Proposition 10: A Threat to All Property Owners and Investors
Lawmakers Propose Change to Ellis Act, Severely Affecting Property Sales
Since 1985, the Ellis Act has helped property owners go out of the rental business. Under this law, property owners frequently evict tenants legally so that they may build new condos or increase rent in rent-controlled districts after owning the property for at least five years. Owners are required to provide sufficient notice, pay tenant relocation fees, and follow many other policies to ensure tenants receive proper treatment during relocation.
A new bill proposed by two state lawmakers would require landlords to own the building for at least five years in any part of the city, not just rent-controlled districts, before evicting tenants using the Ellis Act. Additionally, local jurisdictions would be allowed to place moratoriums on evictions, significantly slowing down the legal process and preventing speculators from “flipping” buildings.
Senator Mark Leno, D-San Francisco, the main proponent of the bill, describes the current law as a “loophole” in the Ellis Act that allows owners to “turn a profit,” as mentioned in an article on SFGate.com.
Property owners and landlords strongly oppose the bill, arguing it would create incredible obstacles for owners who want to sell. Furthermore, evicting tenants is often the only way to afford costly renovations and maintenance needs, especially for older buildings. When tenants live in rent-controlled buildings for upwards of 20 years, many only pay less than half of market rate in rent. When new tenants move in, owners can increase the rent to the current market rate.
“Owners can’t afford to pay for renovations or upgrades,” said Tony Azzi of Azzi Advisors. “That means the condition of buildings deteriorates, and both tenants and owners feel the effects.”
Without a doubt, the stakes are high for all groups involved. The Northridge earthquake in the nineties left a daunting precedent of what happens when landlords don’t receive enough income in rent controlled markets to pay for renovations and earthquake retrofits. With new changes forthcoming to the Ellis Act, the friction between tenants and property owners is heating up.
Azzi Advisors will continue to monitor the situation and keep you informed. To consult with one of our advisors, visit our Meet the Team page or email [email protected].
