Friday, June 6, 2014

A Lose-Lose Scenario: Changes In Rent Ordinance Regarding Ellis Act Treatment Appear To Be Counterproductive

Update 10-21-14: Federal District Court finds this ordinance unconstitutional, see judge Breyer's opinion as published on PACER (scribd copy), case No. 14-cv-03352-CRB.

A significant change in the treatment of the Ellis Act went into effect in San Francisco on June 1, 2014 (Ordinance No.54-14). It is no longer enough to just look up the current amount for the fixed relocation assistance payment. To calculate what is due to tenants vacating under the Ellis Act one now has to employ a formula to select the greater from the two options: either the fixed amount, or "an amount equal to the difference between the unit's rental rate at the time the landlord files the notice of intent to withdraw rental units with the Board, and the market rental rate for a comparable unit in San Francisco as determined by the Controller's Office, multiplied to cover a two-year period, and divided equally by the number of tenants in the unit." Section 37.9A(e)(3)(E)(ii). The funny part is in the mathlesser entitled tenants stand a higher chance to recover large payments.

In math, the formula gets the difference between the tenant rent's rate and the market rate, multiplies it by 24, and sees if it gets over the proscribed fixed amounts. Those fixed amounts are roughly maxed at 20 thousands (if you take the maximum cap and add an extra payment for allowed class member, such as a disabled person, or a child). In other words, the rule of thumb will be, if the unit is occupied by a family, and a difference between the current market rent and their rent is over a thousand, your chances to fall into the pre-determined fixed payment (37.9A(e)(3)(E)(i)) are slim to none. But look: if the current tenant lives in the unit alone and not entitled to any extras, the difference only has to be over $219.38 per month, in order for that person to get to a higher payment. (The fixed payment being 5,265.10).

You read it right, with this latest update, Rent Ordinance now rewards single people and people without children or disabilities at a much higher rate than families, parents, or disabled tenants. It appears to be a lose-lose coincidence. With this new rule, property owners get to pay more, so they are worse than they were under the old rule, and the tenants, although getting paid more on average, get their rewards in exactly the opposite order to what a public policy would dictate, that same policy the whole Ordinance was founded upon. See, e.g. Section 37.1(b)(2). Owners are unhappy, they are suing the City in due course, as they were already doing it for another recent amendment, also aimed at curtailing Ellis Act, but the tenants' advocates may not see these changes as a victory as well.

Consider: a single young adult, who moved in just as recent as 13 months ago gets now a much higher chance to be rewarded at a new scaleall (s)he needs is an increase of $219.38 ($5,265.10/24) per month in the rent ratesthan a family, or a disabled person, who need to get to a difference anywhere from $365.64 ((5,265.10+3,510.06)/24) to $804.42 ((15,795.27+3,510.06)/24). Of course, each additional person qualified for the additional $3,510.06 payment will only increase the difference in rates one will need to show to get to the alternative payment scheme. Where is the logic, and I mean from the pro-tenant point of view. If you want to do the calculations and see it for yourself, the current rates are published here, this is the newly updated (June 1) form.

One may say, so what, if the difference is too low, those tenants get the fixed amount, which is then higher than the 2-year gap with the market level rent. True. But the whole idea of this legislation, and other similar attacks on the Ellis Act, is the determent effect, to deter landlords from exercising their rights in taking properties off the market, not just arriving to a sum certain, which those landlords would pay and be done with it. As the math shows, currently imposed formula deters against evicting the least protected tenants four times more than against evicting most protected. It has an upside-down effect.

And who can tell, what is this "market level rent" anyway? After all, each real property is unique, and its value must be decided on individual basis. Knox v. Streatfield, 79 Cal.App.3d 565, 567 (1978). The measure of so-called "fair market value" in real property is illusive. Lake County Sanitation Dist. v. Schultz, 85 Cal.App.3d 658, 667 (1978). In these newly enacted sections of Ordinance, the S.F. Controller's Office will be defining what the market level is. We are yet to see, what this schedule will represent and how comprehensive it will be. If, according to Knox, determination has to be done on a case-by-case basis, any generalizing schedule, however minimally encroaching on one's property and demanding more than that the case is, is prone to be attacked on Constitutional grounds, as taking of property.

Another mystery I just recognized, while comparing the payout rates under the Ellis Act to the rates under Owner Move-in, those amounts are different, albeit very slightly. The OMI form got recently updated too, it is available here, 2d page (multilingual form is here). I don't know, how the same Rent Board came up with a difference like this: if a person gets an Ellis Act notice, (s)he is paid $5,265.10, but if the same person gets an OMI notice, (s)he is paid only $5,261.00, or $4.90 less. It is a mystery on at least two points: why there is any difference, as if it matters for a person who moves out, under what particular mode (s)he did so, Ellis or OMI, and, if it does matter, what the $4,90 difference meant to accomplish? If any of these notice recipients has to get more, it should be the OMI tenant, who gets to stay a maximum of 60 days, whereas an Ellis tenant stays at a minimum 120 days, more if disabled, thus already receiving a higher benefit (by renting at the pre-notice rate). Sometimes, doing math may bring you a funny result

If you are reading the Sub-section (E), consider to review the other following Sub-sections 37.9A(e)(3)(F) through (I). They deal with calculation of the payments, scenarios when the tenant had already received a notice under the old rule, but hasn't yet vacated, and applying and receiving a hardship adjustment under both scenarios, fixed payment and the indexed one.

There are other changes mentioned in the amendments. If you prefer to see an updated copy of the Rent Ordinance, as amended through June 1, 2014, you can download its PDF here. Second page of the file covers latest updates, where you can see that the recently implemented program for legalizing "in law" units now also gets integrated into the Ordinance. Also, it now reflects the 2013 statute regarding temporary relocations for less than 20 days, Cal. Civ. Code 1947.9, a statute where our City's rules received a statewide statutory recognition.

I would like to conclude with the observations from "The Common Law" by Oliver Wendell Holmes. He noticed that the legislative process, "a philosophical habit of the day," may never catch up with current public policies of the day, by definition. He said (citing from page 36 of the 1909 edition):

Your options and available strategies will depend on your case's particular facts. If you are currently in a similar situation and need to learn more about your rights and obligations, make your first step toward taking control over the circumstances, and call my office at (415) 987-7000. I will be glad to assist in guiding you through the jungle. The only thing you can't afford is to stay put and uninformed. My office provides a confidential assessment of your particular scenario, free of charge, and I will share with you the results of the analysis along with my thoughts on available solutions.

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1 comment:

  1. The small difference between base Ellis and OMI payments ("Another mystery I just recognized, while comparing the payout rates under the Ellis Act to the rates under Owner Move-in, those amounts are different, albeit very slightly.") is because the Ellis base amounts were set in 2005. When they were affirmed by the Ct of App., the City then enacted the same base amounts (via ballot) in 2006 for other no-fault bases. Thus, the Ellis amounts, set in 2005, have an extra year of inflation adjustment behind them, accounting for that small difference. Put another way, in 2006, the City did not use the adjusted 2005 Ellis Amount as the base, but the original, unadjusted amount. Basically, OMI is a year behind.