|
OUTLINE
OF THE “ELLIS ACT” RESTRICTIONS ON LANDLORDS IN CALIFORNIA
1.
INTRODUCTION:
In the age old struggle between landlord’s rights to own and use their
property as they see fit and tenant’s rights to maintain their tenancy
without landlord “interference,” California and, more particularly, the
San Francisco Bay Area has been a battle ground for decades.
Fueled by a highly appreciated real estate market which encourages real
estate investment and a growing population needing housing, shortage of
affordable housing has become a constant refrain of governments, tenant
groups and proponents of restrictions on rent (“rent control”) and
subsidized housing.
Property owners point out that in those locales in which the government
seeks to control access or cost of rental property, property owners
either flee or fail to keep up property, become involved in rancorous
disputes with tenants far more often, and the housing stocks for renters
actually decrease rather than increase.
As seen in our article on
Tenancy in Common,
the restrictions on conversion of condominium conversion has resulted in
a vibrant new market for joint living arrangements in the same building
which are not condominiums but multiple tenants in common occupying the
same building. Cheaper and less subject to governmental scrutiny,
tenancies in common have been increasing in numbers drastically in the
past decade and are now moving outside of the San Francisco Bay Area.
Many landlords confront the fact that to convert their property to
condominiums or tenancies in common, they have to somehow deal with the
tenants already in their buildings and the various tenants groups and
many local governments sought to maintain rental housing by restricting
the ability of property owners to evict existing tenants or to convert
apartment buildings to other uses.
The State government countered by providing that landlords do have the
right to remove themselves from the rental market, but only within
certain guidelines and the law, called the ELLIS ACT, supersedes
contrary local law and is now the law of this State.
This article gives a very brief outline of the requirements of the ELLIS
ACT. Legal advice should be sought before taking any act which could be
seen as possibly violating the Act since the penalties can be severe.
Anyone contemplating changing an apartment building use should be sure
to learn the ramifications of the ELLIS ACT before taking any steps
which may be construed as violating it.
2. Ellis
Act
a.
Summary
The "Ellis Act" (Ellis Act Government Code Section 7060-7060.7) is a
state law which provides that landlords have the unconditional right to
evict tenants to "go out of business." For an Ellis eviction, the
landlord must remove all of the units in the building from the rental
market, i.e., the landlord must evict all the tenants and can not
single out one tenant (with low rent) and/or remove just one unit from
the rental market. When a landlord invokes the Ellis Act, the apartments
can not be re-rented, except at the same rent the evicted tenant
was paying, for five years following the evictions, While there
are restrictions on ever re-renting the units, there are no such
restrictions on converting them to ownership units (e.g., tenancies in
common or condos).
Ellis Act evictions generally are used to "change the use" of the
building. Most Ellis evictions are used to convert rental units to
condominiums or tenancies in common. Also, the Ellis Act is used to
convert multi-unit buildings into single family homes—mansions.
There are two generally simultaneous actions a landlord must take: (1)
legally and properly evict the tenants and (2) legally remove the
building from the rental market.
Courts have ruled that the tenant's eviction notice period can not
expire before the building is considered "withdrawn" from the rental
market. A building is "withdrawn" 120 days after the landlord files a
"Notice of Intent To Withdraw Units." During the 120 day period, the
withdrawal remains an "intent" and the landlord retains the option of
changing his/her mind. In 120 days, the intent becomes a fact and the
buildings is "Ellised" or "withdrawn" with the Ellis restrictions then
filed at the County Recorder.
b.
Procedure
The process is as follows:
1. Landlord issues tenants eviction notice effective 120 days after the
landlord files the Notice of Intent (see 2 below).
2. Landlord files Notice of Intent To Withdraw Units From The Rental
Market with the Rent Board. Note how these work hand in hand: if the
landlord serves the eviction notice and files the Notice of Intent
simultaneously (e.g., the same day), then the eviction notice can be 120
days. If the eviction notice is given on July 1 and the Notice of Intent
is filed July 10, it must be a 130 day notice. Tenants should be advised
to determine when the Notice of Intent is filed since discrepancies can
be objectionable. In other words, the eviction notice can not expire
before the building is withdrawn. Also note that the adequacy of the
Notice of Intent will no longer be assessed by the Rent Board but will
instead be determined by the courts as part of the Unlawful Detainer
process is such legal action becomes necessary. The Courts are quite
strict in enforcing the provisions of the notice requirements.
3. Within 15 days of filing Notice of Intent, landlord informs tenants
in writing that the Notice of Intent was filed and of the tenants'
reoccupancy and relocation rights. The landlord usually does this in
the eviction notice itself. The Rent Board at some point in the process
will also inform tenants of the filing, relocation rights and
reoccupancy rights (as well as a form).
4. Within 120 days of the filing of the Notice of Intent, the landlord
records with the County Recorder a Memorandum summarizing the Notice of
Intent.
5. 120 days after Notice of Intent is filed with the Rent Board, the
building is considered legally removed from the rental market.
6. Once the building is legally withdrawn from the rental market (i.e.,
120 days after filing of the Notice of Intent), the landlord can
initiate Unlawful Detainer procedures.
7. Rent Board records Ellis constraints at County Recorder within 30
days of withdrawal (within 150 days of the landlord filing of the Notice
of Intent).
3. KEY RIGHTS
OF TENANTS AFTER ELLIS
NOTE
THAT LOCAL ORDINANCES IN MANY LOCATIONS MAY REQUIRE ADDITIONAL
PROTECTIONS FOR REMOVAL OF TENANTS: BE SURE TO CHECK LOCAL LAW.
a. Vacation of Tenants
Ellis Act- Ellis evictions require a one year notice for senior and
disabled tenants, 120 days for all others. Government Code Section
7060.4. (b)
b.
Moving Expenses
Ellis Act- Relocation
benefits for owner or family occupancy evictions may apply to
units under the local Rent Control Law. Check local ordinances.
c. Contents of Notice of Intent
Ellis Act- Owner serves tenants with notices of termination of tenancies
requiring the tenants to quit the premises on the effective date of
withdrawal, which is 120 days after the Notice of Intent is filed with
the Rent Board.
Many local jurisdictions, if the property is to be converted to
condominiums or tenancies in common may require additional rights being
offered to existing tenants, such as first right to purchase the
condominium or tenancy in common, etc. Often the Notice must delineate
those rights.
4.
CONCLUSION:
One client likened the complex procedures required to convert apartments
to condominiums or tenancies in common to a chess game played for big
dollars between tenant’s groups, governments and landlords. That is
simplistic since many tenants are not concerned and indeed welcome the
conversion if they can purchase a unit and governments often want home
ownership to increase in their locales.
But what is very true is that the procedure is complicated and must be
mastered by the property owners since as seen above certain decisions
are irrevocable and this office has seen more than one client wish to
reenter the rental market after “Ellising” a building and finding to
their shock that the procedure is by no means easy or inexpensive,
especially in the Bay Area.
Do your homework,
perform a careful cost benefit analysis, and take the time to carefully
determine if the plan makes sense for the medium and long term planning
requirements of your own assets. And if you are a tenant who receives a
notice, immediately determine if you are able to buy into the unit since
that can end up a very good investment, indeed. Above all, each party
must learn and adhere to the various notice requirements closely since
rights expire forever once notice periods expire.
|
