What is the Ellis Act?

legal-scaleThe Ellis Act has taken center stage in San Francisco real estate media in recent months.

While those evoking the Ellis Act or tenants displaced by the Act are well versed in what it is and what it means, bystanders may not.

I would like to give a brief overview of the law and current happenings.

The Ellis Act is a provision in California Law adopted in 1985 that provides landlords in California a legal way to “go out of business” short of selling the property to another landlord. The law prohibits local governments from forcing rental property owners to continue offering their housing for rent. However, it does allow local governments to impose a variety of requirements on such property owners.

In San Francisco, those requirements and restrictions are:

  1. The displaced tenant has the right of first refusal if the unit is put back on the rental market within ten years of the effective date of withdrawal.
  2. If the unit is put back on the market, the landlord can charge only the rent-controlled rent within the first five years, but can charge market rent during the next five years.
  3. Landlords must pay tenant relocation fees, which are adjusted each year for inflation. The current fees are $5,261.00 per tenant, plus an additional $3,508.00 for each elderly or disabled tenant or a household with minor children. There is a maximum per unit of $15,783.00.
  4. The rental restrictions are on current and all subsequent owners.
  5. Tenants have a minimum of 120 day to vacate. Elderly or disabled tenants with at least one year in the building have the right to extend the 120 days to one year.

With all these restrictions, you might ask yourself “Why would someone perform an Ellis Act eviction?”

There are two main parties that apply for Ellis Act evictions:

  1. Developers who hope to evict tenants in order to divide up the units to sell as TICs (Tenants-in-Common), which allows multiple buyers to purchase an interest in the building with the right to occupy a particular unit.
  2. Groups of people who buy a building together in order to form a TIC, in which case, they all agree to occupy an individual unit.

In both these cases, because of complexities with buying and financing a TIC, the cost of each unit, even when factoring in legal fees and tenants’ relocation costs, is usually less than a similar condo. Therefore, TICs make homeownership more affordable for some groups of people and is often used an entry point into homeownership.

So while tenants are displaced, the upside is that the Ellis Act gives people who previously couldn’t afford to buy a home, the opportunity to purchase an interest in property at a more affordable price.

With all the negative press the Ellis Act has received in the last couple months, two bills have been introduced in Sacramento to curb evictions.

Senator Mark Leno introduced a bill that requires landlords to own a building for five continuous years before being able to evict tenants. Most Ellis Act evictions are filed within the first six months of ownership. This is because the majority of Ellis Acted buildings turn into TICs.

Senator Tom Ammiano’s bill would enable San Francisco to impose a moratorium on all Ellis Act evictions.

Please write your state Senators to encourage them to vote against these bills, as they will further restrict property owners’ rights in San Francisco, and consequently prices.

You can find contact information here.

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