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SF Condo Conversion Law Called Unconstitutional Taking

An Ohio couple claims San Francisco’s condo conversion ordinance allows the unconstitutional seizure of their property by requiring them to offer their tenant a chance to live in their apartment indefinitely.

SAN FRANCISCO (CN) — An Ohio couple claims San Francisco’s condo conversion ordinance allows the unconstitutional seizure of their property by requiring them to offer their tenant a chance to live in their apartment indefinitely.

Peyman Pakdel and Sima Chegini, of Ohio, own a tenancy-in-common interest in a six-unit building in San Francisco’s Russian Hill neighborhood. They’ve had a tenant in their unit since 2010, but plan to move in themselves after they retire, and once they can convert that TIC interest into a condo.

But a 2013 city law on TIC-to-condo conversions requires them to offer their tenant a binding lifetime lease, effectively halting their plans of retiring in San Francisco.

Their attorney Paul Utrecht said the city claims it is appropriating private property for a public purpose.

“The city is forcing the owner to rent their property. It’s a pretty simple argument,” Utrecht said in a phone interview.

Ordinance 0117-13, which put a 10-year halt on the city’s unpopular condo conversion lottery, allowed about 2,200 tenancy-in-common owners to convert their interests into condos for a $20,000 fee that goes toward affordable housing.

But it added a few caveats, including giving tenants the right to take a lifetime lease for the unit they rent.

Attorney Andy Sirkin, whose work has been steeped in the city’s property law since the 1980s, says the ordinance was intended to curb the rampant conversion of buildings into condos.

“Before 1980, condo conversions were unregulated,” Sirkin said. “You could convert any building you wanted and that was thought to be negative as far as maintaining affordable rental housing in San Francisco.”

Eventually the city Board of Supervisors enacted a law prohibiting buildings with more than six units from converting to condos completely, and established a lottery for buildings with fewer than six units.

By 2013, the lottery had caused an enormous backlog of condo conversions. City supervisors tried to work out a compromise, passing ordinance 0117-13 to allow the backlogged buildings to convert to condos over the course of seven years.

Under the ordinance, called the “Expedited Conversion Program,” the Department of Public Works would stop accepting and processing applications for new buildings. The lottery will likely return in either 2025 or 2026.

“My sense is this lifetime lease provision was a reasonable compromise to a situation that was burdening everybody, tenants and owners,” Sirkin said. “If you look at this as an extension of rent control and the cost of allowing condo conversion not being the displacement of tenants, this is reasonable. One can argue that a lifetime lease is more powerful than anything rent control can do.”

He said the ordinance also contains a poison pill that suspends the expedited conversion program altogether if a lawsuit is filed.

“The idea is to discourage people who might have been tempted from filing a lawsuit,” Sirkin said.

But Pakdel and Chegini have challenged the ordinance in Federal Court, after their tenant’s execution of a lifetime lease on May 5. Now Pakdel and Chegini will never be able to evict them, even under the Ellis Act, which allows landlords to remove tenants from units they plan to live in.

“The ordinance functions as a straight-out governmental demand that plaintiffs give a lifetime lease to their tenant. It forces plaintiffs to submit to the physical occupation of their property,” their complaint states.

J. David Breemer, an attorney with the Pacific Legal Foundation, said this is an example of the city trying to solve its housing crisis by doling out private assets for public benefit.

“It doesn’t surprise me, because it’s San Francisco, and nothing they do surprises me when it comes to property rights. It’s a terrible provision and I’m glad it’s being challenged,” said Breemer, who won a victory in a different rental ordinance case involving lump-sum payouts to tenants evicted through the Ellis Act.

Breemer, who does not represent Pakdel and Chegini, says there are obvious similarities with his clients Daniel and Maria Levin, who under a different San Francisco ordinance were required to pay their tenant $117,000 to move out of the two-unit building they bought in 2008.

A federal judge found those fees unconstitutionally excessive in 2014 and the city eventually adopted a new ordinance reducing the payout requirement.

In the Levin case, Breemer said, the court did not address the issue of an unconstitutional physical taking. “In some ways this might be seen as worse, because you’re compelled to keep someone in your property,” Breemer said.

But Sirkin said the city has the right to restrict the conversion of property from one lot to another, should it deem it necessary.

“Condo conversion is a privilege, not a right,” he said. “The city is the gatekeeper to that ability to subdivide the lots and if they want to impose restrictions on that they’re allowed to.”

Utrecht said the city may have the right to restrict permitting, but not to impose conditions that are unconstitutionally burdensome.

“The government doesn't have to give you a permit,” he said, “but that doesn't mean the city is allowed to attach unconstitutional conditions to a permit it could have just said no to.”

That Pakdel and Chegini signed a tenancy-in-common agreement in 2009 requiring that they “agree to take all steps necessary to convert the property to condominiums convert their property to a condo” means they might be stuck with a tenant they’ll never be able to evict in a property they’ll never be able to occupy themselves.

“At the time the owners bought this thing there was no ECP [Expedited Conversion Program]. They didn’t know downstream that the consequences of signing this agreement was going to be a lifetime lease. But when you sign a contract you take risks,” Sirkin said.

Utrecht said this doesn’t excuse the city’s unconstitutional taking.

“Bad timing on the part of the owners is not an excuse for the government to impose an unconstitutional requirement,” he said.

Pakdel and Chegini want $500,000 in damages for the diminishing value of their property, and a judgment declaring that the ordinance’s lifetime lease requirement is unconstitutional.

The San Francisco City Attorney’s office did not return an email seeking comment.

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