from permanent ones. In the past, the board has ruled that either a student away at college for four years or an elderly person out of the country for eight years on a medical emergency, qualifies as a temporary absence that does not justify a rent increase.
Santa Monica's regulations expressly prohibit rent increases where reasonable, including in the aforementioned situations. San Francisco should adopt similar regulations, requiring tenants to prove that their absences from their units are genuine and reasonable.
At the present time, the city of Oakland does not have a regulation similar to Santa Monica's 3304 or San Francisco's 1.21. However, the Bisno decision still holds relevancy for all cities with rent-control laws. The Costa-Hawkins Act, which preempts local laws, permits a landlord to increase rents once the last original tenant no longer permanently resides in a unit. Oakland has not yet enacted a local regulation to implement rent increases when the tenant no longer occupies the unit as his/her principal place of residence.
Landlords lobbied hard for the passage of Regulation 1.21. Many tenant advocates believe the San Francisco regulation is an improper usurpation of power by the Rent Board. However, Bisno makes it clear that rent boards may properly enact regulations to ensure that local rent laws benefit the intended recipients: tenants in occupancy.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. The information within this article is general in nature. Consult an attorney for any specific problem. Clifford E. Fried is with Wiegel & Fried, LLP, 415-552-8230. Copyright © 2005 by Wiegel & Fried, LLP. All rights reserved.