In Defense of the Ellis Act

Being a landlord is tough. It begins with a seemingly reasonable exchange: the payment of a market rental rate in exchange for a commitment to provide habitable premises. However, with the majority of rental units now covered by some form of rent control, the initially fair market rent becomes less “fair” over time. Despite this, the landlord must continue to provide the same quantity and quality of service. A rift develops, which eventually upends the fairness of that initial bargain.

In 1984, a young landlord became upset by such a problem, and sought to demolish his property to start over. He was denied the required permission by the City of Santa Monica, based on the application of its local laws. Shortly thereafter, the State’s Ellis Act was born, promising landlords a means of exiting the rental business when reasonable rates of return disappear, or when they just simply want to go out of business. In short, it permits a landlord to terminate all tenancies in a given building. Since its enactment, the Act has come under fire on a nearly annual basis.

In recent months, state assembly members proposed AB 854, which sought to limit the availability of the Ellis Act to ‘longer term’ landlords. When that bill failed, its proponents promised another try, and immediately attempted, again unsuccessfully, with a revised version (AB 2050). On the local level, San Francisco is moving towards increasing relocation payments required with Ellis Act evictions, and closing perceived ‘loopholes’ regarding the use to which those properties can be put afterward. (SF Ord. 91-22)

Indirectly, the problem is compounded by the expansion of rent control and eviction control throughout the State. San Francisco recently expanded the scope of its eviction controls to cover virtually all units within City limits, most of which already were covered by rent control. Oakland has more recently announced plans to do the same, while also revising its rent control rules to cap annual allowable rent increases at 3%. (Oakland Ord. 13693)

While the stated purpose of these efforts is to stabilize housing prices for tenants, their net effect is to deprive landlords of the corresponding benefit of providing that service. As Justice Breyer observed in striking down San Francisco’s attempt to significantly increase Ellis Act relocation payments in 2014: the landlord’s decision to exit the rental business does not make it more difficult for tenants to find or pay for alternative housing. Instead, those predicaments are caused by policy decisions, like limiting rent increases to a small fraction of what the market would otherwise bear.

The answer, in the view of this author, lies in prioritizing the construction of more housing, and in removing the untenable and unnecessary hurdles that stand in the way of that. Contrary to things like expanding rent control, landlords and tenants have their interests aligned in the context of new housing construction/conversion. Efforts should be focused on creating more housing, rather than penalizing those who did not create the problems caused by a lack thereof. Unless and until legislators accept that, the Ellis Act will, can, and should remain an essential part of encouraging landlords to take on the unenviable task of being landlords in the first place.

If you are interested in using the Ellis Act on your rental property, contact us to request a consultation.