sacramento report
by Monica Williamson
This year, Senator Sheila Kuehl (D-Santa Monica) introduced SB 464 to make changes to the state law known as the Ellis Act. The original version of the bill would have required rental property owners to continue to offer their properties for rent for a minimum of five years before converting the property to any other use. In the face of heavy opposition, Senator Kuehl amended her bill to make the “length of time in business” provision three years. Still unable to garner sufficient votes, the senator moved her bill to the Senate inactive file. So, while this bill is on hold, the idea embodied in the legislation will rise again.
Passed by the State Legislature in 1985, the Ellis Act provides that no public entity (local government) can compel an owner of rental property to continue to offer their housing for rent. At the same time, the law expressly allows the imposition by local government of a variety of requirements on rental property owners who desire to exit the rental market. Dependant upon the proposed use of the property after its removal from the market, local governments have enacted numerous requirements, including relocation assistance to displaced tenants, specific notice periods and future deed restrictions.
Nash v. City of Santa Monica
The Ellis Act was adopted in direct response to a California Supreme Court decision in the case of Nash v. City of Santa Monica. This case arose out of a local ordinance adopted in Santa Monica. In the late 1970s, the city was reportedly experiencing a severe lack of rental housing. This situation was precipitated by what came to be known as the so-called “Demolition Derby,” a 15-month period in which more than 1,300 rentals were razed and many others were converted to condominiums. The city’s voters responded to the widespread removal of rental units by passing a local measure in the hopes of preserving what remained of the city’s rental housing stock. Among the provisions of the measure, landlords were required to obtain a permit before they could remove units from the rental housing stock. Permits could be issued if all of the following conditions were met: (1) the unit was not occupied by a person of low or moderate income; (2) the rent was unaffordable to those of low or moderate income; (3) removal of the units would not adversely affect the city’s housing supply; and (4) the landlord could not make a reasonable return on their investment.
The Nash case was brought by Jerome Nash, who became disenchanted with operating rental housing. When Nash realized he would not be granted a permit by the city to demolish his rental units, he challenged the city’s ordinance. Although Nash prevailed in the trial court and on appeal, the California Supreme Court later opined that the burdens imposed on Nash’s liberty interests were minimal and that the city’s permit requirement was reasonably related to the city’s goal of protecting its scarce rental housing supply.
The Ellis Act Provisions
In direct response to the Nash decision, Senator Jim Ellis introduced, and the State Legislature adopted, legislation now known as the Ellis Act. The act expressly provides that it is “the intent of the Legislature to supersede any holding or portion of any holding in Nash v. City of Santa Monica, so as to permit landlords to go out of business.” The act prohibits any public entity from compelling the owners of any residential real property to offer, or continue to offer, accommodations in the property for rent or lease. As part of the legislative negotiations, the Ellis Act also established procedures that municipalities could impose upon owners prior to withdrawing property from the rental market.
Rental housing continues to be a significant focus for local regulation. As succinctly put in a Los Angeles Times article from July 2, 2007, “the ordinance papers over our real housing problems in Los Angeles. Landlords and developers are not the cause of our housing problems, but in fact, are our only hope. They are the ones actually helping to build us out of this situation. In the long run, the ordinance will exacerbate this shortage by increasing the financial and regulatory burden on landowners, further discouraging new construction and densification.”
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Monica Williamson is CAA’s vice president of public affairs. Copyright © 2007 by SF Apartment Magazine. All rights reserved.