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
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.
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.
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.