7/10/14, 10:00 PMPost & Found: A Lose-Lose Scenario: Changes In Rent Ordinance Regarding Ellis Act Treatment Appear To Be Counterproductive

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A Lose-Lose Scenario: Changes In Rent OrdinanceRegarding Ellis Act Treatment Appear To BeCounterproductive

A significant change in the treatment of the Ellis Act went into effect in San Francisco onJune 1, 2014 (Ordinance No.54-14). It is no longer enough to just look up the current amountfor the fixed relocation assistance payment. To calculate what is due to tenants vacatingunder the Ellis Act one now has to employ a formula to select the greater from the twooptions: either the fixed amount, or "an amount equal to the difference between the unit'srental rate at the time the landlord files the notice of intent to withdraw rental units withthe Board, and the market rental rate for a comparable unit in San Francisco as determinedby the Controller's Office, multiplied to cover a two-year period, and divided equally by thenumber of tenants in the unit." Section 37.9A(e)(3)(E)(ii). The funny part is in themath:"lesser 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 marketrate, multiplies it by 24, and sees if it gets over the proscribed fixed amounts. Those fixedamounts are roughly maxed at 20 thousands (if you take the maximum cap and add an extrapayment 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 thecurrent 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 currenttenant lives in the unit alone and not entitled to any extras, the difference only has to beover $219.38 per month, in order for that person to get to a higher payment. (The fixedpayment being 5,265.10).

You read it right, with this latest update, Rent Ordinance now rewards single people andpeople without children or disabilities at a much higher rate than families, parents, ordisabled tenants. It appears to be a lose-lose coincidence. With this new rule, propertyowners get to pay more, so they are worse than they were under the old rule, and thetenants, 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 wasfounded upon. See, e.g. Section 37.1(b)(2). Owners are unhappy, they are already suing theCity in due course for another recent amendment, also aimed at curtailing Ellis Act, but thetenants' 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 scale—all (s)he needs is an increase of

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

$219.38 ($5,265.10/24) per month in the rent rates—than 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 tothe alternative payment scheme. Where is the logic, and I mean from the pro-tenant pointof view. If you want to do the calculations and see it for yourself, the current rates arepublished 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 wholeidea of this legislation, and other similar attacks on the Ellis Act, is the determent effect, todeter landlords from exercising their rights in taking properties off the market, not justarriving to a sum certain, which those landlords would pay and be done with it. As the mathshows, currently imposed formula deters against evicting the least protected tenants fourtimes 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 isunique, and its value must be decided on individual basis. Knox v. Streatfield, 79 Cal.App.3d565, 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 newlyenacted sections of Ordinance, the S.F. Controller's Office will be defining what market levelis. 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 generalizingschedule, however minimally encroaching on one's property and demanding more than thatthe 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 tothe rates under Owner Move-in, those amounts are different, albeit very slightly. The OMIform got recently updated too, it is available here, 2d page (multilingual form is here). Idon't know, how the same Rent Board came up with a difference like this: if a person gets anEllis Act notice, (s)he is paid $5,265.10, but if the same person gets an OMI notice, (s)he ispaid only $5,261.00, or $4.90 less. It is a mystery on at least two points: why there is anydifference, as if it matters for a person who moves out, under what particular mode (s)hedid so, Ellis or OMI, and, if it does matter, what the $4,90 difference meant to accomplish? Ifany of these notice recipients has to get more, it should be the OMI tenant, who gets to staya maximum of 60 days, whereas an Ellis tenant stays at a minimum 120 days, more ifdisabled, 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-sections37.9A(e)(3)(F) through (I). They deal with calculation of the payments, scenarios when thetenant had already received a notice under the old rule, but hasn't yet vacated, andapplying and receiving a hardship adjustment under both scenarios, fixed payment and theindexed one.

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

I would like to conclude with the observations from "The Common Law" by Oliver WendellHolmes. He noticed that the legislative process, "a philosophical habit of the day," may nevercatch up with current public policies of the day, by definition. He said (citing from page 36of the 1909 edition):