BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2007-2008 Regular Session
SB 464 S
Senator Kuehl B
As Introduced
Hearing Date: March 27, 2007 4
Government Code 6
GWW:jd 4
SUBJECT
"Ellis" Rights and Rental Property:
-Five-year ownership requirement for exercise of right-
-One-year notice of eviction for all tenants on property
when at least one qualified elderly or disabled tenant
receives one-years' notice-
DESCRIPTION
This bill would limit the ability of a rental property
owner to exercise its "Ellis Act" rights (which allow a
property owner to get out of the rental business and in the
process evict all tenants from the rental property,
notwithstanding any local rent control laws) to cases where
the owner has owned the property for at least five years.
This bill would extend from 120 days to one year the time
period given to a tenant to vacate a rental property being
"Ellised" (i.e., taken out of the rental business) when the
property owner's date of withdrawal from the rental market
has already been extended to one year by reason of a
qualified elderly or disabled tenant exercising his or her
right to the extended date of withdrawal.
BACKGROUND
The Ellis Act was adopted in 1985 by SB 505 (Ellis),
Chapter 1509, Statutes of 1985, following the California
Supreme Court's decision in Nash v. City of Santa Monica
(1984) 37 Cal. 3d 97, which upheld the power of a city, in
(more)
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the context of a land use ordinance, to require a
residential property owner to obtain a removal permit under
specified criteria before the owner could demolish the
rental property and remove it from the rental marketplace.
SB 505 of 1985 preempted the ability of local governments
to adopt any local ordinance that prohibited rental
property owners from removing a rental property from the
marketplace, and specified certain procedures should a
property owner decide to exercise its "Ellis"rights.
According to principal sponsor Western Center on Law and
Poverty, the exercise of the "Ellis" rights by an
increasing number of real property speculators has produced
a ruinous impact on affordable rental housing in Los
Angeles and other jurisdictions. SB 464 is intended to
reduce its deleterious effects on tenants and the
significant loss of affordable housing stock in Los Angeles
and other cities by modifying the "Ellis" right of rental
property owners to those owners who have owned the property
for at least five years.
CHANGES TO EXISTING LAW
1. Existing law generally prohibits public entities from
adopting any statute, ordinance, or regulation, or taking
any administrative action, to compel the owner of
residential real property to offer or to continue to
offer residential property for rent or lease. (Govt. Code
Section 7060 et. seq., enacted by SB 505 (Ellis) of 1985.
All references hereinafter are to the Govt. Code, unless
otherwise specified. See Comment 7 for other provisions
of the Ellis Act.)
This bill would apply those preemption provisions only to
owners of residential real property who have owned the
property for at least 5 years, thereby allowing local
controls on rental property owned less than five years.
2. Existing law provides that a public entity with rent
control laws may require the owner to notify the entity
of an intent to withdraw residential property from rent
or lease, and may establish the date on which the
property is withdrawn from rent or lease at 120 days from
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the delivery of that notice to the public entity.
However, if a tenant or lessee is at least 62 years of
age or is disabled, and has lived in the rental property
for at least one year prior to the delivery date of the
"notice of intent to withdraw" (hereinafter "intent
notice"), existing law extends the date of withdrawal and
the tenancy of that qualified tenant to one year (instead
of 120 days) after the delivery date of the intent
notice. Existing law specifies that this extended date
of withdrawal occurs only if the qualified tenant or
lessee gives written notice of the extension right to the
owner within 60 days of the owner's delivery of the
intent notice to the public entity.
This bill would instead provide that a public entity with
a rent control system may require the withdrawal date for
all tenancies on the rental property to be one year from
the delivery date of the intent notice when a qualified
elderly or disabled tenant or lessee has given the
requisite 60-day notice to the owner to extend the
tenancy and the withdrawal date to one year. The bill
would require an owner in these circumstances to notify
all tenants of the extended date of withdrawal.
COMMENT
1. Stated need for bill
According to the Western Center on Law and Poverty: "In
Los Angeles, more than 12,000 rental units have been
'Ellised' in the last 5 years. The loss of this vast
number of units, almost all of which were under the
city's rent stabilization ordinance, has been devastating
to the tenants evicted and to the city's
rapidly-declining affordable housing stock. Ellis
activity has also been increasing in other cities such as
San Francisco, Santa Monica, and San Diego, where
approximately 4,000 additional units have been lost.
The problem is not long-term landlords, but new buyers of
older (and therefore less expensive) buildings, who have
no intention of continuing to rent the units. These
buyers instead typically 'Ellis' the building and evict
all the tenants, demolish the building, and then
construct expensive condominiums. In the last 2 years,
fully 46% of the 'Ellised' buildings in Los Angeles were
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'Ellised' less than a year after purchase. Another 19%
were 'Ellised' 1 to 2 years after purchase. In contrast,
only 21% of the 'Ellised' buildings had been held for
more than 5 years."
Proponents also contend that elderly and disabled tenants
have been particularly victimized, asserting that over
60% of the buildings Ellised in San Francisco since 2000
have had a senior or disabled tenant evicted.
Proponents assert that SB 464 is critically necessary to
reduce the destructive effects on tenants and the
affordable housing stock in those cities that choose to
enact rent control protections. Combined, more than
16,000 affordable housing units have been lost statewide
in the last five years, and more than 9,000 units alone
in the last two years. While the proposed five-year
holding period would not solve the entire problem,
proponents believe that it would at least discourage
speculators from buying the property and instantly
evicting tenants. Proponents state that a five-year
holding requirement would have prevented almost 79% of
the buyers who opted to evict their tenants and Ellis
their properties in Los Angeles since January 2005.
2. Application of five-year holding requirement to current
owners and prospective purchasers
SB 464 would apply to both current owners and prospective
purchasers. This is necessary, according to the sponsor,
because of the very high numbers of units that would be
lost if the measure were to apply only to prospective
purchasers. In the past five years, Los Angeles lost
12,000 units alone. The sponsor asserts that Los Angeles
and other jurisdictions can ill afford to lose additional
affordable housing stock, when affordable housing is
already at crisis levels.
The sponsor asserts that imposition of a five-year
waiting period on a residential property owner's right to
go out of the rental business is a legitimate exercise of
the State's police powers. They write: "California
courts have held that the Legislature has broad powers to
limit individual rights in the interest of public peace,
health, safety, morals or welfare? The courts have
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already held that there is a legitimate government
interest in limiting the circumstances under which
tenants may be evicted and in preventing the loss of
rental housing, the proposed amendment's twin concerns."
Nor does the five-year holding requirement constitute a
taking under the Constitution. Noting that the Supreme
Court in Nash has already ruled that a law prohibiting
removal of property from the rental market does not
amount to a constitutional taking, proponents assert that
SB 464's imposition is a far less restriction of
ownership rights than the permanent bar allowed in Nash.
Moreover, as the Legislature chose to limit Nash in its
enactment of SB 505, the Legislature may choose to modify
its own law as proposed by SB 464.
3. Extending tenancy of all tenants where date of withdrawal
is extended to one year due to qualified elderly or
disabled tenant's exercise of extension right
Under current law, the date of withdrawal must be set at
120 days after delivery of the notice of intention to
withdraw ("intent notice") to the public entity. In that
intent notice, the property owner must certify that
actions have been initiated as required by law to
terminate any existing tenancies. However, if a tenant
or lessee is at least 62 years of age or is disabled, and
has lived in the rental property for at least one year
prior to the delivery date of the intent notice, the date
of withdrawal and the tenancy of that qualified tenant is
extended to one year after the delivery date of the
intent notice, provided that the qualified tenant gave
written notice to the property owner of the tenant's
entitlement to the extension within 60 days of the owner
filing of his intent notice. Thus, the qualified elderly
or disabled tenant is given additional time to find
replacement housing and make other adjustments before
being evicted from the Ellised property.
One of the possible oddities of current law is that even
if the rental property's date of withdrawal is one year
after delivery of the intent notice because of a
qualified tenant's written notice of entitlement, other
tenants in different units of the same rental building
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will still be subject to much earlier evictions because,
as to them, the withdrawal date will still be set at 120
days after delivery of the intent notice. Yet, because
of the extended tenancy of the qualified tenant, the
entire rental property won't actually be withdrawn for
one year.
Proponents assert that the current law causes unnecessary
hardships for both elderly or disabled tenants who are
forced to live in near-vacant buildings, and to the other
tenants who are evicted prematurely since the building
will remain in rental operation for another eight months
after their eviction.
While the property owner has the option under current law
to extend all tenancies when that date of withdrawal is
later set at one year after delivery of the intent
notice, many do not, thus subjecting the remaining single
or few elderly or disabled tenants to live in an
otherwise empty building for eight months. Proponents
assert that there have been reports of harassment and
safety concerns.
Under SB 464, local jurisdictions would be able to
provide all tenants in the building with one year to move
(instead of 120 days) if any of the tenants are a
qualified senior or disabled tenant who gave the
requisite written notice. Proponents assert that this
change would provide stability and safety to the senior
and disabled tenants, while also giving some relief and
additional time to the other tenants to find replacement
housing.
4. Opposition
Opponents, generally categorized as the landlords' lobby,
raise several arguments against SB 464.
The Apartment Association of Orange County ("AAOC")
asserts that SB 464 invites new governmental intrusion
and effectively emasculates any protection afforded to
owners who may have owned their properties for less than
five years. AAOC further asserts that every change of
property ownership (e.g., change in marital status,
inheritance) starts the clock running again, and that SB
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464 is a huge restraint on alienation of property.
AAOC also argues that it is unreasonable to extend the
longer one-year notice periods to all tenants simply
because one of the residents is a qualified elderly or
disabled tenant. Opponents assert that this provision
would further penalize a property owner who is already
subsidizing that and all other tenants through the
operation of the local rent control ordinance.
The California Association of Realtors ("CAR") contends
that SB 464 will discourage investment in rental housing
and significantly depress sales prices. CAR also
contends that substantially limiting a property owner's
right to go out of business will decrease maintenance and
appearance, property values, selling prices, and the
ability to obtain a loan.
CAR further states that SB 464 will force long-time
owners to proactively evict tenants prior to putting
their property on the market in order to gain the best
market price, and cause single family home owners to
think twice in deciding to offer their property for rent.
The Apartment Association of Greater Los Angeles
("AAGLA") and the Apartment Association of California
Southern Cities add:
"The Ellis Act has been an important and helpful
tool to clean up and add housing units to blighted
downtown areas in Los Angeles and Santa Monica and
create home ownership opportunities in San Francisco."
"SB 464 would severely punish many of the same age
group [the elderly] the bill is purportedly designed
to help by artificially reducing the value of their
property by limiting options of purchasers of the
property. It would also create significant uncertainty
for owners and their tenants as many owners would,
naturally, consider keeping units vacant, until the
five-year period expires, potentially exacerbating
blight."
"Proponents have produced no data to show that
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seniors and disabled persons are somehow
disproportionately affected by the operation of the
Ellis Act. They already get a one-year notice, often
locally ordered relocation fees and a right of first
refusal. This measure would extend that one-year
period to all tenants in the building if only one
senior resides there."
Proponents respond that 12,000 lost affordable housing
units in Los Angeles, many of them occupied by seniors,
is ample proof that seniors and the disabled are harmed
by operation of the Ellis Act. And in San Francisco, 60%
of the buildings Ellised in San Francisco since 2000 have
had a senior or disabled person evicted.
Proponents also dispute the contention that Ellis creates
affordable home ownership opportunities. Invariably, the
new housing developed on the Ellised property, if housing
is indeed built, is often high-end condominiums, far
beyond the reach of the displaced tenants and many
prospective purchasers.
Finally, proponents assert that the experience under the
Ellis Act has shown that it has not created a working
balance between the public interest of maintaining a
sufficient stock of affordable housing and the private
interests of property ownership. When Nash upheld the
power of a local jurisdiction to bar a property owner
from removing his property from the rental market without
government approval, the Legislature stepped in to
provide property owners with the current Ellis rights.
Now that experience has shown the devastating impact on
affordable housing by property speculators buying and
demolishing rental housing stock under the Ellis Act,
proponents assert that the Legislature is appropriately
acting to modify its own enactment to restore a measure
of much needed stability in the rental housing market.
5. Sponsor's proposed clarifying amendments
Subject to the author's approval, the sponsor is
proposing two clarifying amendments to correct drafting
oversights:
a) On page 2, line 7, after "for" insert: at least
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This amendment would clarify that the bill would apply to
rental property owners who have owned the rental property
for at least five years, rather than applying the bill
only to those owners who owned the property for five
years.
b) On page 4, line 36, strike out "for" and insert: to
This amendment would clarify that the date of withdrawal
is extended to one year instead of for one year, the
latter suggesting a longer term.
6. Possible clarification may be needed with respect to
application to current owners
As applied to current owners, the bill may need some
clarification as to how it would apply to a current owner
who may have started, but not completed, the exercise of
Ellis rights. For instance, if the bill became operative
on January 1, 2008, it is unclear whether it would apply
to a property owner who delivered the intent notice on
October 1, 2007, but the property cannot actually be
withdrawn until February 1, 2008 or October 1, 2008,
depending on whether there is a qualified elderly or
disabled tenant residing on the property that is entitled
to the longer tenancy.
7. Other provisions of Ellis Act
Under Section 7060.2, a public entity having a system of
rent controls may require the following when a rental
property subject to rent controls has been Ellised:
If the property is returned to the rental market
within five years following the filing of the notice
of intent to withdraw or within five years after the
property's withdrawal, the rental unit must be offered
at the rent level (plus any permitted annual
adjustments) in effect when the withdrawal notice was
filed; and further, if that returned rental unit is
offered again for rent at any time during the
five-year period, the rental rate for any re-rental of
the returned unit shall be that rent level (plus any
annual adjustments).
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If the property is offered for rent within two
years the property was withdrawn from the market:
a) the property owner is liable to any evicted tenant
for actual and exemplary damages;
b) the public entity may also sue the property owner
for exemplary damages for the displacement of
tenants and lessees; and
c) the property owner must offer former evicted
tenants the right of first refusal to reoccupy the
property pursuant to a reinstituted rental agreement
where the tenant has advised the owner of this
entitlement within 30 days of the tenant's eviction
from the premises when the property was first
withdrawn.
If the property is returned to the rental market
within 10 years from the date of withdrawal, the owner
must first offer the returned unit to the tenant
displaced by the withdrawal where the tenant has
requested the offer within 30 days after the owner had
notified the public entity of an intention to offer
the property again for rent.
If the property was demolished, and new housing
units built on the same property are offered for rent
within five years of the date the original rental
property was withdrawn from rental, the newly built
units would not be exempt from any new construction
exemption from rent controls and would be offered for
rent at a rate providing a fair and reasonable return
on that newly built unit.
Under Section 7060.3, the local entity may apply the
above provisions to successors-in-interest to an owner
who has withdrawn rental property by recording a notice
of the constraints on the property with the county
recorder.
Support: Affordable Housing Advocates of Santa Cruz
County; AIDS Legal
Referral Panel; California ACORN; California Rural
Legal Assistance Foundation; East Bay Community Law
Center; Gray Panthers; Housing Rights Committee of
San Francisco; Independent Living Center of Southern
California; JERICHO; Los Angeles Community Action
Network; Older Women's League of California; Public
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Counsel; Religious Witness with Homeless People;
Sacramento Self-Help Housing; San Francisco Council
of Community Housing Organizations; Senior Action
Network; Senior Action Housing Committee; Society of
St. Vincent de Paul, Council of Los Angeles;
Southern California Indian Center; Tenderloin
Housing Clinic; 74 individuals
Opposition:Apartment Association of California Southern
Cities; Apartment
Association of Greater Los Angeles; Apartment
Association of Orange County; California
Apartment Association; California Association of
Realtors
HISTORY
Source: Western Center on Law and Poverty (principal
sponsor);
California Alliance for Retired Americans
(co-sponsor)
Related Pending Legislation: None Known
Prior Legislation: None Known
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