Zacks and Freedman Clients Prevail in Ellis Act Appeal
July 18th, 2023
In yet another big legal win, Zacks & Freedman prevailed on behalf of its client at the Court of Appeal in an Ellis Act case. The Ellis Act is an important law that protects the right of property owners to exit the rental business when they choose to do so. The Court’s opinion found that the process had been properly followed, that Z&F’s client genuinely intended to exit the rental business, and that the tenants had not stated a sufficient defense.
The Law: The Ellis Act grants property owners a virtually unimpeded right to take their rental properties off the market. If a tenant fails to vacate after an owner invokes the Ellis Act, the owner may bring an unlawful detainer proceeding to recover possession. In that proceeding, the tenant may raise certain defenses. Those defenses can be procedural, i.e., the owner failed to properly serve one or more tenants at the property, or the defenses can be substantive, i.e. the owner invoked the Ellis Act for purposes of retaliating against the tenant. As to this latter defense, when it is raised, the owner may overcome it by demonstrating a “bona fide intent” to withdraw the property from the market. If the tenant disputes that intent, the owner has the burden to establish its truth. As long as the owner establishes such intent, it is legally insignificant if the owner also has a retaliatory motive.
The Case: Zacks & Freedman, PC’s owner client purchased the four-unit property at issue in this case in 2015, intending to eventually use it for just family. As such, the owner invoked the Ellis Act in 2020, and properly served all then-remaining tenants at the property (in one unit only). After those tenants failed to vacate their unit, the owner was required to file an unlawful detainer proceeding against those tenants to gain possession of the unit.
After the owner filed a motion for summary judgment in that proceeding, the tenants argued in part that the owner filed the Ellis Act for a retaliatory purpose and could not establish a bona fide intent to withdraw the property from the rental market. To support their argument, the tenants pointed to the tumultuous relationship the parties had had over the years, including two other prior court proceedings. The tenants argued the owner had still sought relief against them in those proceedings during the period of time the owner invoked the Ellis Act. Because those proceedings sought damages related to their tenancies, the tenants argued that this, and the other facts establishing the tenuous relationship, was evidence that the owner did not intend to go out of business. The trial court disagreed, finding the evidence irrelevant to the owner’s intent to leave the business, and granted the owner’s motion for judgment. The tenants appealed this decision.
The Decision: On June 28, 2023, the Court of Appeal issued an opinion agreeing that ZF’s client showed a bona fide intent to leave the landlord business, and the tenants’ evidence did not overcome such intent. Relying on Supreme Court precedent Drout v. Superior Court (2003) 31 Cal.4th 583, the Court of Appeal first noted that even if a landlord has a retaliatory motive in invoking the Ellis Act, if they also prove a bona fide intent to take the property off the rental market, the defense of retaliation is overcome. The Court of Appeal found that the evidence here supported that bona fide intent. First, the evidence showed that the owner wanted to use the property for family, and the owner had verified under penalty of perjury that it intended to take the property off the rental market. The Court further held the trial court did not err in excluding evidence of the parties’ bad relationship, but also found this evidence actually supported the fact that the owner wanted to leave the landlord business. Based on these grounds, the Court of Appeal affirmed the trial court’s order granting summary judgment in favor of the owner.
The Court’s discussion of the standards set forth in Drouet is an important confirmation that owners leaving the business do not have to prove absence of a retaliatory motive when invoking the Ellis Act; they must only show that they actually intend to leave the business. As set forth in Drouet, a contrary construction—requiring an owner to also show there was no retaliatory motive—would degrade rights under the Ellis Act, which gives owners the unfettered right to remove rental units from the marketplace.
Zacks & Freedman, PC is a law firm dedicated to advocating for the rights of property owners. With experience and knowledge in rent control issues, zoning, permitting, transactional disputes and other real estate matters, Zacks & Freedman, PC has successfully advocated its clients’ positions before local administrative tribunals and at all levels of the State and Federal courts, including the U.S. Supreme Court. For more information, call (415) 956-8100 or visit www.zfplaw.com.
Click here to read the Court’s decision.