Supreme Court Revives Lawsuit Over San Francisco Lifetime Tenant Rule

(CN) --- The U.S. Supreme Court on Monday revived a couple’s challenge of a San Francisco ordinance requiring landlords to offer lifetime leases to tenants when they convert shared multi-unit buildings into condominiums.

“The decision today recognizes that property owners don’t have to jump through endless hoops to have a chance to make their arguments,” said plaintiffs’ attorney Jeffrey McCoy of the Pacific Legal Foundation.

Peyman Pakdel and Sima Chegini bought a tenancy-in-common interest in a six-unit building in San Francisco’s Russian Hill neighborhood in 2009. The TIC agreement they signed with other owners obligated them to take all necessary steps to convert the building to condominiums.

Converting a property from tenancy-in-common --- where several people buy a building and live in separate units --- to a condominium, where each person owns his or her own piece of the building, had become a notoriously lengthy and expensive process in San Francisco, due to a lottery system that allowed only 200 units to be converted citywide each year.

Pakdel and Chegini had a tenant in their unit since 2010 but say they planned to move into that unit once they retired.

Those plans were upended in 2013 when the city passed an ordinance to address a backlog of condo conversion requests. The law put a 10-year hiatus on the unpopular condo conversion lottery and allowed about 2,200 tenancy-in-common owners to transfer their interests into condos under an “Expedited Conversion Program.” But it also required landlords to offer lifetime leases to tenants in those units.  Pakdel’s and Chegini’s tenant took that deal in May 2017, after their condo conversion went through.

Pakdel’s and Chegini sued the city in June 2017, claiming the lifetime lease requirement amounts to an unconstitutional taking of their private property.

In March 2020, a Ninth Circuit panel upheld the dismissal of the couple’s lawsuit, finding they failed to fulfil an administrative prerequisite to apply for an exemption before the condo conversion was complete.

In a 7-page per curiam opinion issued Monday, the Supreme Court reversed that decision. The high court found that property owners need not exhaust administrative remedies to sue a government for unlawful taking. The only requirement is that the government decision be final, the court wrote.

“The Ninth Circuit’s contrary approach — that a conclusive decision is not ‘final’ unless the plaintiff also complied with administrative processes in obtaining that decision — is inconsistent with the ordinary operation of civil-rights suits,” the Supreme Court wrote in its opinion.

Pakdel and Chegini did not object to the lifetime lease requirement until June 2017, six months after the condo conversion was approved and more than seven months after a deadline to seek an exemption had passed. The city denied the couple’s belated requests.

In its 24-page opinion last year, the majority of a three-judge Ninth Circuit panel found that allowing plaintiffs to sue in a situation like that would enable property owners to “make an end run around the finality requirement by sitting on their hands until every applicable deadline has expired before lodging a token exemption request that they know the relevant agency can no longer grant.”

The Supreme Court acknowledged that perspective in its opinion Monday but cited a dissenting Ninth Circuit’s judge’s suggestion that misconduct during the administrative process could still be relevant when evaluating the merits of a claim or measuring damages.

“Of course, Congress always has the option of imposing a strict administrative-exhaustion requirement — just as it has done for certain civil-rights claims filed by prisoners,” the Supreme Court wrote. “But it has not done so for takings plaintiffs.”

Plaintiffs’ attorney McCoy said this decision will empower other converted condo owners in San Francisco who want to challenge the city’s lifetime lease requirement in court.

“It should allow those cases to move forward as well and not be dismissed,” he said.

McCoy said this decision will also help all property owners in the Ninth Circuit who file unlawful taking lawsuits against government entities. It will enable them to argue the merits of their case without having to overcome burdensome administrative prerequisites, he said.

“Just like any party that’s bringing a civil rights claim, that’s important for property owners to be on the same level as anyone else brining a constitutional claim against a city,” McCoy said.

San Francisco City Attorney’s Office spokesman John Coté emphasized the high court's ruling was purely a procedural decision that did not address the merits of the case.

“We are disappointed in the decision, but we anticipate we will prevail when the courts address the merits,” Coté said, adding the Pakdels agreed to abide by the terms of the city’s fast-track condo conversion program when they signed up for it.

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