SB1439 Senate Votes

Falling three votes short on Wednesday with only two days left to pass the bill to the State Assembly, Senator Mark Leno bill to curb speculative Ellis Act evictions in San Francisco appeared DOA but was revived when the bill was reconsidered and passed by the Senate in a 21-13 vote last night.

Drafted “to ensure that real estate speculators in San Francisco do not buy rent-controlled property and empty it of long-term tenants,” Senate Bill 1439 would require a landlord to own a building for at least five years before invoking the Ellis Act to clear the building of tenants and would prohibit any attempt to circumvent the intent of the law.

In order to “flip” the Senate vote in his favor, Senator Leno promised to amend Senate Bill 1439 to include exclusions for “mom-and-pop” landlords, amendments that have yet to be written.

If an amended bill is passed by the State Assembly, the bill would return to the Senate for another vote.

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Comments from “Plugged-In” Readers

  1. Posted by no thanks

    If this passes, im sure the next bill that will be drafted will state “You cant offer your building for sale for 5 years after you ellis it!”

    lol

    • Posted by Nature always finds a way

      So now the developer does a purchase option. Hi mom and pop… I’ll give you $200,000 cash now, use that money to pay off the blackmail to your tenants of being a SF landlord. And once everyone is out, I’ll buy your vacant building.

      Jurassic park- nature always finds a way

      • Posted by SocketSite

        Not quite. See comment below or link above.

        • Posted by san FronziScheme (formerly known as lol)

          Yes, this means people who would attempt to circumvent the law would be taking 2 big chances: 1) being caught and 2) having the landlord reneging on the deal (nothing’s written plus it’s not even legal).
          IANAL.

  2. Posted by Hitman

    If you have a rent-controlled building on the market right now and it is burdened by severely low rents as compared to market, you are f%&ked.

  3. Posted by san FronziScheme (formerly known as lol)

    The whack-a-mole game continues.

    2 issues in San Francisco:

    1) too much demand
    2) not enough supply

    There’s nothing much anyone can do about #1 apart from absorption of such demand by more supply.
    The big issue here is #2: all the limitations added every few months, on Ellis evictions, Condo conversions, airbnb rental, etc do only one thing: THEY CONSTRAIN SUPPLY.

    Then again, I have a vested interest in high rent and high equity. Therefore, it’s all good.

    These morons actually make me wealthier by the day, but how can you explain that to people who haven’t read anything since Das Kapital.

  4. Posted by Keepitup

    If you like your lifetime tenants….you can keep your lifetime tenants…lol

    Would somebody please define “mom-and-pop” landlords? I can’t seem to find the definition listed in my legal dictionary.

  5. Posted by poor.ass.millionaire

    ^ well your countryman, Piketty, has just update that with ‘Capital in the Twenty-first Century’!

    But I agree with you. I don’t know why I’m upset at Leno’s bill, as it actually benefits me, since I’m not a TIC flipper. This bill will further raise the floor on TIC values, just as the condo ban last year elevated condo prices (especially converted units in small buildings in desirable neighborhoods.) these politicians are amazingly stupid.

    • Posted by san FronziScheme (formerly known as lol)

      Yes, this looks like a very interesting read.

      The main reason I have been buying RE assets these past 20 years was precisely because the writing has been on the wall for the middle class for around 34 years, since the Gipper’s election. Along with Maggie they’ve sold electors that shrinking government and starving social programs was in the middle class’ interest. BIG mistake. Every $1 of tax cut gives 90c to the top tranche. The last 10c is spread among the rest which amounts to almost nothing, especially when the debt (that the middle class have to pay) is taken into account. Our system being capitalist, the cumulative and (as important) compounding effects creates a logarithmic curve for the top layer. Since more money buys you more influence, the game is already lost for the middle class.

      My only way to comfortably stay within the shrinking middle class was to be a RE investor, landlord, and unknowingly speculator. My siblings back home stayed within their comfort zone, working for the government, not buying property when they could (and should) have. Seeing their income stagnate while the land grab was happening. I am now supporting 2 family members because they can’t. Capitalism has to give back somehow ;)

      • Posted by anon2

        Given the extremely heavy hand of the government in the RE market these past decades your comment is deeply ironic.

        • Posted by san FronziScheme (formerly known as lol)

          Very true. Let’s take for instance the 2001 slump. DotCom crash, terror attacks, economy seriously slowing down. They could have done a Keynesian move: motivate consumption with government spending (infrastructure, energy, social programs etc).

          The only extra gov spending we had was 2 unfunded wars.

          GWB and Greenspan instead inflated the Mother Of All Bubbles by pushing people to borrow their own growth. Yes we grew for 3 years. Then Kaboom.

  6. Posted by Fishchum

    Can someone correct me if I’m wrong here? Can’t a long time owner of a rent-controlled building simply Ellis Act their building before they sell it? Presumably to a developer who will rehab the building and sell of the units as TIC’s?

    • Posted by san FronziScheme (formerly known as lol)

      I suppose they can. The issue with some of the long time landlords is that they are emotionally attached to their buildings and their tenants. When you have had the same tenant for 30 years, he might pay you a fraction of market rent, but you’ll take it because he’s someone you’ve known for a long time now.

      When it comes to sell, often these landlords will not choose to Ellis, preferring the hands-off approach. Let someone else deal with the grief of kicking out the people who probably considered you as a nice guy…

      If anything, this new rule will shape behavior between long term landlords and their tenants. If you know you’re going to pull the plug on a lease one day, you do not want to be emotionally attached to the tenants.

      But I agree that this is the next mole to whack. Then there will be the next one, then the next, etc…

      • Posted by EcceMorons

        “Be friendly to your tenants – but never be friends.”

        That line was in the first book I ever read on How to Be a Landlord. So true.

        And there’s an old cliché that comes to mind as well – “No good deed goes unpunished.”

  7. Posted by Keepitup

    @poor.ass.millionaire

    “these politicians are amazingly stupid.” No there not, they are Republicans in sheep clothing. lol.

    I love our politicians. We are forever thankful for the contributions they have made to our retirement account over the years.

    Place gun to foot…BANG!

  8. Posted by The Milkshake of Despair

    This creates a situation that is ripe for turnkey buyer-consultant-flipper business models. Say a longtime RC building owner wants to sell but doesn’t have the guts/knowledge/time to empty the building first. With all of the legal implications his/her building is worth $2M full of tenants. But empty it is worth $3M. Enter a new class of entrepreneur who offers $2.5M to step in and “consult” with the owner to empty the building via Ellis. The old owner is completely hands-off aside from signing an agreement with the buyer.

    • Posted by if only

      This law has provisions that would require disclosure of the arrangement and penalties for non-disclosure:

      “An owner of accommodations, or any person or entity with an ownership interest in an entity that owns the accommodations, shall not act in concert with a coowner, successor owner, prospective owner, agent, employee, or assignee, to circumvent the limitations of …”

      Besides, there already are people who will do the dirty work for a fee. I had a well-known SF real estate agent offer to introduce me to lawyers and a prop mgr that could handle it for me, if I bought the MDU he was showing me.

      • Posted by The Milkshake of Despair

        Thanks (and to the editor too). I had forgotten about the “anti conspiracy” provision. No doubt this sort of seller-buyer cooperation will occur anyways, they’ll just need to be careful and avoid leaving a paper trail.

  9. Posted by Get Real

    They passed it based on amendments that they haven’t even seen!! One senator who voted YES says he’s “philosophically opposed”!

    This is just a hustle for more money from the lobbyists before they vote NO next time.

    • Posted by Hitman

      Get Real – I hope you are right. Which one was philosophically opposed?

      • Posted by Get Real

        Hueso (D – San Deigo) said he wanted to help Leno solve a problem in his district, but that he was “philosophically opposed” to the method he was using to address the issue.

        (sfgate)

  10. Posted by SocketSite

    As plugged-in people should know and as is specifically noted and linked above, SB1439 includes a provision to prohibit any attempt to circumvent the intent of the law, “prohibit[ing] an owner from acting in concert directly or indirectly with a co-owner, successive owner, prospective owner, or other person to circumvent the…prohibitions.”

  11. Posted by jimmy

    Twitter, Salesforce, etc. hi-tech companies supported this legislation; I wonder how they would like govt. mandated price controls on their software? Probably not too much.

  12. Posted by poor.ass.millionaire

    Not so fast folks:

    A- this has to actually pass both chambers.

    B- if that happened, it has to sustain a court challenge.

  13. Posted by EcceMorons

    When it says “prohibiting an owner from acting in concert with…..or other person”, does that mean that a long-time owner isn’t allowed to seek legal advice on doing his Ellis Act????

    How could THAT fly?

  14. Posted by anon2

    I doubt talking to a lawyer would be considered “acting in concert to circumvent the law”

    But since the law is specifically about restrictions on emptying the building via the Ellis act , it seems to me that a future owner giving money for tenant buyouts to the current owner would be ok. And if that transaction was legal, then putting it in a contract would be enforceable.

  15. Posted by Absolut

    I’m not sure how a “provision to prohibit any attempt to circumvent the intent of the law” would work legally, since intent is always debatable. And if it were valid, why doesn’t every law have such a provision?

  16. Posted by formidable doer of the nasty

    “Mom and Pop” landlords are exempt but not “Pop and Pop” or “Mom and Mom”? Mark Leno just signed his own political death sentence. (And may I say, good riddance.)

    • Posted by World

      It’s a saying. Go PC police reduce to absurdity by yourself, inside your own brain, absent a keyboard.

  17. Posted by Sabbie

    It’s a NON-ISSUE people. It affects less than one hundredth of one percent of San Francisco tenants. Politicians introduce this rubbish to they can pander for votes. Don’t believe the hype.

    • Posted by Miguelito

      Seriously, so tired of hearing this b.s. as though landlords are rampaging through the city day and night, dragging tenants into the street at gunpoint. I bet twice as many tenants are getting nice buyouts as are getting Ellis Act eviction notices.

      • Posted by san FronziScheme (formerly known as lol)

        Twice? Think higher. Anyone who buys a rent controlled building has a plan A: buyout (sometimes combined with an OMI) and a plan B: Ellis.
        Ellis evictions will happen only when a common ground cannot be found or either side’s strategy backfires.

        The holy grail for someone getting into a building is having units with no strings attached, either to do a clean TIC resale or to rent at current market rates. In both cases there’s money to be made which is why how things turn out is often a question of how greedy/reasonable everyone is. If the price is right, few tenants will refuse a buy-out. And landlords often pay more than what they originally planned.

        If you ask me it’s just plain blackmail. Even in socialist France a landlord can decide to evict at the end of a 3-year lease, with no compensation whatsoever, for the simple reason he wants to sell…

  18. Posted by NoeValleyJim

    Thanks Sabble for reminding us that this is a tempest in a teapot.

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