John M. Lee: Update on Rent Control Issues

It's November election time again and that means it is time for landlords and tenants to battle.

But as I leaf through the election booklet, there are no rental issues on the ballot!!! This is the first time in recent memory that we do not have to vote on even one rent control measure.

In the past few years, we had anti tenancy-in-common (TIC) initiatives, owner move-in propositions, vacancy control and various other rent control issues which pitted owners against tenants.

However, I think many of the land-use battles have gone from the ballot box to the courts, and each of the interested groups are running out of money in their war chest to fight at the ballot box too.

Currently, there are ongoing legal challenges to rent control measures which I will bring you up to date on.

New developments have occurred with Proposition G, which passed at the ballot box a few years ago, which limits owner evictions to one per building and places other restrictions, such as prohibiting owner move-ins when a comparable unit is available either at the same building or at another building the owner has an interest in; limits relative move-ins to a building that the owner also occupies; protects seniors and disabled tenants from owner move-in evictions; and limits the owner move-in unit to only that same unit, meaning that if the property sells again, the future owner can only claim that unit to be the owner's unit.

The Court of Appeals has ruled that Proposition G constitutes both a physical and regulatory taking of private property. The court further explains that the state and federal Constitutions guarantee property owners "just compensation" when their property is taken for public use. The purpose of the takings clause "is to prevent the government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."

In essence, what the court is saying is that private property rights are important and that some rent control laws are enacted that punishes a single class of owners, preventing them from obtaining a fair return on their real estate investments.

Secondarily, it is forcing this class of owners to subsidize rents for a group of tenants - rent subsidies should be a function of the government rather than private property owners. At a minimum, the public as a whole should share that burden.

The SF Board of Supervisors passed an anti-TIC ordinance this year, very much similar to Proposition N, which the voters defeated in last November's election. The ordinance seeks to eliminate TIC purchases where a group of buyers purchase a property for their own personal residences.

There is currently a court challenge and we are waiting results of the lawsuit.

Another important development is that Prop. H, the ban on passing through capital improvement expenses to the tenants in the form of higher rents, has been ruled unconstitutional by the Superior Court.

The judge ruled that Prop. H is "constitutionally infirm" as it does not give an owner a fair rate of return on his or her investment.

Currently, there are some discussions underway between tenant activists, property owner groups and the Board of Supervisors to come up with a compromise.

In the interim, new legislation has been passed which allows tenants until Feb. 10, 2002, to pay pass-throughs that were certified between April 10, 2000 and Aug. 10, 2001.

The Rent Board has also been active.

On June 5, the board amended its regulations to limit rent control only to principal places of residences, defined pretty much by federal standards. This means that apartments being used as second homes, or by persons who moved into units formerly rented to others, will not have rent control benefits. This is an important development and I will review it further on another occasion.

As you can see, even though there are no rent control measures on this November's ballot, the battles are still being fought at other venues. And the ongoing battle of landlords and tenants continues in our City.

John M. Lee is a top-selling broker at Pacific Union, specializing in the Richmond and Sunset district properties. If you have any questions regarding real estate, call him at (415) 447-6231 or e-mail him at isellsf@aol.com.