Major Legal Victory for Property Owners
Property owners now have greater opportunities to recover possession of their units for an owner move-in (OMI), thanks to a recent decision by the San Francisco Superior Court Appellate Division. The appellate court ruled that an owner needs only 25% ownership of record for an OMI, rather than the 50% ownership of record that had been the contested rule of thumb since 2004. The controversy stems from a 1998 ballot measure and amendment to the San Francisco Rent Ordinance. The ballot measure, passed by voters November 3 of that year, allowed for OMIs with only 25% interest in buildings, while the amendment, passed September 22 of that year by the San Francisco Board of Supervisors, set the 50% limit. For many years, the courts upheld the ballot measure, not the amendment, because the board cannot alter a decision made by the voters. But in 2004 the appellate court determined that the 50% requirement should be law.
At the time of the 2004 decision, two landlords were attempting OMIs with only 25% ownership of record. When trial courts threw out the OMI evictions, they appealed their cases. In June 2006, Judges Diane Elan Wick, Philip J. Moscone and Mary E. Weiss found in favor of the two landlords and overruled the 2004 decision. They determined that the ballot measure and the amendment were in conflict and irreconcilable; therefore the ballot measure should win out because it was passed later. The court also published its decision, making it binding for all trial courts. However, the appellate division also sent its decision to the state Court of Appeal. If the Court of Appeal takes up the issue, it may yet be overruled, but if the court declines to comment on the decision then the appellate decision stands.
Not all recent legal wrangling was a win for property owners, however. Also in June, the California Supreme Court refused to review the Court of Appeal’s decision to allow higher relocation payments to all tenants evicted under the Ellis Act in San Francisco, meaning that the lower court’s decision will stand. The case began when landlords protested the city’s amendment to the Rent Ordinance, which requires a $4,500 payout to all tenants evicted using the Ellis Act, not just the elderly, ill or disabled. Property owners claimed this amendment was an undue hardship for those trying to get out of the rental business and, originally, the courts agreed. San Francisco Superior Court Judge James Warren threw out the amendment because he ruled it to be preempted by the Ellis Act. Unfortunately, the city won its case on appeal and it now seems that that decision will stand and the challenge to the relocation benefit law has come to an end.
Housing Authority in Financial Peril After Lawsuits
San Francisco Housing Authority Director Gregg Fortner may be jailed for contempt after failing to pay a former employee, who won a sexual harassment lawsuit against the authority, the $650,000 she is owed. Unfortunately for the embattled agency, that sum is only a drop in the bucket of the total $15 million owed in financial settlements, penalties, legal fees and interest resulting from another sexual harassment lawsuit and a wrongful death case filed by the families of five people who died during a 1997 fire in a Hunters Point public housing project. Fortner claims that the agency—which has a total budget of $213 million and serves 35,000 San Franciscans—cannot pay the judgments and still provide quality housing to low-income people. But when cross-examined in court at the end of June, Fortner admitted that he had not asked the federal government to pay the court awards as part of its annual budget request. This case was pending at press time; stay tuned to future columns to find out if the director will actually be jailed for failure to pay.
Condo Conversion on Berkeley Ballot
Berkeley could begin converting 500 units each year, rather than the 100 currently allowed, if a local initiative recently placed on the November ballot passes this fall. The conversions would take place only when the city’s vacancy rate is at 5% or higher, as established by independent analysis. The initiative also sets a conversion fee of $8 per square foot, rather than 12.5% of the selling price, as is now the case. Tenants get right of first refusal and a 5% discount under the initiative, which also contains a requirement that tenants leave the unit if they do not purchase it. In that situation, the tenant would receive 2% of the sales price as compensation. Current Berkeley law gives tenants in rent-controlled units (those built before 1980) lifetime occupancy even if they decline to buy.
CitiApartments Is Fastest-Growing SF Landlord
In the past 18 months, CitiApartments has purchased 54 buildings, worth approximately $250 million. As rentals become hot properties again on the heels of a cooling condo and single-family market, the landlord giant is clearly on the forefront of investment in multiunit buildings. CitiApartments now owns 200 buildings in San Francisco, with a total of 5,000 units. Of course, as the company takes on an even larger chunk of the rental market, it has become a target for tenant activists; it is currently fighting two lawsuits and a variety of tenant complaints before the San Francisco Rent Board.
Local Laundry Company Acquires Sacramento Foothold
Long-time SFAA member Web Service Company, the largest multifamily laundry services company in California, has acquired Sacramento-based Foster’s Service Company. This merger increases Web’s presence in the area by almost one-third. Foster’s had been one of the largest family-owned laundry service companies in Northern California, and the acquisition is a step toward increasing Web’s market share in California, Hawaii and Nevada. The company promises that there will be no interruption in service for current Foster customers.
$37 Billion in Bonds on Fall Ballot
Just over $37 billion in bond measures for housing, transportation, schools and flood control have made their way onto the November ballot. Possible Bay Area projects include easing traffic on I-580, creating a BART link to Oakland International Airport and building new classrooms in overcrowded schools. The housing bond would provide almost $3 billion for low-income and homeless programs statewide, plus assistance for first-time homebuyers. Much of the housing funding would be allocated to local governments to disburse in grants and loans as they see fit.
Housing Industry Generates 11% of California Economy
The housing industry is now California’s top sector for economic output, according to a recent study from the Sacramento Regional Research Institute, a homebuilder’s group. The industry accounts for $273 billion, or 11% of the state’s total economy, and supports almost a million jobs. By comparison, in 2002 the same study found that the housing sector generated $260 billion statewide. (These figures do not factor in economic data on commercial real estate.) More than 200,000 residential units were built last year, accounting for $68 billion and 487,000 jobs statewide. Locally, the housing sector created $27.9 billion and 23,667 new jobs.
Update on Mirkarimi’s “Just Cause” Legislation
Supervisor Ross Mirkarimi’s legislation regarding “just cause” for a decrease in housing services was passed by the San Francisco Board of Supervisors in June 2006. Through lengthy discussions with Supervisors Mirkarimi, Sean Elsbernd and Aaron Peskin, some of the most egregious portions of the legislation were altered or removed. Wade Crowfoot, Mayor Gavin Newsom’s liaison to the board, spent countless hours arranging meetings and negotiating with invested parties. SFAA thanks its boardmembers (especially David Wasserman) and the board of the Coalition for Better Housing for their valued volunteer time.
The Mirkarimi legislation became law last month. SFAA believes that if the mayor had vetoed this legislation, it would have ended up on the November ballot in a form far worse than the current version. Hearings at the San Francisco Rent Board on the implementation of this law will begin in early fall.