Landlords Fight San Francisco’s Buyout Rules in 9th Cir.

SAN FRANCISCO (CN) – A pair of Ninth Circuit judges suggested Thursday that while San Francisco has the right to regulate tenant buyouts to guard affordable housing, its 10-year ban on certain condominium conversions may go too far.

“That’s a sort of a lien on the property, isn’t it,” Circuit Judge Carlos Bea asked during oral arguments Thursday. “It’s a cloud on the property.”

Bea was referring to the city’s tenant buyout ordinance, passed in March 2015, which bars landlords from converting buildings into condos for 10 years after they pay off tenants to vacate two or more units, or a senior, ill or disabled tenant to vacate one unit.

With one of the most expensive housing markets in the nation, San Francisco limits how much landlords can hike rent each year for most units built before June 1979. The limits are tied to annual increases in the area’s consumer price index, and the city outlaws evicting renters without just cause. Buying out tenants is one of the few ways landlords can get around rent control laws to charge higher rates.

The San Francisco Apartment Association, a landlord group, is challenging a federal judge’s November 2015 ruling that held the city’s tenant buyout ordinance does not violate landlords’ rights of free speech or equal protection under the law.

Representing San Francisco, Deputy City Attorney Jeremy Goldman said there is no established right to convert buildings into condos, a process that requires entering a lottery and is subject to city zoning laws. Limiting which buildings are eligible for condo status serves a legitimate public interest: protecting vulnerable tenants and maintaining affordable housing, he said.

“I’m totally with you with regard to the disabled, the ill and the seniors,” Circuit Judge Richard Tallman said. “I’m having a really difficult time assuming that’s true with regard to two or more conversions not involving special tenants.”

The ordinance appears to severely limit an owner’s ability to “do anything with the property other than maintain the status quo,” Tallman said.

Goldman explained the ordinance limits incentives for tenant buyouts because those transactions lead to higher rental prices and fewer rental units. Governments regularly create rules to encourage certain financial transactions and discourage others, he contended.

“That’s the nature of government regulations,” Goldman said. “It can do that to advance a legitimate policy objective.”

But attorney Christopher Skinnell, representing the landlords, argued the ordinance punishes building owners for engaging in a protected activity – legally negotiating buyout agreements with tenants.

“There’s no rational purpose for singling out this small sub-category of landlords and saying, ‘Everyone else, you can keep going through the normal process, but you guys, because you negotiated with your tenants, you get stuck with a special rule that’s more burdensome and a complete ban,’” Skinnell said.

Aside from the condo conversion ban, the circuit judges seemed more inclined to side with the city on its requirement that landlords give tenants a disclosure before engaging in buyout negotiations and retain signed copies of those disclosures for five years.

Skinnell argued that part of the law restricts landlord’s free speech rights by forcing them to get a tenant’s signature before they can engage in buyout negotiations, a protected form of speech.

But the circuit judges said that claim appears at odds with the actual text of the ordinance.

“You can’t point us to any language that says you can’t discuss a buyout without a signature,” Tallman said.

Skinnell argued landlords could face penalties down the road if they don’t get a signature before asking tenants if they’d be interested in moving.

But Goldman countered landlords only have to keep disclosure forms that are actually signed by tenants, and that other records – such as a cellphone video or sworn declaration – can also serve as evidence that renters were notified of their rights.

“Landlords cannot retain a signed form that is not signed,” Goldman said.

Another challenged section of the ordinance centers on a requirement that landlords publicly disclose the amount they pay tenants to move out of rental units.

The lower court held disclosing the buyout amount is “is not the type of private financial information that has been held to be protected by the right of privacy.”

Skinnell argued that finding directly contradicts other court rulings, such as the 1980 California Court of Appeals case H & M Associates v. City of El Centro, which held a city could not broadcast that a landlord failed to pay a municipal water bill.

But Goldman said that case was about publishing information that would reveal a landlord’s financial status, whereas this case is purely about disclosing the dollar amount of a single transaction.

“Doesn’t the fact that a landlord paid a high price for a move-out indicate he’s wealthy,” Bea asked Goldman.

The deputy city attorney replied that landlords can often pay a lot for buyouts because they stand to gain much more by re-renting the units at market value.

“It doesn’t mean they are simply wealthy,” Goldman said.

Citing the 1994 California Supreme Court ruling Hill v. Nat’l Collegiate Athletic Assn., Goldman said the amount a landlord pays a tenant to move out is not the type of “sensitive and confidential information” that would cause “unjustified embarrassment and indignity.”

After about 45 minutes of debate, the circuit judges took the arguments under advisement.

Visiting Sixth Circuit Judge Eugene Siler Jr. joined Bea and Tallman on the panel.

 

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