Therefore, in normal circumstances, most conservative and small “l” liberal economists would argue that while short term rental market price fluctuations are inevitable, if regulators would resist the temptation to interfere with rental markets, even where there are housing shortages and high rents, developers would, in the long run, would soon move to supply more housing, increasing the supplies and lowering rents.
That term “the long run” is a doozy. In the short run, ordinary working people are dislocated, and face eviction, transportation difficulties, problems with school districting as they are forced to pull their children out of schools when families are forced to move because rents have gone up more than they can afford. And these people vote, too.
Such is the case in San Francisco. While the city is vibrant and beautiful, it is also extremely expensive. And because it’s built on a peninsula, there’s not much room to expand within the city limits. As a result, rent values have risen to among the highest levels in the country.
Naturally, renters squawked – and legislators imposed a fix: The California State Legislature passed the Ellis Act, which authorized city officials to impose strict rent controls on landlords.
The rules are extremely controversial, and have resulted in a number of hardships for landlords and renters alike.
Specific provisions differ from city to city. But for San Francisco landlords, here are the basics you should keep in mind:
- Do you have an apartment rented out? The Ellis Act allows the City of San Francisco to sharply restrict the amount you can raise the rent by each year – even when the lease term is up.
These eviction rent control provisions apply to all buildings or dwellings constructed prior to 1979. However, single-family homes and condominiums where all families moved after December 31, 1995, are exempt from the rent control provisions. Special rules apply to condominiums that have been converted.
However, you can set the rent at whatever you want if you have a brand new tenant coming in to occupy an empty dwelling.
Put the two provisions together, of course, and you have a powerful incentive for landlords to get rid of tenants, one way or another. Without some restrictions on whether and how landlords could evict tenants.
The Ellis Act therefore prohibits landlords from evicting their tenants without “just cause,” and defined “just cause” as one of these fifteen circumstances, according to the wonderfully named San Francisco Tenants Union (STFU):
- Nonpayment of rent, habitual late payment, or frequent bounced checks
- Illegal use of dwelling
- Violating a rental agreement (and continuing to violate it after a written notice from the landlord.
- Substantial damage to the dwelling or unit, or creating a substantial burden on the ability of neighbors to quietly enjoy their own units
- Expiry of a lease and refusal of the tenants to execute a lease extension
- Refusal of ordinary and reasonable access for the purposes of repairs and renovations.
- Subleasing to an unapproved subtenant.
- The landlord moves in. But the landlord must have at least a 25 percent ownership interest, and must not own a comparable property anywhere that is currently vacant in order to evict someone in this manner.
- A close relative of the landlord plans to move into the dwelling (this only works if the landlord lives in the building.)
- Sale of a unit that has already gone ‘condo,’
- The destruction or demolition of the dwelling unit.
- Pulling all the units on the same property form the rental market
- Substantial renovation of a property, requiring the tenant to leave while renovations are ongoing.
- Lead paint abatements.
- Expiration of a “good Samaritan” period of 60 days. This is evoked when a dwelling is damaged or destroyed and a landlord rents another dwelling to the occupant at a below-market value rent.
In many cases, if the landlord chooses to evict, the landlord must also compensate the tenant for the inconvenience – which may be up to $15,795 in cash payments per unit for relocation costs – plus another $3,510 (as of 2014) for each individual evicted over age 62 or who is disabled as defined by California law.
This provision, incidentally, is being challenged in court as an unconstitutional infringement into private property rights.
Under the Ellis Act, a landlord may not require a tenant to leave at the end of a lease period, even if the tenant doesn’t execute a new lease, unless one of the fifteen conditions listed above applies.
Some tenants are “protected”
Beware of the Alice Cooper rule: If there is a minor in the home, you can’t evict until school’s out for summer. Additional protections apply to those over 60, or those who have occupied a unit for ten years or longer, or who are disabled. Special protections also apply to those who have catastrophic illnesses who have lived in the dwelling for five years or longer.
Don’t Abuse the Owner-Move-In Eviction.
It may seem tempting to evict as many tenants as you can by moving into their dwelling. Then when you move out, you can charge a higher rent. But the law anticipates the temptation to abuse the privilege. Generally, if you evoke the right to evict a tenant by moving into their unit, you must move in within 90 days of the eviction, and stay for at least 3 years. If you don’t, you could possibly be sued for wrongful eviction. You would need to show that your move out was due to an unforeseen circumstance that forced you to move.
Furthermore, if you do move out early, you must offer the place to your previous tenants – at the previous rent.
Despite the high market rents, the rules restricting San Francisco landlords are among the most restrictive in the country.
As a result, many landlords, thwarted in their desire to set rents at market rates by the ‘just cause’ requirement to evict, and by their inability to reset rates when leases expire, are just shutting down their rental properties altogether – evicting everyone – and selling to developers. Evictions of this type are soaring, up 170 percent over the past two years.
There are many more rules to be aware of than can be adequately dealt with in an article of this scope. We have attempted to give you a broad-brush outline of the issues to be aware of. But we recommend that you consult a professional attorney experienced in landlord-tenant law in California, and specifically in the San Francisco area – prior to either investing or evicting, so you can apply the law and local regulations to your specific situation.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.