The President's Report

Landlord-Tenant Lawsuits Should Be Based on Merit, Not Politics

by Marc Wilson

City officials have filed suit against one of the largest residential landlords in San Francisco, alleging a virtual cornucopia of unfair landlord practices. I won’t bore you with the details; suffice to say that Frank and Walt Lembi, Skyline Realty and their many affiliates are being accused of just about every crime a property owner can conceivably commit. Unlawful entry, shutting off utilities, changing locks, retaliation, wrongful eviction, corporate lawlessness, intimidation tactics and unfair business practices are among the allegations du jour. These, of course, are all serious allegations, but similar claims are made thousands of times a year in the myriad of landlord-tenant lawsuits filed in San Francisco. I have been the recipient of one or all of these complaints over the years. As hard as it is to believe, these are run of the mill allegations made by run of the mill San Francisco tenants. So what’s the difference in this case? The difference is that the city government, not a private tenant lawyer, is suing the property owner. Your tax dollars are being used to persecute a local property owner just because of politics.

It is impossible to argue that San Francisco does not have a mature and efficient market for landlord-tenant legal services. There are hundreds of tenant lawyers continually scouring the landlord-tenant landscape for litigation-hungry tenants and potentially culpable property owners. Thousands of landlord-tenant complaints (and associated litigation) are constantly winding their way through our court system. The casual observer could easily come to the conclusion that our legal system’s sole mission lies in the arbitration and resolution of these disputes. Tenants sue property owners all the time in this town because there is almost no risk of paying legal fees. Many tenant lawsuits are promulgated by tenant attorneys who are working on contingency or a share of the judgment. And what is the average judgment against a San Francisco tenant worth? Nothing. The average San Francisco tenant has little net worth and, therefore, no ability to pay monetary damages (i.e. the property owner’s legal fees if the tenant does not prevail). So they sue when and if they can find an attorney who will work for free or on contingency. And you know what? This system, as hard as it is to believe, actually works.

Here’s how: Tenants with money usually don’t sue because they value their time, money and sanity. They realize that the legal system is not fun or cost effective. They are extremely selective as to when and whom they will sue. Only in the most egregious and arguably legitimate cases will they spend their own, hard-earned money to sue a property owner. Tenants with no money will sue if they can find a free attorney. Their prospective attorney will analyze every angle of the case (the tenant, the property owner and the facts) and then make a business decision: Is suing this property owner good business? Does the tenant have a case? Will the tenant prevail? You see, tenant attorneys are business people. They have expenses and overhead like rent, utilities, salaries, etc. Your average attorney working for contingency can’t afford to take legal cases without merit because his livelihood depends on making sound business decisions.

So the system is relatively efficient. Tenants with money don’t sue unless they have a real case; tenants with no money don’t sue unless they can find an attorney to work on contingency; and most attorneys won’t work on contingency unless the case has some merit. The system is designed to help prevent crazy, groundless and/or politically motivated lawsuits, and to encourage early settlements in the pursuit of minimizing expenses and heartache.

If the allegations against Skyline Realty have merit, why not let the system work? Why not let tenant plaintiffs obtain competent legal counsel and representation in San Francisco’s efficient legal services market? The city’s actions should be an absolute insult to every landlord-suing tenant attorney in San Francisco because they are being excluded from the glorious bounty of contingency work and potential windfall financial judgments. Why should politicians get to have all of the fun?

I don’t appreciate the city government spending tax dollars so unnecessarily. If Frank Lembi changed the locks on some tenant’s door, let the tenant sue. If he wrongfully evicted a tenant, let the tenant sue. If he remodeled a kitchen without a permit, then let the Department of Building Inspection fix the problem. But officials won’t cut and run from this case until the political benefits of torturing the Lembis start to erode. And unfortunately for them, that could take forever in a town like San Francisco. Besides, the Lembis have enough problems. They just completed a historical acquisition binge of large San Francisco apartment buildings at 3.6% cap rates. Do you know what the operating numbers look like when you buy a highly leveraged apartment building at a 3.6% capitalization rate and an 8% cost of debt? Not pretty. Skyline Realty is like an anaconda that just swallowed a herd of water buffalo, horns and all. With indigestion like that, these politically motivated legal problems must pale in comparison.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or San Francisco Apartment Magazine. Marc Wilson is the president of SFAA and has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2006 by San Francisco Apartment Magazine. All rights reserved.