(1)Existing law, commonly known as the Ellis Act, generally prohibits public entities from adopting any statute, ordinance, or regulation, or taking any administrative action, as specified, to compel the owner of residential real property to offer or to continue to offer accommodations, as defined, in the property for rent or lease. Existing law authorizes a public entity acting pursuant to the Ellis Act to require an owner who offers accommodations for rent or lease within a period not exceeding 10 years from the date on which they were withdrawn, as specified, to first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, subject to certain requirements. If the owner fails to comply with this requirement, the owner is liable to a displaced tenant or lessee for punitive damages not to exceed 6 months rent.

This bill would prohibit a payment of the above-described punitive damages from being construed to extinguish the owners obligation to offer the accommodations to a prior tenant or lessee, as described above.

(2)Existing law qualifies the Ellis Act prohibition on compelling owners to offer or to continue to offer accommodations by, among other things, permitting a public entity to require an owner to provide notice that the owner has initiated actions to terminate tenancies and, in this situation, the date of withdrawal of accommodations would be 120 days from the delivery of the notice. Existing law extends the term for the withdrawal of accommodations, in this context, to one year if the tenant or lessee is 62 years of age or older, or disabled, and other conditions are met.

This bill, with regard to the withdrawal of accommodations and the extension of tenancies, as described above, would require the date of withdrawal for the accommodations as a whole to be the latest termination date among all tenants within the accommodations for purposes of calculating specified time periods, as specified. The bill would make conforming changes to clarify the application of these provisions with respect to accommodations with multiple units and with respect to requirements to give notice to public entities and tenants with extended tenancies. The bill would also conform a statement of legislative intent relating to the Ellis Act to specify that it is not intended to permit an owner to return to the rental market less than all of the accommodations, among other things. The bill would also amend this statement of legislative intent to make further statements regarding what the act is not intended to permit on the part of an owner.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1399

Author:(Bloom)

As Amended Ver:July 11, 2019

Majority vote

SUMMARY:

Makes changes to the Ellis Act (the Act) to: 1) clarify that owners may not pay prior tenants liquidated damages in lieu of offering them the opportunity to re-rent their former unit; and, 2) clarify that the date on which the accommodations are deemed to have been withdrawn from the rental market is the date on which the final tenancy among all tenants is terminated.

The Senate Amendments:

1. Add additional intent language that states that the Legislature does not intend to allow an owner to:
   1. Decline to make a written re-rental offer to any tenant or lessee who occupied a unit at the time when the owner gave the public notice of its intent to withdraw, as specified. The requirements shall not apply to:
      1. A unit that was the principal place of residence of any owner or owner's family member at the time of withdrawal, provided that it continues to be those person's principal place of residence when accommodations are returned to the rental market.
      2. A unit that is the principal place of residence of an owner when the accommodations are returned to the rental market, if it is the owners' principal place of residence, at the time of the return to the rental market. If the owner vacates the unit within 10 years of the date of withdrawal, the owner shall, within 30 days, offer to rerent if required.
2. Requires the date of withdrawal for the accommodations as a whole to be the latest termination date among all tenants within the accommodations, as stated in the notices. An owner's further voluntary extension of a tenancy beyond the date stated in the notices shall not exceed the date of withdrawal.

COMMENTS:

Background: In Nash v. City of Santa Monica (1984) 37 Cal.3d 97, the California Supreme Court upheld the power of a city, in the context of a land use ordinance, to require a residential real property owner to obtain a removal permit, under specified criteria, before the owner could demolish his or her rental property and cause its removal from the marketplace. SB 505 (Ellis), Chapter 1509, Statutes of 1985, preempted a local government's authority to compel a rental property owner to stay in the rental housing business by prohibiting a local government from enacting or implementing any law to compel a residential real property owner to offer, or continue to offer, the property for lease or rent.

The Act only applies when an owner seeks to remove all the units within a building or all units on a property within a building containing three or fewer units from the market, and only has real effect in cities or counties with rent control and just cause evictions. The Act authorizes local governments to place restrictions on how property owners can "Ellis" a property and exit the rental property market. An owner can be required to give tenants 120 days' notice that the property is being withdrawn from the rental market. Tenants who are over 62 or disabled must receive one year's notice, provided they have lived in the accommodations for at least one year.

A number of restrictions apply to situations where owners offer units for rent within certain time frames (two years, five years, and 10 years) after removing a property from the rental market pursuant to the Act. For example, owners are required to re-rent a unit at the rent control amount at the time the unit was withdrawn, if they offer it for rent within five years of filing to withdraw or withdrawing the property.

As documented in the media, Ellis Act evictions have increased in recent years. A 2016 investigation by the Los Angeles Times revealed that 1,137 rent-controlled units in Los Angeles were removed from the market in 2015 – a number that has almost tripled since 2013, while the number of evictions from rent-controlled units has doubled. Across Los Angeles, over 20,000 units have left the market since 2001. In Santa Monica, Ellis Act evictions jumped 75% between 2013 and 2014, according to a 2015 report by the Anti-Eviction Mapping Project.

The removals peaked during the housing bubble, bottomed out in the recession, and have risen significantly since then. As the Times investigation notes, many of the recent evictions have been carried out by developers who have purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the Los Angeles properties removed under the Act in 2013 had been purchased within the previous year.

According to the Author:

According to the author, "Some landlords are evicting all the tenants from rent-stabilized units in a property and claiming that they are leaving the rental market and going out of business when in actuality, they have no other plans for the property. By requiring landlords to permanently go out of the rental business, this will help prevent these more egregious abuses that encourage landlords to empty entire buildings in order to evade rent limitations. This will also reduce the incentive for landlords to 'Ellis' a property and then let much-needed housing units lie fallow for more than 5 years simply to re-rent the units at market rates. Landlords are taking advantage of a perceived ambiguity in the law by driving as many tenants out as possible even before any notices of eviction are served. Some landlords believe that this 'loophole' allows them to re-rent units that were vacant at the time of the withdrawal at any time without adhering to the law's restrictions on units returned to the market within certain time periods. This amendment would clarify that the Act prohibits the return to the rental market of less than all the units in the same way that the withdrawal of less than all the units is prohibited. In other words, once any unit is returned to the rental market, the entire property is considered back on the rental market for purposes of the Act. Finally, the law should make explicit that the payment of a penalty does not extinguish the landlord's obligation to comply with the law."

Arguments in Support:

According to the Western Center on Law and Poverty and the California Rural Legal Association Foundation, "the bill clarifies that there can only be one withdrawal date for a property for purposes of determining when timelines under the Act begin to run. Likewise, units in a property that has been Ellised cannot be brought back on to the market in a piecemeal fashion. The original intent of the Ellis Act was to allow landlords to cease being landlords. The Senate Judiciary analysis of the Act in 1985 states: 'The [sponsors] of this bill … assert that a property owner should have the right to conduct his personal affairs and cease rental operations without restriction when he no longer wishes to bear the responsibilities of being a landlord. In many cases … the rental of property involves not only the very considerable potential of personal liability, but also the continued expenditure of time and resources in the management of the property.' AB 1399, consistent with the original intent of the proponents of the Ellis Act, clarifies that landlords cannot have one foot in and one foot out of the rental business with respect to a particular parcel.

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

None. This bill is keyed non-fiscal by the Legislative Counsel.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 5-2-1

YES: Chiu, Gabriel, Gloria, Limón, Quirk-Silva

NO: Diep, Kiley

ABS, ABST OR NV: Maienschein

ASM JUDICIARY: 11-0-1

YES: Mark Stone, Gallagher, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Obernolte, Petrie-Norris, Reyes

ABS, ABST OR NV: Kiley

ASSEMBLY FLOOR: 48-18-14

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bloom, Bonta, Burke, Carrillo, Cervantes, Chau, Chiu, Chu, Daly, Eggman, Friedman, Gabriel, Cristina Garcia, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Obernolte, Quirk, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Blanca Rubio, Santiago, Smith, Mark Stone, Weber, Wicks, Wood, Rendon

NO: Bigelow, Brough, Choi, Cunningham, Dahle, Diep, Flora, Fong, Kiley, Lackey, Mathis, Mayes, Melendez, Patterson, Ramos, Salas, Voepel, Waldron

ABS, ABST OR NV: Boerner Horvath, Calderon, Chen, Cooley, Cooper, Frazier, Gallagher, Eduardo Garcia, Gray, Maienschein, O'Donnell, Petrie-Norris, Rodriguez, Ting

SENATE FLOOR: 29-9-2

YES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Dahle, Grove, Jones, Moorlach, Morrell, Nielsen, Stone, Wilk

ABS, ABST OR NV: Borgeas, Chang

UPDATED:

VERSION: July 11, 2019

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0001895

 THIRD READING  

Bill No: AB 1399

Author: Bloom (D)

Amended: 7/11/19 in Senate

Vote: 21

SENATE HOUSING COMMITTEE: 7-1, 6/18/19

AYES: Wiener, Durazo, McGuire, Roth, Skinner, Umberg, Wieckowski

NOES: Morrell

NO VOTE RECORDED: Bates, Caballero, Moorlach

SENATE JUDICIARY COMMITTEE: 7-1, 7/9/19

AYES: Jackson, Durazo, Lena Gonzalez, Monning, Stern, Umberg, Wieckowski

NOES: Jones

NO VOTE RECORDED: Borgeas

ASSEMBLY FLOOR: 48-18, 5/28/19 - See last page for vote

SUBJECT: Residential real property: rent control: withdrawal of accommodations

SOURCE: City of Santa Monica

City of West Hollywood

DIGEST:

This bill amends the Ellis Act to: (1) clarify that owners may not pay prior tenants liquidated damages in lieu of offering them the opportunity to re-rent their former unit; and (2) clarify that the date on which the accommodations are deemed to have been withdrawn from the rental market is the date on which the final tenancy among all tenants is terminated.

ANALYSIS:

Existing law:

1. Provides that no public entity shall, by statute, ordinance, or regulation, or by administrative action implementing any statute, ordinance or regulation, compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease.
2. Authorizes a public entity, if it has a rent control ordinance, to provide by statute or ordinance, or by regulation, that any accommodations which have been offered for rent or lease and were subject to rent control at the time the accommodations were withdrawn from rent or lease shall be subject to specified requirements.
3. Authorizes a public entity to require by statute or ordinance, or by regulation, that an owner who offers accommodations again for rent or lease within 10 years from withdrawal date shall first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has notified the public entity of an intention to offer the accommodations again for residential rent or lease pursuant to a requirement adopted by the public entity.
4. Requires the owner of the accommodations to be liable to any tenant or lessee who was displaced by that action for failure to comply with the requirements in 3), for punitive damages in an amount which does not exceed the contract rent for six months.
5. Provides that the statute, ordinance, or regulation of the public entity may require that the owner record with the county recorder a notice, as specified, that actions have been initiated to terminate any existing tenancies.
6. Requires, if the tenant or lessee is at least 62 years of age or disabled and has lived in their accommodations for at least one year prior to the date of delivery to the public entity of the notice of intent to withdraw, then the date of withdrawal of the accommodations of that tenant or lessee shall be extended to one year after the date of delivery of that notice, provided that the tenant or lessee gives written notice of their entitlement to an extension to the owner within 60 days of the date of delivery of the notice. In that situation, the following provisions apply:
   1. The tenancy shall continue with the same terms and conditions as applied on the date of the notice of withdrawal, as specified.
   2. No party shall be relieved of the duty to perform any obligation under the lease or rental agreement.
   3. The owner may elect to extend the date of withdrawal on any other accommodations up to one year after the date of the delivery of the notice to withdraw subject to a) and b).
   4. Within 30 days of the notice to the tenant or lessee to the owner of their entitlement to extension, the owner shall give written notice to the public entity of the claim that the tenant or lessee is entitled to stay in their accommodations for one year from the date of the delivery of the notice of intent to withdraw.
   5. Within 90 days of date of delivery of the notice of intent to withdraw, the owner shall give written notice to the public entity and the affected tenant or lessee of the owner’s election to extend the date of withdrawal and the new date of withdrawal.
7. States that is not the intent of the Legislature to permit an owner to withdraw from rent or lease less than all of the accommodations.

This bill:

1. Provides that if an owner of the accommodations elects to offer the accommodations again within 10 years, the payment of punitive damages shall not be construed to extinguish the owner’s obligation to first offer the unit to the tenant or lessee displaced from that unit by the withdrawal.  
2. Establishes that provisions related to persons 62 years or older apply to those who have lived in their accommodations or unit within the accommodations.
3. Establishes that, in the situation in which a tenant is 62 years or older or disabled and the withdrawal is extended to one year, an owner may elect to extend a tenancy on any other unit within the accommodations up to one year. Within 90 days of date of delivery to the public entity of the notice of intent to withdraw, the owner shall give written notice of the owner’s election to extend a tenancy and the revised date of withdrawal to both the public entity and any tenant or lessee whose tenancy is extended. 
4. Requires the date of withdrawal for the accommodations as a whole to be the latest termination date among all tenants within the accommodations, as stated in the notices. An owner’s further voluntary extension of a tenancy beyond the date stated in the notices shall not exceed the date of withdrawal.
5. States that the Legislature does not intend to allow an owner to:
   1. Withdraw from rent or lease less than all of the accommodations.
   2. Decline to make a written re-rental offer to any tenant or lessee who occupied a unit at the time when the owner gave the public notice of its intent to withdraw, as specified. The requirements shall not apply to:
      1. A unit that was the principal place of residence of any owner or owner’s family member at the time of withdrawal, provided that it continues to be those person’s principal place of residence when accommodations are returned to the rental market.
      2. A unit that is the principal place of residence of an owner when the accommodations are returned to the rental market, if it is the owners’ principal place of residence, at the time of the return to the rental market. If the owner vacates the unit within 10 years of the date of withdrawal, the owner shall, within 30 days, offer to rerent if required.

Comments

1. Purpose of this bill. According to the author, “Some landlords are evicting all the tenants from rent-stabilized units in a property and claiming that they are leaving the rental market and going out of business when in actuality, they have no other plans for the property. By requiring landlords to permanently go out of the rental business, this will help prevent these more egregious abuses that encourage landlords to empty entire buildings in order to evade rent limitations. This will also reduce the incentive for landlords to ‘Ellis’ a property and then let much-needed housing units lie fallow for more than 5 years simply to re-rent the units at market rates. Landlords are taking advantage of a perceived ambiguity in the law by driving as many tenants out as possible even before any notices of eviction are served. Some landlords believe that this ‘loophole’ allows them to re-rent units that were vacant at the time of the withdrawal at any time without adhering to the law's restrictions on units returned to the market within certain time periods. This amendment would clarify that the Act prohibits the return to the rental market of less than all the units in the same way that the withdrawal of less than all the units is prohibited. In other words, once any unit is returned to the rental market, the entire property is considered back on the rental market for purposes of the Act. Finally, the law should make explicit that the payment of a penalty does not extinguish the landlord's obligation to comply with the law.”
2. Ellis Act. The Ellis Act (Act) prohibits a public entity, by statute, ordinance, or regulation, from compelling an owner of any residential real property, except for a residential hotel, to continue to offer the rental units for rental housing. The Act maintains the authority for a public entity to regulate the subsequent use of the property and mitigate any adverse impacts on people who are displaced from the withdrawal of a property from the rental market. The Act only applies when an owner seeks to remove all units from rent or lease in a building, or all units on a property with a building containing three or fewer units.

In rent-control jurisdictions, the Act established procedures that public entities can impose upon owners prior to withdrawing property from the rental market. If a city or county requires the owner to give notice before withdrawing the building from the market, the owner must provide 120 days’ notice — or one year’s notice in the case of tenants who are disabled or more than 62 years old — before terminating the tenancy. Owners who seek to re-rent the units within two years after withdrawal are liable to displaced tenants for actual and exemplary damages and required to offer the units to displaced tenants under the prior rent-controlled lease terms. Public entities may also require an owner for up to 10 years to offer re-rented units to displaced tenants. If the owner demolishes the old units and constructs new rental units on the same property within five years of withdrawal, a city or county may subject the new units to its rent-control ordinance.

1. History of the Act. The Act was adopted in response to the California Supreme Court’s decision in Nash v. City of Santa Monica, 37 Cal.3d 97 (1984). In that case, the court upheld the power of a city, through a land use ordinance, to require a residential real property owner to obtain a removal permit, under specified criteria, before the owner could demolish his or her rental property and cause its removal from the marketplace. The next year, SB 505 (Ellis, Chapter 1509, Statutes of 1985) preempted that ruling by providing that no public entity shall “compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease.” Effectively, SB 505 gave landlords a statutory right to exit the rental housing business.

The Act only applies when an owner seeks to remove all units within a building or all units in a property with a building containing three or fewer units, from the market and only has real effect in cities and counties with rent control and just-cause eviction ordinances. Additionally, the Act authorizes local governments to place restrictions on how property owners can “Ellis” a building and exit the rental housing market.

Unfortunately, due to the constraints of the housing market, landlords are incentivized to use the Act to empty buildings of their lower-rent tenants and attempt to re-enter the market by renting to new tenants at market rates.

1. Clarifying and fulfilling legal obligations. Under existing law, if a property owner has “Ellised” their property and decides to re-enter the rental market within 10 years, the owner must first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has submitted the property notice to the public entity. Failure to do so can result in punitive damages owed to the prior lessee. According to the author, some landlords try to evade the restrictions that they otherwise cannot skirt by opting to pay the applicable penalty and then claiming that payment satisfies all legal obligations under Ellis. This bill clarifies that payment of punitive damages to the prior lessee does not extinguish the owner’s responsibility to offer the unit to the prior lessee.
2. Timelines for withdrawal of the property. The Act permits public entities to enact a number of safeguards to protect tenants. These safeguards generally take the form of rights granted to tenants for a period of time after the date on which accommodations are removed from the rental market, such as the right to re-rent at the previous rental rate if the accommodations are offered for rent again.

According to the author, before any official notices to withdraw are served, some owners empty their rental property of as many tenants as possible through legal means, such as buyouts, as well as illegal means, such as tenant harassment. Once the owner is left with only a few holdouts, who are typically the most vulnerable, long-term tenants paying the lowest rent, the notice of withdrawal is served on the local entity, which starts the clock on the Ellis process. If a unit is listed as “vacant” on the notice of withdrawal, it is not subject to the current rent-stabilized rent. Some landlords apply different withdrawal dates to different units and claim that returning one unit to the market does not obligate the landlord to re-offer any other units to former tenants. This allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still having successfully evicted all the tenants.

The critical question becomes how to determine the date on which accommodations are withdrawn. Some landlords have been taking advantage of an ambiguity in the Act by removing, and reintroducing, units one-by-one to avoid the Act’s restrictions and evade rent control laws. If left unchecked, this allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still ultimately evicting all of the tenants. This bill amends the Act to make clear that there is one, and only one, exit date for accommodations removed from the market: the date on which the final tenancy among all of the tenants in the accommodations is terminated.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 7/18/19)

City of Santa Monica (co-source)

City of West Hollywood (co-source)

California Rural Legal Assistance Foundation, Inc.

East Bay Housing Organizations

Legal Aid Foundation of Los Angeles

Los Angeles Mayor Eric Garcetti

Neighborhood Legal Services of Los Angeles County

Southern California Association of Nonprofit Housing

Western Center on Law and Poverty

OPPOSITION: (Verified 7/18/19)

None received

ASSEMBLY FLOOR: 48-18, 5/28/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bloom, Bonta, Burke, Carrillo, Cervantes, Chau, Chiu, Chu, Daly, Eggman, Friedman, Gabriel, Cristina Garcia, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Obernolte, Quirk, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Blanca Rubio, Santiago, Smith, Mark Stone, Weber, Wicks, Wood, Rendon

NOES: Bigelow, Brough, Choi, Cunningham, Dahle, Diep, Flora, Fong, Kiley, Lackey, Mathis, Mayes, Melendez, Patterson, Ramos, Salas, Voepel, Waldron

NO VOTE RECORDED: Boerner Horvath, Calderon, Chen, Cooley, Cooper, Frazier, Gallagher, Eduardo Garcia, Gray, Maienschein, O'Donnell, Petrie-

Norris, Rodriguez, Ting

Prepared by: Alison Hughes / HOUSING / (916) 651-4124

8/9/19 9:20:04

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 1399 (Author:Bloom)

Version: June 10, 2019

Hearing Date: July 2, 2019

Fiscal: No

Urgency: No

Consultant: TSG

SUBJECT

Residential real property: rent control: withdrawal of accommodations

DIGEST

This bill makes minor, clarifying modifications to the Ellis Act, the California law that allows landlords in eviction-controlled jurisdictions to evict tenants in order to withdraw property from the rental housing market. Specifically, the bill clarifies: (1) how to calculate when a property can be returned to the market after Ellis Act evictions; (2) that payment of a penalty for an Ellis Act violation does not extinguish a landlord’s obligation to comply with the law; and (3) that if a landlord voluntarily allows tenants facing an Ellis Act eviction more time to move out, that does not alter the calculation of when the landlord is eligible to return the property to the rental market.

EXECUTIVE SUMMARY

Several local jurisdictions in California, including some of the most populous ones, limit the circumstances in which landlords may evict their tenants. The Ellis Act exists to ensure that, whatever other limitations may exist, landlords can always evict their tenants in order to withdraw the property from the rental market altogether. Meanwhile, in rent-controlled jurisdictions, what a landlord can charge a long-standing tenant is often much lower than what the landlord could charge a new tenant. This creates a strong financial incentive for landlords to try to evict long-standing tenants. The Ellis Act contains a number of safeguards intended to ensure that landlords use it only when they are truly planning to withdraw their property from the rental market and not just seeking a way to remove long-standing tenants in order to obtain new tenants to whom they can charge higher rent. The problem is that some landlords have discovered ambiguities in the Ellis Act and are exploiting them to kick out tenants and raise rents. This bill seeks to close those loopholes, thus preventing unscrupulous landlords from using the Ellis Act to make an end run around local rent control laws.

The bill is sponsored by the City of Santa Monica and the City of West Hollywood. Support is from legal aid agencies and tenant advocates. Opposition is from the California Association of Realtors. The bill passed out of the Senate Housing Committee by a vote of 7-1.

PROPOSED CHANGES TO THE LAW

Existing state law:

1. Prohibits public entities from adopting any statute, ordinance, or regulation, or taking any administrative action, to compel an owner of residential real property to offer or to continue to offer residential property for rent or lease. (Gov. Code § 7060 et. seq.)
2. Provides that a public entity with rental control laws may require the owner to notify the entity of an intent to withdraw residential property from rent or lease, and may establish the date on which the property is withdrawn from rent or lease at 120 days from the delivery of that notice to the public entity. However, if a tenant or lessee is at least 62 years of age or is disabled, and has lived in the rental property for at least one year prior to the delivery date of the notice of intent to withdraw, existing law extends the date of withdrawal and the tenancy of that qualified tenant to one year after the delivery of the notice, as specified. (Gov. Code § 7060.4.)
3. Authorizes a public entity having a system of rent controls to require the following when the owner of a rental property subject to rent controls has exercised their Ellis rights:
4. if the property is returned to the rental market within five years following the filing of the notice of intent to withdraw or within five years after the property’s withdrawal, the rental unit must be offered at the rent level, as specified, in effect when the withdrawal notice was filed; and further, if that returned rental unit is offered again for rent at any time during the five-year period, the rental rate for any re-rental of the returned unit shall be that rent level;
5. if the property is offered for rent within two years the property was withdrawn from the market:
   1. the property owner is liable to any evicted tenant for actual and exemplary damages;
   2. the public entity may also sue the property owner for exemplary damages for the displacement of tenants and lessees; and
   3. the property owner must offer former evicted tenants the right of first refusal to reoccupy the property pursuant to a reinstituted rental agreement where the tenant has advised the owner of this entitlement within 30 days of the tenant’s eviction from the premises when the property was first withdrawn;
6. if the property is returned to the rental market within 10 years from the date of withdrawal, the owner must first offer the returned unit to the tenant displaced by the withdrawal where the tenant has requested the offer within 30 days after the owner had notified the public entity of an intention to offer the property again for rent. (Gov. Code § 7060.2.)
7. Provides that, in an eviction case based on the Ellis Act, a tenant may assert as a defense to the eviction that the landlord did not strictly comply with applicable provisions of the Act or any statutes, ordinances, or regulations adopted by a public entity pursuant to the Act. (Gov. Code § 7060.6.)

This bill:

1. Provides that if, after an Ellis Act eviction, a landlord elects to offer the property for rent again within 10 years, the payment of punitive damages shall not be construed to extinguish the landlord’s obligation to first offer the unit to the tenant or lessee displaced from that unit by the withdrawal.
2. Clarifies that provisions related to persons 62 years or older apply to those who have lived in their accommodations or unit within the accommodations.
3. Establishes that, in the situation in which a tenant is 62 years or older or disabled and the withdrawal is extended to one year, an owner may elect to extend a tenancy on any other unit within the accommodations up to one year. Within 90 days of date of delivery to the public entity of the notice of intent to withdraw, the owner shall give written notice of the owner’s election to extend a tenancy and the revised date of withdrawal to both the public entity and any tenant or lessee whose tenancy is extended.
4. Requires the date of withdrawal for the accommodations as a whole to be the latest termination date among all tenants within the accommodations, as stated in the notices. An owner’s further voluntary extension of a tenancy beyond the date stated in the notices shall not exceed the date of withdrawal.
5. States that the Legislature does not intend to allow an owner to:
6. withdraw less than all of a housing accommodation from the rental market; or
7. decline to make a written re-rental offer to any tenant or lessee who occupied a unit at the time when the owner gave the public notice of its intent to withdraw, and to do so within 30 days of an owner’s notifying the public entity of the owner’s intent to offer for rent any unit within the withdraw accommodations. The requirements shall not apply to:
   1. a unit that was the principal place of residence of any owner or owner’s family member at the time of withdrawal, provided that it continues to be those person’s principal place of residence when accommodations are returned to the rental market; or
   2. a unit that is the principal place of residence of an owner when the accommodations are returned to the rental market, if it is the owners’ principal place of residence, at the time of the return to the rental market. If the owner ceases to occupy the unit within 10 years of the date of withdrawal, the owner shall, within 30 days, make a written offer to re-rent to the tenant or lessee who occupied a unit at the time when the owner gave the public entity notice of its intent to withdraw the accommodations.

COMMENTS

1. Background on the Ellis Act

When local jurisdictions enact rent control laws, they generally include eviction control measures at the same time. Requiring some form of eviction control is essential to making rent control work, because otherwise, landlords could easily get around rent control by evicting tenants paying the controlled rate and replacing them with market rate tenants. Eviction control laws plug that loophole by preventing landlords from evicting tenants except when the landlord has a valid legal reason or “just cause” for doing so, such as non-payment of rent, nuisance, or breach of the lease.

While strict eviction control laws solve the problem of landlords trying to evade rent control by kicking out rent-controlled tenants, they create a new conundrum. If property owners cannot evict their tenants unless they have specified cause for doing so, they are effectively trapped in the rental market. In order to put their property to some use other than as a rental, they have to get the tenants out; but strict versions of eviction control can stand in the way. The Ellis Act, (SB 505, Ellis, Ch. 1509, Stats. 1985) was the Legislature’s solution to this conundrum.

Under the Ellis Act, landlords may evict tenants in order to withdraw their properties from the rental market, local eviction control measures notwithstanding, provided that they comply with a few rules. In simplified terms, those rules work as follows. First, the landlord has to withdraw the units in the dwelling from the market. Second, the landlord has to provide the tenants with at least 120 days’ advance notice before terminating the tenancy, and this period is extended to one year for any tenants who are elderly or disabled or who have been living at the property for over ten years. Finally, the landlord has to keep the converted property off of the rental market for a specified time. If the landlord puts the property back on the rental market sooner than that, there are consequences, depending on the length of time that has passed. Among other things, the landlord may have to pay punitive damages and may have to offer the former tenants the option to return at their prior rental rates.

2. Gaming the Ellis Act and how this bill would address it

In California, market rate residential rents have generally increased much faster than what is allowed by the rent control ordinances in California’s major cities. That gap has become even more pronounced in recent years as market rate rents have skyrocketed around the state. The bigger the difference between rent controlled properties and the market rate, the bigger the incentive becomes for landlords to find a way to get rent-controlled tenants out and to replace them with new tenants to whom they can charge whatever the market will bear. In this context, it is perhaps not surprising that some landlords have discovered ambiguities within the Ellis Act and are using those ambiguities as mechanisms to replace rent-controlled tenants with new tenants. The primary intent of this bill is to resolve two of those ambiguities and thereby make it more difficult for landlords to use the Ellis Act as a tool to get around rent control.

• 1. Ambiguity over the start of the Ellis Act clock

As mentioned, the Ellis Act imposes limitations on a property owner’s ability to return a property to the rental market in the wake of an Ellis Act eviction. These limitations, and the consequences for violating them, depend on how much time has passed since the Ellis Act eviction took place. The first ambiguity that this bill seeks to resolve is when the clock starts running for purposes of these limitations and consequences.

The bill’s author explains that some landlords manage to skirt rent control through the Ellis Act by staggering when and how they withdraw different units from the rental market. First, the landlord gets rid of as many rent-controlled tenants as possible through buyouts or harassment. Then, when only a few tenants remain, the landlord serves notice of intent to withdraw the property from the rental market pursuant to the Ellis Act. In this way, the landlord can list most of the units on the property as “vacant” at the time of withdrawal. Since a “vacant” unit is not subject to the current rent-stabilized rent, these landlords proceed to return the vacant units to the market after all of the Ellis Act evictions are complete. They contend that they do not have to offer the units that were occupied at the time of the Ellis Act evictions back to the former tenants, because returning one unit to the market does not obligate the landlord to re-offer any other units to former tenants. In practice, this scheme permits landlords to withdraw a subset of the units in a building from the rental market without ever actually leaving the rental market. In short, this mechanism enables landlords to successfully turn over tenancies in a building and thereby evade rent control.

This bill would close this loophole by removing any questions about when the Ellis Act timelines start. Instead of any unit-by-unit calculation, the bill would amend the Ellis Act to make clear that there is one, and only one, exit date for all units removed from the market in any given building: the date on which the final tenancy among all of the tenants in that building is terminated.

The only problem with this system is that it would punish landlords who, in the context of an Ellis Act eviction, opt to give tenants additional time to move out of a unit they are withdrawing from the market. Under existing law, such an extension would not necessarily affect when the remaining units could be re-rented in the future. If the re-rental date for all units is tied to the termination of the final tenancy, landlords may be reluctant to give any tenants extra time. Recognizing this problem, the bill specifies that it is the originally noticed date of termination that determines when the Ellis Act clock starts to run, not the termination date associated with any extension.

• 1. Ambiguity over the results of paying punitive damages

The second ambiguity in the Ellis Act that this bill seeks to resolve is simpler. Under existing law, landlords who decide to re-rent a unit after evicting the prior tenant through the Ellis Act must first offer the unit to the prior tenant at the former rental rate. The landlord is also subject to punitive damages. According to the author, some landlords have construed these provisions to mean that so long as the landlord pays the punitive damages, the landlord is relieved of the duty to offer the unit to the former tenant. In other words, some landlords are opting to pay the punitive damages in order to replace long-standing rent-controlled tenants with new tenants that start out at market rate. This bill would clear up the ambiguity and attempt to halt this practice by specifying that, even if the landlord pays punitive damages for re-renting a withdrawn unit in violation of the Ellis Act, the landlord is still obligated to comply with the Ellis Act by offering the unit to the former tenant at the previous, rent-controlled rate.

3. Proposed amendments

In order to clarify the intent behind the bill and in accordance with agreements negotiated with the opposition, the author proposes to incorporate the following amendments into the bill:

Amendment 1

On page 8, in line 21, strike out “accommodations,” strike out lines 22 through 24, inclusive, in line 25, strike out “Section 7060.4.” and insert:

accommodations, in the manner and within the timeframe specified in paragraph 3 of subdivision (b) or subdivision (c) of Section 7060.2.

Amendment 2

On page 8, in lines 35 and 36, strike out “ceases to occupy” and insert:

vacates

Amendment 3

On page 8, in line 37, strike out “make an offer to rerent to”, strike out lines 38 through 40 inclusive and insert:

offer to rerent if required under paragraph (2) of subdivision (d) of Section 7060.7.

4. Arguments in support of the bill

According to the author:

This bill makes clarifying changes to the Ellis Act that are intended to both ensure fairness for tenants and remove ambiguity for both landlords and local governments. The Ellis Act was intended as a means for landlords to exit the rental housing business, not as an end-run around local protections for tenants. Yet some landlords are using the law to do just that. These bad actors are evicting tenants under the guise of exiting the rental housing business, but no intent of actually leaving the market. Instead, they are gaming the system to avoid local protections for tenants.

This bill gives tenants some security in keeping their homes in a time where homelessness for our poor, seniors, disabled and even working class is a reality that is just a pay check or rent increase away due to the lack of readily available affordable housing.

As sponsor of the bill, the City of Santa Monica writes:

AB 1399 (Bloom) will amend the Ellis Act to clarify that the Act is only to be used by a landlord who intends to go out of the rental business permanently; that because the law requires the units to be withdrawn at the same time, a landlord cannot return units to the market in a piecemeal fashion; and that the payment of a penalty does not extinguish the landlord’s obligation to comply with the law.

With California’s steep rise in property values in recent years, tightening and clarifying the requirements that owners must follow will help remove the incentive they may have to evict tenants to increase rental profits.

In support, Neighborhood Legal Services writes:

Since 2001, over 24,000 rent control units have been taken off the rental market through the Ellis Act in the City of Los Angeles. The removal of these [rent-controlled] units has exacerbated the housing shortage in Los Angeles, and throughout the entire State, and it is only getting worse. Because of the impact the loss of these units has had on low and fixed income tenants, it is important that the legislation be clear that an award of punitive damages does not preclude the imposition of additional obligations on the part of the landlord […].

4. Arguments in opposition to the bill

In opposition to the bill, the California Association of Realtors (CAR) writes:

CAR has concerns with the language that was incorporated into AB 1399 on June 10, 2019.

SUPPORT

City of Santa Monica (sponsor)

City of West Hollywood (sponsor)

Neighborhood Legal Services of Los Angeles County

OPPOSITION

California Association of Realtors

RELATED LEGISLATION

Pending Legislation: AB 1795 (Kamlager-Dove, 2019) limits public access to court records relating to Ellis Act evictions under specified conditions. AB 1795 is currently pending consideration before the Senate Judiciary Committee.

Prior Legislation:

AB 2364 (Bloom, 2018) would have made changes to the Ellis Act including the time period in which a landlord would have to offer a unit that is returned to the rental market after it is withdrawn under the Ellis Act. AB 2364 failed passage on the Assembly Floor.

AB 982 (Bloom, 2017) would have extended the term for withdrawal of accommodations under the Act to one year for all tenants and lessees without regard to age or disability. AB 982 died in the Assembly Housing and Community Development Committee.

AB 423 (Bonta, 2017) would have exempted residential hotels in the City of Oakland from the Ellis Act beginning January 1, 2018. AB 423 failed passage on the Assembly Floor.

SB 1267 (Allen, 2016) would have required a city or county by ordinance, when the city or county requires notice of intent to withdraw accommodations pursuant to the Act, to give one year’s notice to a tenant with a custodial or family relationship with a pupil enrolled in a primary or secondary school who lives in an accommodation before terminating a tenancy. SB 1267 died in the Senate Transportation and Housing Committee.

SB 364 (Leno, 2015) would have allowed the City and County of San Francisco to prohibit, by ordinance or ballot measure, a rental housing owner from removing a building from the market pursuant to the Ellis Act unless all owners in the property have held their ownership interest for at least five years. SB 364 failed passage in the Senate Transportation and Housing Committee.

SB 1439 (Leno, 2014) would have allowed the City and County of San Francisco to prohibit, by ordinance or ballot measure, a rental housing owner from removing a building from the market pursuant to the Ellis Act unless all owners in the property have held their ownership interest for at least five years. SB 1439 failed passage in the Assembly Housing and Community Development Committee.

PRIOR VOTES:

Senate Housing Committee (Ayes 7, Noes 1)

Assembly Floor (Ayes 48, Noes 18)

Assembly Judiciary Committee (Ayes 11, Noes 0)

Assembly Housing and Community Development Committee (Ayes 5, Noes 2)

**************

SENATE COMMITTEE ON HOUSING

Senator Scott Wiener, Chair

2019 - 2020 Regular

Bill No: AB 1399 Hearing Date: 6/18/2019

SUBJECT: Residential real property: rent control: withdrawal of accommodations

DIGEST: This bill amends the Ellis Act to: 1) clarify that owners may not pay prior tenants liquidated damages in lieu of offering them the opportunity to re-rent their former unit, and 2) clarify that the date on which the accommodations are deemed to have been withdrawn from the rental market is the date on which the final tenancy among all tenants is terminated.

ANALYSIS:

Existing law:

1. Provides that no public entity shall, by statute, ordinance, or regulation, or by administrative action implementing any statute, ordinance or regulation, compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease.
2. Authorizes a public entity, if it has a rent control ordinance, to provide by statute or ordinance, or by regulation that any accommodations which have been offered for rent or lease and were subject to rent control at the time the accommodations were withdrawn from rent or lease shall be subject to specified requirements.
3. Authorizes a public entity to require by statute or ordinance, or by regulation, that an owner who offers accommodations again for rent or lease within 10 years from withdrawal date shall first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has notified the public entity of an intention to offer the accommodations again for residential rent or lease pursuant to a requirement adopted by the public entity.
4. Requires the owner of the accommodations to be liable to any tenant or lessee who was displaced by that action for failure to comply with the requirements in (3), for punitive damages in an amount which does not exceed the contract rent for six months.
5. Provides that the statute, ordinance, or regulation of the public entity may require that the owner record with the county recorder a notice, as specified, that actions have been initiated to terminate any existing tenancies.
6. Requires, if the tenant or lessee is at least 62 years of age or disabled, and has lived in their accommodations for at least one year prior to the date of delivery to the public entity of the notice of intent to withdraw, then the date of withdrawal of the accommodations of that tenant or lessee shall be extended to one year after the date of delivery of that notice, provided that the tenant or lessee gives written notice of their entitlement to an extension to the owner within 60 days of the date of delivery of the notice. In that situation, the following provisions apply:
   1. The tenancy shall continue with the same terms and conditions as applied on the date of the notice of withdrawal, as specified.
   2. No party shall be relieved of the duty to perform any obligation under the lease or rental agreement.
   3. The owner may elect to extend the date of withdrawal on any other accommodations up to one year after the date of the delivery of the notice to withdraw subject to (a) and (b).
   4. Within 30 days of the notice to the tenant or lessee to the owner of their entitlement to extension, the owner shall give written notice to the public entity of the claim that the tenant or lessee is entitled to stay in their accommodations for one year from the date of the delivery of the notice of intent to withdraw.
   5. Within 90 days of date of delivery of the notice of intent to withdraw, the owner shall give written notice to the public entity and the affected tenant or lessee of the owner’s election to extend the date of withdrawal and the new date of withdrawal.
7. States that is not the intent of the Legislature to permit an owner to withdraw from rent or lease less than all of the accommodations.

This bill:

1. Provides that if an owner of the accommodations elects to offer the accommodations again within 10 years, the payment of punitive damages shall not be construed to extinguish the owner’s obligation to first offer the unit to the tenant or lessee displaced from that unit by the withdrawal.  
2. Establishes that provisions related to persons 62 years or older apply to those who have lived in their accommodations or unit within the accommodations.
3. Establishes that, in the situation in which a tenant is 62 years or older or disabled and the withdrawal is extended to one year, an owner may elect to extend a tenancy on any other unit within the accommodations up to one year. Within 90 days of date of delivery to the public entity of the notice of intent to withdraw, the owner shall give written notice of the owner’s election to extend a tenancy and the revised date of withdrawal to both the public entity and any tenant or lessee whose tenancy is extended. 
4. Requires the date of withdrawal for the accommodations as a whole to be the latest termination date among all tenants within the accommodations, as stated in the notices. An owner’s further voluntary extension of a tenancy beyond the date stated in the notices shall not exceed the date of withdrawal.
5. States that the legislature does not intend to allow an owner to:

1. Withdraw from rent or lease less than all of the accommodations.
2. Decline to make a written re-rental offer to any tenant or lessee who occupied a unit at the time when the owner gave the public notice of its intent to withdraw, and to do so within 30 days of an owner’s notifying the public entity of the owner’s intent to offer for rent any unit within the withdraw accommodations. The requirements shall not apply to:
   1. A unit that was the principal place of residence of any owner or owner’s family member at the time of withdrawal, provided that it continues to be those person’s principal place of residence when accommodations are returned to the rental market.
   2. A unit that is the principal place of residence of an owner when the accommodations are returned to the rental market, if it is the owners’ principal place of residence, at the time of the return to the rental market. If the owner ceases to occupy the unit within 10 years of the date of withdrawal, the owner shall, within 30 days, make a written offer to re-rent to the tenant or lessee who occupied a unit at the time when the owner gave the public entity notice of its intent to withdraw the accommodations.

COMMENTS

• • 1. Purpose of the bill. According to the author, “Some landlords are evicting all the tenants from rent-stabilized units in a property and claiming that they are leaving the rental market and going out of business when in actuality, they have no other plans for the property. By requiring landlords to permanently go out of the rental business, this will help prevent these more egregious abuses that encourage landlords to empty entire buildings in order to evade rent limitations. This will also reduce the incentive for landlords to "Ellis" a property and then let much-needed housing units lie fallow for more than 5 years simply to re-rent the units at market rates. Landlords are taking advantage of a perceived ambiguity in the law by driving as many tenants out as possible even before any notices of eviction are served. Some landlords believe that this "loophole" allows them to re-rent units that were vacant at the time of the withdrawal at any time without adhering to the law's restrictions on units returned to the market within certain time periods. This amendment would clarify that the Act prohibits the return to the rental market of less than all the units in the same way that the withdrawal of less than all the units is prohibited. In other words, once any unit is returned to the rental market, the entire property is considered back on the rental market for purposes of the Act. Finally, the law should make explicit that the payment of a penalty does not extinguish the landlord's obligation to comply with the law.”
    2. Ellis Act. The Ellis Act (Act) prohibits a public entity, by statute, ordinance, or regulation, from compelling an owner of any residential real property, except for a residential hotel, to continue to offer the rental units for rental housing. The Act maintains the authority for a public entity to regulate the subsequent use of the property and mitigate any adverse impacts on people who are displaced from the withdrawal of a property from the rental market. The Act only applies when an owner seeks to remove all units from rent or lease in a building, or all units on a property with a building containing three or fewer units.

In rent-control jurisdictions, the Act established procedures that public entities can impose upon owners prior to withdrawing property from the rental market. If a city or county requires the owner to give notice before withdrawing the building from the market, the owner must provide 120 days’ notice — or one year’s notice in the case of tenants who are disabled or more than 62 years old — before terminating the tenancy. Owners who seek to re-rent the units within two years after withdrawal are liable to displaced tenants for actual and exemplary damages and required to offer the units to displaced tenants under the prior rent-controlled lease terms. Public entities may also require an owner for up to 10 years to offer re-rented units to displaced tenants. If the owner demolishes the old units and constructs new rental units on the same property within five years of withdrawal, a city or county may subject the new units to its rent-control ordinance.

• • 1. History of the Ellis Act. The Act was adopted in response to the California Supreme Court’s decision in Nash v. City of Santa Monica, 37 Cal.3d 97 (1984). In that case, the court upheld the power of a city, through a land use ordinance, to require a residential real property owner to obtain a removal permit, under specified criteria, before the owner could demolish his or her rental property and cause its removal from the marketplace. The next year,
       SB 505 (Ellis, Chapter 1509, Statutes of 1985) preempted that ruling by providing that no public entity shall “compel the owner of any residential real property to offer, or to continue to offer, accommodations in the property for rent or lease.” Effectively, SB 505 gave landlords a statutory right to exit the rental housing business.

The Act only applies when an owner seeks to remove all units within a building or all units in a property with a building containing three or fewer units, from the market and only has real effect in cities and counties with rent control and just-cause eviction ordinances. Additionally, the Act authorizes local governments to place restrictions on how property owners can “Ellis” a building and exit the rental housing market.

Unfortunately, due to the constraints of the housing market, landlords are incentivized to use the Ellis Act to empty buildings of their lower-rent tenants and attempt to re-enter the market by renting to new tenants at market rates.

• • 1. Clarifying and fulfilling legal obligations. Under existing law, if a property owner has “Ellised” their property and decides to re-enter the rental market within 10 years, the owner must first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has submitted the property notice to the public entity. Failure to do so can result in punitive damages owed to the prior lessee. According to the author, some landlords try to evade the restrictions that they otherwise cannot skirt by opting to pay the applicable penalty and then claiming that payment satisfies all legal obligations under Ellis. This bill would clarify that payment of punitive damages to the prior lessee does not extinguish the owner’s responsibility to offer the unit to the prior lessee.
    2. Timelines for withdrawal of the property. The Ellis Act permits public entities to enact a number of safeguards to protect tenants. These safeguards generally take the form of rights granted to tenants for a period of time after the date on which accommodations are removed from the rental market, such as the right to re-rent at the previous rental rate if the accommodations are offered for rent again.

According to the author, before any official notices to withdraw are served, some owners empty their rental property of as many tenants as possible through legal means, such as buyouts, as well as illegal means, such as tenant harassment. Once the owner is left with only a few holdouts, who are typically the most vulnerable, long-term tenants paying the lowest rent, the notice of withdrawal is served on the local entity, which starts the clock on the Ellis process. If a unit is listed as “vacant” on the notice of withdrawal, it is not subject to the current rent-stabilized rent. Some landlords apply different withdrawal dates to different units and claim that returning one unit to the market does not obligate the landlord to re-offer any other units to former tenants. This allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still having successfully evicted all the tenants.

The critical question becomes how to determine the date on which accommodations are withdrawn. Some landlords have been taking advantage of an ambiguity in the Act by removing, and reintroducing, units one-by-one to avoid the Act’s restrictions and evade rent control laws. If left unchecked, this allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still ultimately evicting all of the tenants. This bill amends the Act to make clear that there is one, and only one, exit date for accommodations removed from the market: the date on which the final tenancy among all of the tenants in the accommodations is terminated.

• • 1. Opposition. The California Association of Realtors are opposed to AB 1399. Their letter states the following: “The California Association of Realtors (C.A.R.) respectfully requests a “NO” vote on AB 1399 (Bloom). CAR will oppose AB 1399 until it is amended to address our concerns. Specifically, CAR has concerns with the language that was incorporated into AB 1399 on June 10, 2019. For the reasons above, CAR must oppose AB 1399 until it is amended to address our concerns.”
    2. Double referral. This bill was also referred to the Judiciary Committee.

Related Legislation:

AB 2364 (Bloom, 2019) — would have made changes to the Ellis Act including the time period in which a landlord would have to offer a unit that is returned to the rental market after it is withdrawn under the Ellis Act. The bill died on the Assembly Floor.

AB 982 (Bloom, 2017) — would have extended the term for withdrawal of accommodations under the Act to one year for all tenants and lessees without regard to age or disability. This bill died in the Assembly Committee on Housing and Community Development.

AB 423 (Bonta, 2017) — would have exempted residential hotels in the City of Oakland from the Act beginning January 1, 2018. This bill failed passage on the Assembly Floor.

SB 1267 (Allen, 2016) — would have required a city or county by ordinance, when the city or county requires notice of intent to withdraw accommodations pursuant to the Act, to give one year’s notice to a tenant with a custodial or family relationship with a pupil enrolled in a primary or secondary school who lives in an accommodation before terminating a tenancy. This bill died in the Senate Transportation and Housing Committee.

SB 364 (Leno, 2015) — would have allowed the city and county of San Francisco to prohibit, by ordinance or ballot measure, a rental housing owner from removing a building from the market pursuant to the Act unless all owners in the property have held their ownership interest for at least five years. This bill failed passage in the Senate Transportation and Housing Committee.

SB 1439 (Leno, 2014) — would have allowed the city and county of San Francisco to prohibit, by ordinance or ballot measure, a rental housing owner from removing a building from the market pursuant to the Act unless all owners in the property have held their ownership interest for at least five years. This bill failed passage in the Assembly Housing and Community Development Committee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

POSITIONS: (Communicated to the committee before noon on Wednesday,

June 12, 2019.)

SUPPORT:

City Of Santa Monica (Co-Sponsor)
City Of West Hollywood (Co-Sponsor)
California Rural Legal Assistance Foundation, Inc.
East Bay Housing Organizations
Eric Garcetti, Mayor Of Los Angeles
Legal Aid Foundation Of Los Angeles
Neighborhood Legal Services Of Los Angeles County
Southern California Association Of Nonprofit Housing
Western Center On Law And Poverty

OPPOSITION:

California Association of Realtors

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1399

Author:(Bloom)

As Amended Ver:April 25, 2019

Majority vote

SUMMARY:

Makes changes to the Ellis Act (the Act) including clarifying that the Act cannot be used to remove rental units on a piecemeal basis.

Major Provisions

1. Clarifies that, if a landlord withdraws accommodations from the rental market under the Ellis Act, and within 10 years once again offers a unit within those accommodations for rent, and if a statute, ordinance, or regulation requires that the landlord offer the unit to the originally-displaced tenant at that time, the landlord may not seek to avoid this requirement simply by paying the tenant the maximum punitive damages provided for under the Act.
2. Clarifies that the date of withdrawal from the rental market of the accommodations as a whole, for purposes of measuring the date upon which the accommodations may be lawfully re-offered under the Ellis Act, is to be measured from the date on which the final tenancy among all of the tenants in the accommodations was terminated.
3. Revises the legislative intent of the Ellis Act to provide that the Act is not intended to permit an owner to withdraw accommodations from the rental market and then return to the market less than all of the accommodations that were so withdrawn.
4. Makes other minor technical and clarifying amendments to the Ellis Act.

COMMENTS:

Background: In Nash v. City of Santa Monica (1984) 37 Cal.3d 97, the California Supreme Court upheld the power of a city, in the context of a land use ordinance, to require a residential real property owner to obtain a removal permit, under specified criteria, before the owner could demolish his or her rental property and cause its removal from the marketplace. SB 505 (Ellis), Chapter 1509, Statutes of 1985, preempted a local government's authority to compel a rental property owner to stay in the rental housing business by prohibiting a local government from enacting or implementing any law to compel a residential real property owner to offer, or continue to offer, the property for lease or rent.

The Act only applies when an owner seeks to remove all the units within a building or all units on a property within a building containing three or fewer units from the market, and only has real effect in cities or counties with rent control and just cause evictions. The Act authorizes local governments to place restrictions on how property owners can "Ellis" a property and exit the rental property market. An owner can be required to give tenants 120 days' notice that the property is being withdrawn from the rental market. Tenants who are over 62 or disabled must receive one year's notice, provided they have lived in the accommodations for at least one year.

A number of restrictions apply to situations where owners offer units for rent within certain time frames (two years, five years, and 10 years) after removing a property from the rental market pursuant to the Act. For example, owners are required to re-rent a unit at the rent control amount at the time the unit was withdrawn, if they offer it for rent within five years of filing to withdraw or withdrawing the property.

As documented in the media, Ellis Act evictions have increased in recent years. A 2016 investigation by the Los Angeles Times revealed that 1,137 rent-controlled units in Los Angeles were removed from the market in 2015 – a number that has almost tripled since 2013, while the number of evictions from rent-controlled units has doubled. Across Los Angeles, over 20,000 units have left the market since 2001. In Santa Monica, Ellis Act evictions jumped 75% between 2013 and 2014, according to a 2015 report by the Anti-Eviction Mapping Project.

The removals peaked during the housing bubble, bottomed out in the recession, and have risen significantly since then. As the Times investigation notes, many of the recent evictions have been carried out by developers who have purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the Los Angeles properties removed under the Act in 2013 had been purchased within the previous year.

According to the Author:

Some landlords are evicting all the tenants from rent-stabilized units in a property and claiming that they are leaving the rental market and going out of business when in actuality, they have no other plans for the property. By requiring landlords to permanently go out of the rental business, this will help prevent these more egregious abuses that encourage landlords to empty entire buildings in order to evade rent limitations. This will also reduce the incentive for landlords to "Ellis" a property and then let much-needed housing units lie fallow for more than 5 years simply to re-rent the units at market rates. Landlords are taking advantage of a perceived ambiguity in the law by driving as many tenants out as possible even before any notices of eviction are served. Some landlords believe that this "loophole" allows them to re-rent units that were vacant at the time of the withdrawal at any time without adhering to the law's restrictions on units returned to the market within certain time periods. This amendment would clarify that the Act prohibits the return to the rental market of less than all the units in the same way that the withdrawal of less than all the units is prohibited. In other words, once any unit is returned to the rental market, the entire property is considered back on the rental market for purposes of the Act. Finally, the law should make explicit that the payment of a penalty does not extinguish the landlord's obligation to comply with the law."

Arguments in Support:

According to the Western Center on Law and Poverty and the California Rural Legal Association Foundation, "the bill clarifies that there can only be one withdrawal date for a property for purposes of determining when timelines under the Act begin to run. Likewise, units in a property that has been Ellised cannot be brought back on to the market in a piecemeal fashion. The original intent of the Ellis Act was to allow landlords to cease being landlords. The Senate Judiciary analysis of the Act in 1985 states: 'The [sponsors] of this bill … assert that a property owner should have the right to conduct his personal affairs and cease rental operations without restriction when he no longer wishes to bear the responsibilities of being a landlord. In many cases … the rental of property involves not only the very considerable potential of personal liability, but also the continued expenditure of time and resources in the management of the property.' AB 1399, consistent with the original intent of the proponents of the Ellis Act, clarifies that landlords cannot have one foot in and one foot out of the rental business with respect to a particular parcel. Finally, the bill clarifies that language in the Ellis Act specifying the amounts of punitive damages does not permit a landlord to pay these damages and absolve themselves of their responsibilities under the Act. Compliance with the law is still required. Together these changes will provide critical clarifications to the law, increase certainty and reduce litigation. This will ensure that tenants, landlords and enforcement agencies all have clarity with respect to Ellis Act evictions and enforcement. Thank you for authoring this important legislation, and for all of your work over the years to advance the cause of tenant rights."

Arguments in Opposition:

According to California Association Apartment who is opposed unless amended, "While we do not object to the clarifying language, especially for those property owners who attempt to skirt that law, we want to make clear the law's intent. AB 1399 proposes to add the word 'permanently' to the intent language, implying that property owners can never return units to the rental market. This is inconsistent with the current statute. The Ellis Act does allow a property owner to bring units back to the market place after the time lines have been exhausted. Over time, circumstances change, new owners buy and sell the property. To discourage property owners from bringing rental units back to the market, so long as they follow the legal requirements, would be counter to the provisions of statute. Finally, given the clarifying penalty language included in AB 1399, the bill should also make clear that in situations where no tenant resides at the time the units are removed from the market, those units do not fall under the same timelines and provisions outlined in the statute. This has been the practice at the local level today where the Ellis Act is enforced."

FISCAL COMMENTS:

None. This bill is keyed non-fiscal by the Legislative Counsel.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 5-2-1

YES: Chiu, Gabriel, Gloria, Limón, Quirk-Silva

NO: Diep, Kiley

ABS, ABST OR NV: Maienschein

ASM JUDICIARY: 11-0-1

YES: Mark Stone, Gallagher, Chau, Chiu, Gonzalez, Holden, Kalra, Maienschein, Obernolte, Petrie-Norris, Reyes

ABS, ABST OR NV: Kiley

UPDATED:

VERSION: April 25, 2019

CONSULTANT: Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0000322

Date of Hearing: April 30, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 1399

Author:(Bloom) – As Amended Ver:April 25, 2019

SUBJECT: Residential real property: rent control: withdrawal of accommodations

KEY ISSUE: SHOULD THE ELLIS ACT BE AMENDED TO CLARIFY THE law’s ORIGINAL INTENT IN TWO RESPECTS: (1) THAT LANDLORDS MAY NOT PAY SPURIOUS LIQUIDATED DAMAGES TO AVOID REQUIREMENTS that they offer TENANTS EVICTED UNDER THE ACT THE OPPORTUNITY TO RE-rent their former dwellings, AND (2) THAT the date on which accommodations are deemed to have been withdrawn from the rental MARKET is the date on which the final tenancy among all tenants is terminated?

SYNOPSIS

The Ellis Act, enacted in 1985, allows landlords to evict tenants without cause and remove properties from the rental market, while still retaining ownership of those properties—so long as the exiting landlords follow required procedures under state and local law. Landlords’ authority under the Act even extends to rent-controlled units in cities where tenants are otherwise protected by rent control and just-cause eviction ordinances.

Landlords regularly exploit the Ellis Act to evict tenants, temporarily remove properties from the rental market, and then re-rent them at higher rates, thereby exacerbating the statewide housing crisis in numerous respects (mass evictions, often leading to homelessness; reduction in housing stock; increases in rents).

AB 1399 would clarify two tenant safeguards in the Ellis Act and, in so doing, help restore the law to its original, limited intent. The first safeguard is as follows. If a landlord brings a rental property back on the market in less than ten years, the Act permits local jurisdictions to require that landlords re-offer units to the tenants who previously lived there. Landlords who refuse to make such an offer are subject to punitive damages in an amount up to six times the previous contract rent. In practice, landlords are ignoring this requirement and merely paying the prescribed penalty in lieu of re-offering the unit. The bill makes clear that making such a payment does not extinguish a landlord’s obligation to re-offer the property.

The second safeguard consists of the rights granted to tenants for a period of time after the date on which rental properties are removed from the market, such as the right to re-rent at the previous rental rate if the accommodations are offered again within a five-year period. The critical question becomes how to determine the date on which accommodations are withdrawn. Some landlords have been taking advantage of an ambiguity in the Act by removing, and reintroducing, units in a piecemeal fashion in order to avoid the Act’s restrictions and evade rent control laws. If left unchecked, this allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still ultimately evicting all of the tenants. This bill amends the Act to make clear that there is one, and only one, exit date for accommodations removed from the market: the date on which the final tenancy among all of the tenants in the accommodations is terminated.

AB 1399 is supported by three cities and three legal aid organizations. It is opposed by two trade associations for the rental housing industry.

SUMMARY: Clarifies two aspects of the Ellis Act in order to curb misuse of the Act to merely increase rents, rather than to exit the rental market, as originally intended. Specifically, this bill:

1. Clarifies that, if a landlord withdraws accommodations from the rental market under the Ellis Act, and within ten years once again offers a unit within those accommodations for rent, and if a statute, ordinance, or regulation requires that the landlord offer the unit to the originally-displaced tenant at that time, the landlord may not seek to avoid this requirement simply by paying the tenant the maximum punitive damages provided for under the Act.
2. Clarifies that the date of withdrawal from the rental market of the accommodations as a whole, for purposes of measuring the date upon which the accommodations may be lawfully re-offered under the Ellis Act, is to be measured from the date on which the final tenancy among all of the tenants in the accommodations was terminated.
3. Revises the legislative intent of the Ellis Act to provide that the Act is not intended to permit an owner to withdraw accommodations from the rental market and then return to the market less than all of the accommodations that were so withdrawn.
4. Makes other minor technical and clarifying amendments to the Ellis Act.

EXISTING LAW, the Ellis Act:

1. Defines “accommodations” to mean either:
   1. The residential rental units in a detached physical structure that contains four or more such units; or
   2. The residential rental units in (i) a detached physical structure that contains three or fewer such units and (ii) any other physical structure located on the same parcel of land as the structure in (i). (Government Code Section 7060 (b). Unless stated otherwise, all further statutory citations are to the Government Code.)
2. Prohibits a public entity, by statute, ordinance, or regulation, from compelling an owner of any residential real property to continue to offer accommodations within that property for rental housing, with an exception for residential hotels that meet specified requirements. (Section 7060 (a).)
3. Provides authority, notwithstanding 2), for a public entity to regulate the subsequent use of real property and mitigate any adverse impacts on people who are displaced by the withdrawal of accommodations from the rental market. (Section 7060.1.)
4. Authorizes a public entity having a system of rent control to require the following when the owner of accommodations subject to rent control has exercised the owner’s removal rights under the Ellis Act:
   1. If a unit within the accommodations is rented within five years following the filing of the notice of intent to withdraw or within five years after their withdrawal, the unit must be offered at the lawful rent in effect at the time any notice of intent to withdraw the accommodations was filed with the public entity, plus annual adjustments available under the system of rent control. (Section 7060.2 (a).)
   2. If a unit is offered for rent within two years from the date the accommodations were withdrawn from the rental market, then the following apply:
      1. The property owner is liable to any displaced tenant for actual and exemplary damages, but the suit must be brought within three years of when the accommodations were withdrawn from rent or lease;
      2. The public entity may also sue the property owner for exemplary damages for tenant displacement; and
      3. If, when the accommodations were first withdrawn from the market, the tenant advised the owner within 30 days of being displaced that the tenant wished to renew tenancy, then the property owner must offer the tenant the right of first refusal to reoccupy pursuant to a reinstituted rental agreement. (Section 7060.2 (b).)
   3. If a unit within the accommodations is returned to the rental market within 10 years from the date the accommodations were withdrawn from the rental market, then the owner must first offer the returned unit to the tenant displaced by the withdrawal if the tenant requests the offer within 30 days after the owner has notified the public entity of an intention to offer the unit again for rent. The owner of the accommodations shall be liable to any displaced tenant for failure to comply with this requirement, for punitive damages in an amount which does not exceed the contract rent for six months. (Section 7060.2 (c).)
   4. If the accommodations are demolished, and new accommodations are constructed on the same property, and offered for rent or lease within five years of the date the accommodations were withdrawn from rent or lease, the newly constructed accommodations shall be subject to any system of rent control at the price at which they would be offered on the basis of a fair and reasonable return on the newly constructed accommodations, regardless of any exemption from rent control for newly constructed accommodations. (Section 7060.2 (d).)
5. Provides, in rent control jurisdictions, that an ordinance can require owners to give notice before withdrawing accommodations from the rental market. In jurisdictions subject to such an ordinance, the owner must provide 120 days’ notice before terminating the tenancy—or one year’s notice, in the case of tenants who are disabled or more than 62 years old, provided they have lived in the accommodations for at least one year prior to the date of delivery to the public entity of the notice of intent to withdraw. (Section 7060.4 (b).)
6. Provides that it is the intent of the Legislature in enacting the Ellis Act to supersede any holding or portion of any holding in Nash v. City of Santa Monica (1984) 37 Cal. 3d 97 which conflicts with the Act, so as to permit landlords to go out of business. Further provides, however, that the Act is not otherwise intended to, among other things, permit an owner to withdraw from rent or lease less than all of the accommodations, as defined. (Section 7060.7.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: The Ellis Act, Government Code Sections 7060-7060.7, was enacted in 1985 to allow landlords to evict tenants without cause in order to remove properties from the rental market, while still retaining ownership of those properties—so long as the exiting landlords follow authorized procedures under state and local law. As subsequently interpreted by the courts, a landlord’s authority to evict under the Act even extends to properties in jurisdictions where the tenants would otherwise be protected by rent control and just-cause eviction ordinances. (Bullock v. City & County of San Francisco (1990) 221 Cal. App. 3d 1072, 1097.)

The Legislature was aware that the Act could be used to displace tenants in such jurisdictions and thereby circumvent applicable tenant protections. Accordingly, the Act includes safeguards meant to protect against bad faith withdrawals by unscrupulous actors, primarily by authorizing jurisdictions to enact regulations that prevent landlords from circumventing tenant protections. For example, as described by one court:

Section 7060.2, subdivision (d) was not originally part of Senate Bill No. 505…which enacted the Ellis Act. Opponents of Senate Bill 505 argued that the bill would undermine local rent control ordinances and various state laws protecting tenants. They claimed that the bill could permit property owners to take a unit off the market and evict the tenant under the pretext of going out of business, and then relet the property as a new rental 6 months later. […Accordingly,] Senate Bill 505 was amended to include “recontrol” provisions to address this concern. […For example, a]s to rental units subject to rent control withdrawn from the market but not demolished, Senate Bill 505 was amended to include a provision codified as section 7060.2, subdivision (a). Under this provision, if the units withdrawn from the market are subsequently offered again for rent, local governments may require landlords to offer the units at the lawful rent in effect at the time the notice of intent to withdraw was filed. (Apartment Association of Los Angeles County, Inc. v. City of Los Angeles (2009) 173 Cal. App. 4th 13, 23-24 [internal citations and quotations omitted].)

As described below, AB 1399 is meant to rectify recent attempts to circumvent statutory safeguards in the Act, and in so doing, clarify and restore the Act’s original intent.

Justification for this bill. AB 1399 is intended to halt certain forms of Ellis Act abuse that allow rent-controlled units to be taken off of the market for short periods of time and then re-rented at much higher rates. As the author explains:

Unfortunately, with the passage of [the] Costa-Hawkins [Rental Housing Act, AB 1164 (Hawkins, Chap. 331, Stats. 1995)], which allows landlords to charge market rates when a unit becomes vacant, and the skyrocketing rents in cities with housing constraints, landlords have a large monetary incentive to use the Ellis Act to circumvent the just-cause protections of a local entity’s rent stabilization ordinance in order to empty buildings of lower-rent tenants and then re-enter the market by renting to new tenants at market rates.

The acts addressed by this bill not only undermine the original intent of the Ellis Act, they also lead to increased eviction activity—with consequent disruptions, including increased homelessness, for thousands of Californians—and leave desperately-needed units lying empty during a statewide housing crisis.

Neighborhood Legal Services of Los Angeles comments that, “Since 2001 over 24,000 rent control units have been taken off of the rental market through the Ellis Act in the City of Los Angeles. The removal of these…units has exacerbated the housing shortage in Los Angeles, and throughout the entire State, and it is only getting worse.” According to the City of West Hollywood, which writes in support of AB 1399, “From 1986 through 2018, 764 units in 203 properties in [our City] were removed from the rental market through the Ellis Act.”

Recent statistics clearly show that Ellis Act evictions have been on the rise in recent years. In 2016, a Los Angeles Times analysis of housing data revealed that 1,137 rent-controlled units in Los Angeles were removed from the market in 2015—a number that has almost tripled since 2013. During that time, the researchers found the number of evictions from rent-controlled units had doubled. As the Times investigation noted, many of these recent evictions were carried out by developers who purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the Los Angeles properties removed under the Act in 2013 had been purchased within the previous year. (Poston and Khouri, More rent-controlled buildings are being demolished to make way for pricier housing, Los Angeles Times (Apr. 2, 2016), available at http://www.latimes.com/local/california/la-me-apartments-demolished-20160402-story.html.)

The Anti-Eviction Mapping Project, in collaboration with Los Angeles’s Coalition for Economic Survival, has released an interactive time-lapse digital map detailing the accumulation of Ellis Act evictions in Los Angeles from the beginning of 2001 to the end of March 2019. Their map, based upon Rent Board data, shows 25,196 evictions across all of Los Angeles during that period. Their analysis showed that while there were only 102 Ellis Act evictions filed in 2013, that number has nearly quintupled, with 497 filed in 2018 alone. (See http://www.antievictionmappingproject.net/losangeles.html.)

AB 1399 would clarify that landlords cannot pay liquidated “punitive” damages in order to avoid having to offer former tenants the chance to resume their tenancies. The Ellis Act attempts to safeguard against landlords who seek to spuriously exit the rental market by authorizing public entities to require “that an owner who offers accommodations again for rent … within … 10 years from the date on which they are withdrawn…shall first offer the unit to tenants who were displaced from that unit by the [initial] withdrawal.” (Government Code Section 7060.2 (c).) A landlord who fails to re-offer a unit to a former tenant is liable to the tenant for punitive damages not to exceed 6 months’ rent at the rental rate at the time the tenant was evicted. (Ibid.)

Unfortunately, average monthly rents have increased so much in recent years that the 6 months’ rent penalty is no longer an effective deterrent to spurious Ellis Act evictions. Instead, owners claim that the Act does not require owners to offer displaced tenants the right to return, but instead allows them to either make such an offer or give the displaced tenants money. Under this interpretation, landlords who offer tenants the maximum statutory penalty are excused from any obligation to offer those tenants the right to return—regardless of how soon the subject units are re-offered for rent.

Such an interpretation, in which punitive damages are somehow taken for a species of in-lieu fee—an option that may, at the owner’s discretion, be chosen in lieu of another, equally valid option—does violence to the text and intent of the Ellis Act, and to legislative enactments more generally.

The Government Code is quite clear that the use of the terms “‘shall’ is mandatory and ‘may’ is permissive.” (Government Code Section 14.) The Ellis Act provision which landlords are seeking to circumvent provides:

A public entity which has acted pursuant to this section, may require by statute or ordinance, or by regulation…that an owner who offers accommodations again for rent or lease within a period not exceeding 10 years from the date on which they are withdrawn…shall first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has notified the public entity of an intention to offer the accommodations again for residential rent or lease pursuant to a requirement adopted by the public entity…. The owner of the accommodations shall be liable to any tenant or lessee who was displaced by that action for failure to comply with this paragraph, for punitive damages in an amount which does not exceed the contract rent for six months. (Government Code Section 7060.2 (c) [emphasis added].)

In other words, the Ellis Act, by using the term “may,” permits a public entity to enact a law that, by use of the term “shall,” mandates re-offer to the previous tenant.

The purpose of punitive damages is “a purely public one. The public’s goal is to punish wrongdoing and thereby to protect itself from future misconduct, either by the same defendant or other potential wrongdoers.” (Adams v. Murakami (1991) 54 Cal. 3d 105, 110 [emphasis in original].) To permit a landlord to escape the very clear mandate of the Ellis Act (in this case, that a public entity may require that an owner “shall first offer the unit to tenants who were displaced from that unit by the [initial] withdrawal”) by paying the maximum permissible punitive damages undermines the public’s interest in imposing the penalty in the first place.

If the Legislature had intended to empower local governments to give landlords a choice between permitting displaced tenants to return to their units and paying them off, Government Code Section 7060.2 (c) would not employ the term “shall” and would not characterize “contract rent for six months” as punitive damages. Instead, the statute would provide a clear option between making the offer to re-rent and payment of damages in an amount up to contract rent for six months.

The bill’s author and its supporters makes clear that, in practice, landlords are ignoring the Act’s statutory text and interpreting Section 7060.2 (c) as providing a choice between re-offering the unit and paying the prescribed penalty. This is an incorrect interpretation of the law. To correct this misinterpretation, the bill would amend Section 7060.2 (c) to provide:

[…] The owner of the accommodations shall be liable to any tenant or lessee who was displaced by that action for failure to comply with this paragraph, for punitive damages in an amount which does not exceed the contract rent for six months, and the payment of which shall not be construed to extinguish the owner’s obligation to comply with this subdivision.  

AB 1399, despite being declaratory of existing law and the original intent of the Ellis Act, appears necessary to cure this willful misinterpretation by market actors seeking to make a quick buck at the expense of local public policy and of the tenants seeking to re-rent their homes.

AB 1399 would clarify that accommodations can have only a single withdrawal date under the Ellis Act: the date on which all tenancies have been terminated. As discussed above, the Ellis Act permits public entities to enact a number of safeguards to protect tenants. These safeguards generally take the form of rights granted to tenants for a period of time after the date on which accommodations are removed from the rental market, such as the right to re-rent at the previous rental rate if the accommodations are offered for rent again within a five-year period. The critical question then becomes how to determine the date on which accommodations are so withdrawn. The Legislature’s intent in 1985 when it enacted these safeguards was undoubtedly to require that the date be when all of the rental units in the accommodations have been taken off of the market, i.e., when a complete market exit had been effected. After all, the landlord in Nash v. City of Santa Monica (1984) 37 Cal. 3d 97 (upholding constitutionality of a municipal decision requiring a landlord to either continue to rent out his building or sell it), the decision that the Ellis Act was ostensibly meant to overturn, explicitly stated that he wanted to “evict the group of ingrates inhabiting my units, tear down the building, and hold on to the land until I can sell it at a price which will not mean a ruinous loss on my investment.” (Ibid. at 101.) It is unlikely that anyone at the time contemplated a situation in which a landlord could maximize profits by renting units in a building on a piecemeal basis.

Unfortunately, market conditions, which were already difficult for renters 35 years ago, have changed for the worse.

The Legal Aid Foundation of Los Angeles explains:

As our housing crisis as worsened and Ellis Act evictions have increased, a glaring loophole in the Ellis Act has emerged. Currently, if a landlord is required to provide different amounts of notice to different tenants due to age or disability, a situation may emerge where the “date of withdrawal” for the purpose of enforcing the Ellis Act may vary unit-by-unit. This results in landlords using the extreme option the Ellis Act provides—evicting all the tenants in a building wholesale—while never truly exiting the rental business, which is the only allowable reason under the Ellis Act to empty a building. AB 1399 remedies this situation by clarifying that the most recent “date of withdrawal” operates as the official date of withdrawal for all units in a specific building for Ellis Act enforcement purposes.

As a consequence, the author contends, some landlords are taking advantage of the ambiguity in the law and removing units from the rental market, only to reintroduce them for rent in a piecemeal fashion in order to avoid the Act’s restrictions and evade rent control laws. According to proponents, some landlords also apply different withdrawal dates to different units and claim that returning one unit to the market does not obligate the landlord to re-offer any other units to former tenants. If unchecked, this allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still having successfully evicted all the tenants. The author elaborates:

Before any official notices to withdraw are served, landlords will do everything they can to empty the building of as many tenants as possible through legal means, such as buyouts, and through illegal means, such as tenant harassment. Once the landlord is left with only a few holdouts, who are typically the most vulnerable, long-term tenants paying the lowest rent, the notice of withdrawal is served on the local entity, which starts the clock on the Ellis process. If a unit is listed as “vacant” on the notice of withdrawal, it does not have a current rent-stabilized rent attached to it. Once the building is completely empty, the landlord waits out the time period with the most restrictions, which is two years, and then re-rents only those units that were listed as “vacant” [on the notice of withdrawal]. The landlords claim that the property is only back on the market as to those units, so they can continue to earn rental income without having to follow any of the other Ellis restrictions. Then, they wait out the 5-year period, which requires any re-rental of previously-occupied units to be at the rental rate at the time of withdrawal, before re-renting any other units.

While the Ellis Act, by prohibiting the withdrawal of less than all the units, arguably already prohibits the piecemeal return to the market of less than all the units, at least one court of appeal has blessed such a piecemeal exit-and-return strategy. (City of West Hollywood v. Kihagi (2017) 16 Cal. App. 5th 739, 751.) Such a strategy is contrary to the intent of the Ellis Act, which was only meant to protect landlords who legitimately wish to exit the rental market without selling their properties. Permitting such a strategy will only lead to more evictions and the removal of more rent-controlled units from the already-depleted rental housing market.

Accordingly, AB 1399 would close this loophole and prevent landlords from using a piecemeal approach to subvert the Ellis Act. The bill does so principally by adding a new Section 7060.4 (b)(6) to the Government Code, which provides:

(6) The date of withdrawal for the accommodations as a whole, for purposes of calculating the time periods described in Section 7060.2, shall be the latest termination date among all tenants within the accommodations.

This provision makes clear that there is one, and only one, exit date for accommodations removed from the market under the Act: the date on which the final tenancy among all of the tenants in the accommodations was terminated. By requiring that accommodations be completely removed from the rental market in order to qualify for Ellis Act protections, this amendment will help reduce incentives for landlords to empty buildings in order to evade rent limitations.

This purpose will be reinforced by an amendment to the Act’s intent provisions which provides as follows:

7060.7 […T]his act is not otherwise intended to do any of the following:

[…]

(d) Permit an owner to withdraw from rent or lease, or to return to the rental market, less than all of the accommodations, as defined by paragraph (1) or (2) of subdivision (b) of Section 7060.

It is hoped that these amendments will guide landlords, tenants, public entities, and the courts in applying the Ellis Act as the Legislature originally intended it to function: “to permit landlords to go out of business,” Government Code Section 7060.4(b)(6), not to provide landlords with a means to game housing markets and our legal system by immiserating thousands of renter households and, in the process, depleting California’s already-scarce housing stock.

ARGUMENTS IN SUPPORT: In support of the bill, the Legal Aid Foundation of Los Angeles writes:

AB 1399 merely requires landlords utilizing the Ellis Act [to] withdraw all rental units on the same date, within the same time frame already mandated by statute. It would simply have the effect of providing consistency and predictability for tenants, as well as landlords, who would now easily be able to understand when their tenancies terminate and their rental units are being withdrawn from the market. The bill does not change the rights of landlords to evict tenants for reasons such as nonpayment, endangering other tenants, or violating their lease, nor does it change the rights of landlords with respect to what they can do with their property–it still allows for evictions under the Ellis Act and does not impose any additional extensions or exceptions.

Adds Neighborhood Legal Services of Los Angeles County: “Because of the impact the loss of…units [removed through the Ellis Act] has had on low and fixed income tenants, it is important that the legislation be clear that an award of punitive damages does not preclude the imposition of additional obligations on the part of the landlord….”

California Rural Legal Assistance Foundation and Western Center on Law & Poverty add: “The original intent of the Ellis Act was to allow landlords to cease being landlords. […AB 1399,] consistent with the original intent of the proponents of the Ellis Act, clarifies that landlords cannot have one foot in and one foot out of the rental business with respect to a particular parcel.”

ARGUMENTS IN OPPOSITION: California Rental Housing Association writes in opposition:

The author [should] consider clarifying the penalty language for situations where there are no tenants occupying the units at the time of removal to ensure that those units do not fall under the same timelines as those that have tenants occupying them. This would provide consistency to standard practice today where the Ellis Act is enforced.

Other Related Legislation: AB 1795 (Kamlager-Dove, 2019) would restrict access to court records in unlawful detainer proceedings that stem from withdrawals of accommodations under the Ellis Act. The bill is scheduled to be heard by this Committee on April 30.

SB 948 (Alarcon, Chap. 968, Stats. 1999) made numerous changes to planning and zoning law, including changes to the Ellis Act that increased the time when a unit may be withdrawn from the market from 60 days to 120 days after notice is provided to the public entity. Increased the time when a unit occupied by a tenant who is disabled or at least 62 years old may be withdrawn from the market to one year after notice is provided to the public entity.

REGISTERED SUPPORT / OPPOSITION:

Support

California Rural Legal Assistance Foundation

City of Santa Monica

City of West Hollywood

Eric Garcetti, Mayor of Los Angeles

Legal Aid Foundation of Los Angeles

Western Center on Law & Poverty

Oppose unless Amended

California Apartment Association

Opposition

California Rental Housing Association

Analysis Prepared by: Jith Meganathan / JUD. / (916) 319-2334

Date of Hearing: April 30, 2019

ASSEMBLY COMMITTEE ON JUDICIARY

Mark Stone, Chair

ABPCA Bill Id:AB 1399

Author:(Bloom) – As Amended Ver:April 25, 2019

SUBJECT: Residential real property: rent control: withdrawal of accommodations

KEY ISSUE: SHOULD THE ELLIS ACT BE AMENDED TO CLARIFY THE law’s ORIGINAL INTENT IN TWO RESPECTS: (1) THAT LANDLORDS MAY NOT PAY SPURIOUS LIQUIDATED DAMAGES TO AVOID REQUIREMENTS that they offer TENANTS EVICTED UNDER THE ACT THE OPPORTUNITY TO RE-rent their former dwellings, AND (2) THAT the date on which accommodations are deemed to have been withdrawn from the rental MARKET is the date on which the final tenancy among all tenants is terminated?

SYNOPSIS

The Ellis Act, enacted in 1985, allows landlords to evict tenants without cause and remove properties from the rental market, while still retaining ownership of those properties—so long as the exiting landlords follow required procedures under state and local law. Landlords’ authority under the Act even extends to rent-controlled units in cities where tenants are otherwise protected by rent control and just-cause eviction ordinances.

Landlords regularly exploit the Ellis Act to evict tenants, temporarily remove properties from the rental market, and then re-rent them at higher rates, thereby exacerbating the statewide housing crisis in numerous respects (mass evictions, often leading to homelessness; reduction in housing stock; increases in rents).

AB 1399 would clarify two tenant safeguards in the Ellis Act and, in so doing, help restore the law to its original, limited intent. The first safeguard is as follows. If a landlord brings a rental property back on the market in less than ten years, the Act permits local jurisdictions to require that landlords re-offer units to the tenants who previously lived there. Landlords who refuse to make such an offer are subject to punitive damages in an amount up to six times the previous contract rent. In practice, landlords are ignoring this requirement and merely paying the prescribed penalty in lieu of re-offering the unit. The bill makes clear that making such a payment does not extinguish a landlord’s obligation to re-offer the property.

The second safeguard consists of the rights granted to tenants for a period of time after the date on which rental properties are removed from the market, such as the right to re-rent at the previous rental rate if the accommodations are offered again within a five-year period. The critical question becomes how to determine the date on which accommodations are withdrawn. Some landlords have been taking advantage of an ambiguity in the Act by removing, and reintroducing, units in a piecemeal fashion in order to avoid the Act’s restrictions and evade rent control laws. If left unchecked, this allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still ultimately evicting all of the tenants. This bill amends the Act to make clear that there is one, and only one, exit date for accommodations removed from the market: the date on which the final tenancy among all of the tenants in the accommodations is terminated.

AB 1399 is supported by three cities and three legal aid organizations. It is opposed by two trade associations for the rental housing industry.

SUMMARY: Clarifies two aspects of the Ellis Act in order to curb misuse of the Act to merely increase rents, rather than to exit the rental market, as originally intended. Specifically, this bill:

1. Clarifies that, if a landlord withdraws accommodations from the rental market under the Ellis Act, and within ten years once again offers a unit within those accommodations for rent, and if a statute, ordinance, or regulation requires that the landlord offer the unit to the originally-displaced tenant at that time, the landlord may not seek to avoid this requirement simply by paying the tenant the maximum punitive damages provided for under the Act.
2. Clarifies that the date of withdrawal from the rental market of the accommodations as a whole, for purposes of measuring the date upon which the accommodations may be lawfully re-offered under the Ellis Act, is to be measured from the date on which the final tenancy among all of the tenants in the accommodations was terminated.
3. Revises the legislative intent of the Ellis Act to provide that the Act is not intended to permit an owner to withdraw accommodations from the rental market and then return to the market less than all of the accommodations that were so withdrawn.
4. Makes other minor technical and clarifying amendments to the Ellis Act.

EXISTING LAW, the Ellis Act:

1. Defines “accommodations” to mean either:
   1. The residential rental units in a detached physical structure that contains four or more such units; or
   2. The residential rental units in (i) a detached physical structure that contains three or fewer such units and (ii) any other physical structure located on the same parcel of land as the structure in (i). (Government Code Section 7060 (b). Unless stated otherwise, all further statutory citations are to the Government Code.)
2. Prohibits a public entity, by statute, ordinance, or regulation, from compelling an owner of any residential real property to continue to offer accommodations within that property for rental housing, with an exception for residential hotels that meet specified requirements. (Section 7060 (a).)
3. Provides authority, notwithstanding 2), for a public entity to regulate the subsequent use of real property and mitigate any adverse impacts on people who are displaced by the withdrawal of accommodations from the rental market. (Section 7060.1.)
4. Authorizes a public entity having a system of rent control to require the following when the owner of accommodations subject to rent control has exercised the owner’s removal rights under the Ellis Act:
   1. If a unit within the accommodations is rented within five years following the filing of the notice of intent to withdraw or within five years after their withdrawal, the unit must be offered at the lawful rent in effect at the time any notice of intent to withdraw the accommodations was filed with the public entity, plus annual adjustments available under the system of rent control. (Section 7060.2 (a).)
   2. If a unit is offered for rent within two years from the date the accommodations were withdrawn from the rental market, then the following apply:
      1. The property owner is liable to any displaced tenant for actual and exemplary damages, but the suit must be brought within three years of when the accommodations were withdrawn from rent or lease;
      2. The public entity may also sue the property owner for exemplary damages for tenant displacement; and
      3. If, when the accommodations were first withdrawn from the market, the tenant advised the owner within 30 days of being displaced that the tenant wished to renew tenancy, then the property owner must offer the tenant the right of first refusal to reoccupy pursuant to a reinstituted rental agreement. (Section 7060.2 (b).)
   3. If a unit within the accommodations is returned to the rental market within 10 years from the date the accommodations were withdrawn from the rental market, then the owner must first offer the returned unit to the tenant displaced by the withdrawal if the tenant requests the offer within 30 days after the owner has notified the public entity of an intention to offer the unit again for rent. The owner of the accommodations shall be liable to any displaced tenant for failure to comply with this requirement, for punitive damages in an amount which does not exceed the contract rent for six months. (Section 7060.2 (c).)
   4. If the accommodations are demolished, and new accommodations are constructed on the same property, and offered for rent or lease within five years of the date the accommodations were withdrawn from rent or lease, the newly constructed accommodations shall be subject to any system of rent control at the price at which they would be offered on the basis of a fair and reasonable return on the newly constructed accommodations, regardless of any exemption from rent control for newly constructed accommodations. (Section 7060.2 (d).)
5. Provides, in rent control jurisdictions, that an ordinance can require owners to give notice before withdrawing accommodations from the rental market. In jurisdictions subject to such an ordinance, the owner must provide 120 days’ notice before terminating the tenancy—or one year’s notice, in the case of tenants who are disabled or more than 62 years old, provided they have lived in the accommodations for at least one year prior to the date of delivery to the public entity of the notice of intent to withdraw. (Section 7060.4 (b).)
6. Provides that it is the intent of the Legislature in enacting the Ellis Act to supersede any holding or portion of any holding in Nash v. City of Santa Monica (1984) 37 Cal. 3d 97 which conflicts with the Act, so as to permit landlords to go out of business. Further provides, however, that the Act is not otherwise intended to, among other things, permit an owner to withdraw from rent or lease less than all of the accommodations, as defined. (Section 7060.7.)

FISCAL EFFECT: As currently in print this bill is keyed non-fiscal.

COMMENTS: The Ellis Act, Government Code Sections 7060-7060.7, was enacted in 1985 to allow landlords to evict tenants without cause in order to remove properties from the rental market, while still retaining ownership of those properties—so long as the exiting landlords follow authorized procedures under state and local law. As subsequently interpreted by the courts, a landlord’s authority to evict under the Act even extends to properties in jurisdictions where the tenants would otherwise be protected by rent control and just-cause eviction ordinances. (Bullock v. City & County of San Francisco (1990) 221 Cal. App. 3d 1072, 1097.)

The Legislature was aware that the Act could be used to displace tenants in such jurisdictions and thereby circumvent applicable tenant protections. Accordingly, the Act includes safeguards meant to protect against bad faith withdrawals by unscrupulous actors, primarily by authorizing jurisdictions to enact regulations that prevent landlords from circumventing tenant protections. For example, as described by one court:

Section 7060.2, subdivision (d) was not originally part of Senate Bill No. 505…which enacted the Ellis Act. Opponents of Senate Bill 505 argued that the bill would undermine local rent control ordinances and various state laws protecting tenants. They claimed that the bill could permit property owners to take a unit off the market and evict the tenant under the pretext of going out of business, and then relet the property as a new rental 6 months later. […Accordingly,] Senate Bill 505 was amended to include “recontrol” provisions to address this concern. […For example, a]s to rental units subject to rent control withdrawn from the market but not demolished, Senate Bill 505 was amended to include a provision codified as section 7060.2, subdivision (a). Under this provision, if the units withdrawn from the market are subsequently offered again for rent, local governments may require landlords to offer the units at the lawful rent in effect at the time the notice of intent to withdraw was filed. (Apartment Association of Los Angeles County, Inc. v. City of Los Angeles (2009) 173 Cal. App. 4th 13, 23-24 [internal citations and quotations omitted].)

As described below, AB 1399 is meant to rectify recent attempts to circumvent statutory safeguards in the Act, and in so doing, clarify and restore the Act’s original intent.

Justification for this bill. AB 1399 is intended to halt certain forms of Ellis Act abuse that allow rent-controlled units to be taken off of the market for short periods of time and then re-rented at much higher rates. As the author explains:

Unfortunately, with the passage of [the] Costa-Hawkins [Rental Housing Act, AB 1164 (Hawkins, Chap. 331, Stats. 1995)], which allows landlords to charge market rates when a unit becomes vacant, and the skyrocketing rents in cities with housing constraints, landlords have a large monetary incentive to use the Ellis Act to circumvent the just-cause protections of a local entity’s rent stabilization ordinance in order to empty buildings of lower-rent tenants and then re-enter the market by renting to new tenants at market rates.

The acts addressed by this bill not only undermine the original intent of the Ellis Act, they also lead to increased eviction activity—with consequent disruptions, including increased homelessness, for thousands of Californians—and leave desperately-needed units lying empty during a statewide housing crisis.

Neighborhood Legal Services of Los Angeles comments that, “Since 2001 over 24,000 rent control units have been taken off of the rental market through the Ellis Act in the City of Los Angeles. The removal of these…units has exacerbated the housing shortage in Los Angeles, and throughout the entire State, and it is only getting worse.” According to the City of West Hollywood, which writes in support of AB 1399, “From 1986 through 2018, 764 units in 203 properties in [our City] were removed from the rental market through the Ellis Act.”

Recent statistics clearly show that Ellis Act evictions have been on the rise in recent years. In 2016, a Los Angeles Times analysis of housing data revealed that 1,137 rent-controlled units in Los Angeles were removed from the market in 2015—a number that has almost tripled since 2013. During that time, the researchers found the number of evictions from rent-controlled units had doubled. As the Times investigation noted, many of these recent evictions were carried out by developers who purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the Los Angeles properties removed under the Act in 2013 had been purchased within the previous year. (Poston and Khouri, More rent-controlled buildings are being demolished to make way for pricier housing, Los Angeles Times (Apr. 2, 2016), available at http://www.latimes.com/local/california/la-me-apartments-demolished-20160402-story.html.)

The Anti-Eviction Mapping Project, in collaboration with Los Angeles’s Coalition for Economic Survival, has released an interactive time-lapse digital map detailing the accumulation of Ellis Act evictions in Los Angeles from the beginning of 2001 to the end of March 2019. Their map, based upon Rent Board data, shows 25,196 evictions across all of Los Angeles during that period. Their analysis showed that while there were only 102 Ellis Act evictions filed in 2013, that number has nearly quintupled, with 497 filed in 2018 alone. (See http://www.antievictionmappingproject.net/losangeles.html.)

AB 1399 would clarify that landlords cannot pay liquidated “punitive” damages in order to avoid having to offer former tenants the chance to resume their tenancies. The Ellis Act attempts to safeguard against landlords who seek to spuriously exit the rental market by authorizing public entities to require “that an owner who offers accommodations again for rent … within … 10 years from the date on which they are withdrawn…shall first offer the unit to tenants who were displaced from that unit by the [initial] withdrawal.” (Government Code Section 7060.2 (c).) A landlord who fails to re-offer a unit to a former tenant is liable to the tenant for punitive damages not to exceed 6 months’ rent at the rental rate at the time the tenant was evicted. (Ibid.)

Unfortunately, average monthly rents have increased so much in recent years that the 6 months’ rent penalty is no longer an effective deterrent to spurious Ellis Act evictions. Instead, owners claim that the Act does not require owners to offer displaced tenants the right to return, but instead allows them to either make such an offer or give the displaced tenants money. Under this interpretation, landlords who offer tenants the maximum statutory penalty are excused from any obligation to offer those tenants the right to return—regardless of how soon the subject units are re-offered for rent.

Such an interpretation, in which punitive damages are somehow taken for a species of in-lieu fee—an option that may, at the owner’s discretion, be chosen in lieu of another, equally valid option—does violence to the text and intent of the Ellis Act, and to legislative enactments more generally.

The Government Code is quite clear that the use of the terms “‘shall’ is mandatory and ‘may’ is permissive.” (Government Code Section 14.) The Ellis Act provision which landlords are seeking to circumvent provides:

A public entity which has acted pursuant to this section, may require by statute or ordinance, or by regulation…that an owner who offers accommodations again for rent or lease within a period not exceeding 10 years from the date on which they are withdrawn…shall first offer the unit to the tenant or lessee displaced from that unit by the withdrawal, if that tenant or lessee requests the offer in writing within 30 days after the owner has notified the public entity of an intention to offer the accommodations again for residential rent or lease pursuant to a requirement adopted by the public entity…. The owner of the accommodations shall be liable to any tenant or lessee who was displaced by that action for failure to comply with this paragraph, for punitive damages in an amount which does not exceed the contract rent for six months. (Government Code Section 7060.2 (c) [emphasis added].)

In other words, the Ellis Act, by using the term “may,” permits a public entity to enact a law that, by use of the term “shall,” mandates re-offer to the previous tenant.

The purpose of punitive damages is “a purely public one. The public’s goal is to punish wrongdoing and thereby to protect itself from future misconduct, either by the same defendant or other potential wrongdoers.” (Adams v. Murakami (1991) 54 Cal. 3d 105, 110 [emphasis in original].) To permit a landlord to escape the very clear mandate of the Ellis Act (in this case, that a public entity may require that an owner “shall first offer the unit to tenants who were displaced from that unit by the [initial] withdrawal”) by paying the maximum permissible punitive damages undermines the public’s interest in imposing the penalty in the first place.

If the Legislature had intended to empower local governments to give landlords a choice between permitting displaced tenants to return to their units and paying them off, Government Code Section 7060.2 (c) would not employ the term “shall” and would not characterize “contract rent for six months” as punitive damages. Instead, the statute would provide a clear option between making the offer to re-rent and payment of damages in an amount up to contract rent for six months.

The bill’s author and its supporters makes clear that, in practice, landlords are ignoring the Act’s statutory text and interpreting Section 7060.2 (c) as providing a choice between re-offering the unit and paying the prescribed penalty. This is an incorrect interpretation of the law. To correct this misinterpretation, the bill would amend Section 7060.2 (c) to provide:

[…] The owner of the accommodations shall be liable to any tenant or lessee who was displaced by that action for failure to comply with this paragraph, for punitive damages in an amount which does not exceed the contract rent for six months, and the payment of which shall not be construed to extinguish the owner’s obligation to comply with this subdivision.  

AB 1399, despite being declaratory of existing law and the original intent of the Ellis Act, appears necessary to cure this willful misinterpretation by market actors seeking to make a quick buck at the expense of local public policy and of the tenants seeking to re-rent their homes.

AB 1399 would clarify that accommodations can have only a single withdrawal date under the Ellis Act: the date on which all tenancies have been terminated. As discussed above, the Ellis Act permits public entities to enact a number of safeguards to protect tenants. These safeguards generally take the form of rights granted to tenants for a period of time after the date on which accommodations are removed from the rental market, such as the right to re-rent at the previous rental rate if the accommodations are offered for rent again within a five-year period. The critical question then becomes how to determine the date on which accommodations are so withdrawn. The Legislature’s intent in 1985 when it enacted these safeguards was undoubtedly to require that the date be when all of the rental units in the accommodations have been taken off of the market, i.e., when a complete market exit had been effected. After all, the landlord in Nash v. City of Santa Monica (1984) 37 Cal. 3d 97 (upholding constitutionality of a municipal decision requiring a landlord to either continue to rent out his building or sell it), the decision that the Ellis Act was ostensibly meant to overturn, explicitly stated that he wanted to “evict the group of ingrates inhabiting my units, tear down the building, and hold on to the land until I can sell it at a price which will not mean a ruinous loss on my investment.” (Ibid. at 101.) It is unlikely that anyone at the time contemplated a situation in which a landlord could maximize profits by renting units in a building on a piecemeal basis.

Unfortunately, market conditions, which were already difficult for renters 35 years ago, have changed for the worse.

The Legal Aid Foundation of Los Angeles explains:

As our housing crisis as worsened and Ellis Act evictions have increased, a glaring loophole in the Ellis Act has emerged. Currently, if a landlord is required to provide different amounts of notice to different tenants due to age or disability, a situation may emerge where the “date of withdrawal” for the purpose of enforcing the Ellis Act may vary unit-by-unit. This results in landlords using the extreme option the Ellis Act provides—evicting all the tenants in a building wholesale—while never truly exiting the rental business, which is the only allowable reason under the Ellis Act to empty a building. AB 1399 remedies this situation by clarifying that the most recent “date of withdrawal” operates as the official date of withdrawal for all units in a specific building for Ellis Act enforcement purposes.

As a consequence, the author contends, some landlords are taking advantage of the ambiguity in the law and removing units from the rental market, only to reintroduce them for rent in a piecemeal fashion in order to avoid the Act’s restrictions and evade rent control laws. According to proponents, some landlords also apply different withdrawal dates to different units and claim that returning one unit to the market does not obligate the landlord to re-offer any other units to former tenants. If unchecked, this allows a landlord to effectively withdraw less than all the units from the rental market and, in fact, never actually leave the rental market at all, while still having successfully evicted all the tenants. The author elaborates:

Before any official notices to withdraw are served, landlords will do everything they can to empty the building of as many tenants as possible through legal means, such as buyouts, and through illegal means, such as tenant harassment. Once the landlord is left with only a few holdouts, who are typically the most vulnerable, long-term tenants paying the lowest rent, the notice of withdrawal is served on the local entity, which starts the clock on the Ellis process. If a unit is listed as “vacant” on the notice of withdrawal, it does not have a current rent-stabilized rent attached to it. Once the building is completely empty, the landlord waits out the time period with the most restrictions, which is two years, and then re-rents only those units that were listed as “vacant” [on the notice of withdrawal]. The landlords claim that the property is only back on the market as to those units, so they can continue to earn rental income without having to follow any of the other Ellis restrictions. Then, they wait out the 5-year period, which requires any re-rental of previously-occupied units to be at the rental rate at the time of withdrawal, before re-renting any other units.

While the Ellis Act, by prohibiting the withdrawal of less than all the units, arguably already prohibits the piecemeal return to the market of less than all the units, at least one court of appeal has blessed such a piecemeal exit-and-return strategy. (City of West Hollywood v. Kihagi (2017) 16 Cal. App. 5th 739, 751.) Such a strategy is contrary to the intent of the Ellis Act, which was only meant to protect landlords who legitimately wish to exit the rental market without selling their properties. Permitting such a strategy will only lead to more evictions and the removal of more rent-controlled units from the already-depleted rental housing market.

Accordingly, AB 1399 would close this loophole and prevent landlords from using a piecemeal approach to subvert the Ellis Act. The bill does so principally by adding a new Section 7060.4 (b)(6) to the Government Code, which provides:

(6) The date of withdrawal for the accommodations as a whole, for purposes of calculating the time periods described in Section 7060.2, shall be the latest termination date among all tenants within the accommodations.

This provision makes clear that there is one, and only one, exit date for accommodations removed from the market under the Act: the date on which the final tenancy among all of the tenants in the accommodations was terminated. By requiring that accommodations be completely removed from the rental market in order to qualify for Ellis Act protections, this amendment will help reduce incentives for landlords to empty buildings in order to evade rent limitations.

This purpose will be reinforced by an amendment to the Act’s intent provisions which provides as follows:

7060.7 […T]his act is not otherwise intended to do any of the following:

[…]

(d) Permit an owner to withdraw from rent or lease, or to return to the rental market, less than all of the accommodations, as defined by paragraph (1) or (2) of subdivision (b) of Section 7060.

It is hoped that these amendments will guide landlords, tenants, public entities, and the courts in applying the Ellis Act as the Legislature originally intended it to function: “to permit landlords to go out of business,” Government Code Section 7060.4(b)(6), not to provide landlords with a means to game housing markets and our legal system by immiserating thousands of renter households and, in the process, depleting California’s already-scarce housing stock.

ARGUMENTS IN SUPPORT: In support of the bill, the Legal Aid Foundation of Los Angeles writes:

AB 1399 merely requires landlords utilizing the Ellis Act [to] withdraw all rental units on the same date, within the same time frame already mandated by statute. It would simply have the effect of providing consistency and predictability for tenants, as well as landlords, who would now easily be able to understand when their tenancies terminate and their rental units are being withdrawn from the market. The bill does not change the rights of landlords to evict tenants for reasons such as nonpayment, endangering other tenants, or violating their lease, nor does it change the rights of landlords with respect to what they can do with their property–it still allows for evictions under the Ellis Act and does not impose any additional extensions or exceptions.

Adds Neighborhood Legal Services of Los Angeles County: “Because of the impact the loss of…units [removed through the Ellis Act] has had on low and fixed income tenants, it is important that the legislation be clear that an award of punitive damages does not preclude the imposition of additional obligations on the part of the landlord….”

California Rural Legal Assistance Foundation and Western Center on Law & Poverty add: “The original intent of the Ellis Act was to allow landlords to cease being landlords. […AB 1399,] consistent with the original intent of the proponents of the Ellis Act, clarifies that landlords cannot have one foot in and one foot out of the rental business with respect to a particular parcel.”

ARGUMENTS IN OPPOSITION: California Rental Housing Association writes in opposition:

The author [should] consider clarifying the penalty language for situations where there are no tenants occupying the units at the time of removal to ensure that those units do not fall under the same timelines as those that have tenants occupying them. This would provide consistency to standard practice today where the Ellis Act is enforced.

Other Related Legislation: AB 1795 (Kamlager-Dove, 2019) would restrict access to court records in unlawful detainer proceedings that stem from withdrawals of accommodations under the Ellis Act. The bill is scheduled to be heard by this Committee on April 30.

SB 948 (Alarcon, Chap. 968, Stats. 1999) made numerous changes to planning and zoning law, including changes to the Ellis Act that increased the time when a unit may be withdrawn from the market from 60 days to 120 days after notice is provided to the public entity. Increased the time when a unit occupied by a tenant who is disabled or at least 62 years old may be withdrawn from the market to one year after notice is provided to the public entity.

REGISTERED SUPPORT / OPPOSITION:

Support

California Rural Legal Assistance Foundation

City of Santa Monica

City of West Hollywood

Eric Garcetti, Mayor of Los Angeles

Legal Aid Foundation of Los Angeles

Neighborhood Legal Services of Los Angeles County

Western Center on Law & Poverty

Oppose unless Amended

California Apartment Association

Opposition

California Rental Housing Association

Analysis Prepared by: Jith Meganathan / JUD. / (916) 319-2334

Date of Hearing: April 10, 2019

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 1399 (

Author:Bloom) – As Introduced Ver:February 22, 2019

SUBJECT: Residential real property: rent control: withdrawal of accommodations

SUMMARY: Makes changes to the Ellis Act (the Act) including clarifying that the Act cannot be used to remove rental units on a piecemeal basis. Specifically, this bill:

1. Provides that payment of punitive damages by a landlord found liable to any displaced tenant for failing to offer a unit for rent or lease, which is rented within 10 years of withdrawal, shall not be construed to extinguish the owner’s obligation to offer the unit for rent to a tenant displaced by the withdrawal.
2. Provides that the date of withdrawal of the accommodations as a whole, for the purpose of notifying a displaced tenant that a unit that was withdrawn from the building is being offered for rent within the timelines in which the owner is required to offer the unit to the displaced tenant, is the latest termination date of a tenant who received an extended tendency due to age or disability.
3. Revises the legislative intent for the Ellis Act to clarify that the purpose of the act is to permit landlords to go out of business permanently with respect to the accommodations that are withdrawn.

EXISTING LAW:

1. Prohibits, under the Act, a public entity, by statute, ordinance, or regulation, from compelling an owner of any residential real property, except for a residential hotel meeting specified requirements, to continue to offer rental units for rental housing (Govt. Code Section 7060 et. seq.).
2. Provides that the Act only applies when an owner seeks to remove all units from rent or lease in a building, or all units on a property with a building containing three or fewer units (Govt. Code Section 7060).
3. Provides authority for a public entity to regulate the subsequent use of the property and mitigate any adverse impacts on people who are displaced by the withdrawal of a property from the rental market (Govt. Code Section 7060.1).
4. Authorizes a public entity having a system of rent controls to require the following when the owner of a rental property subject to rent controls has exercised his or her Ellis Act rights:
   
5. If the property is offered for rent within two years the property was withdrawn from the market:
   
6. the property owner is liable to any evicted tenant for actual and exemplary damages;
   
7. the public entity may also sue the property owner for exemplary damages for the displacement of tenants and lessees; and
   
8. the property owner must offer former evicted tenants the right of first refusal to reoccupy the property pursuant to a reinstituted rental agreement where the tenant has advised the owner of this entitlement within 30 days of the tenant’s eviction from the premises when the property was first withdrawn.
9. If the property is returned to the rental market within five years following the filing of the notice of intent to withdraw or within five years after the property’s withdrawal, the rental unit must be offered at the lawful rent in effect at the time any notice of intent to withdraw the accommodations is filed with the public entity, plus annual adjustments available under the system of control.
10. If the property is returned to the rental market within 10 years from the date of withdrawal, the owner must first offer the returned unit to the tenant displaced by the withdrawal where the tenant has requested the offer within 30 days after the owner had notified the public entity of an intention to offer the property again for rent. The owner of the accommodations shall be liable to any tenant or lessee who was displaced by that action for failure to comply with this requirement, for punitive damages in an amount which does not exceed the contract rent for six months. (Government Code Section 7060.2)
11. Provides that in rent controlled jurisdictions, the rent control ordinance may specify that if a landlord opts to remove rental housing from the rental market, the landlord must give tenants 120 days' notice before terminating the tenancy and in the case of tenants that are disabled or over 62 this notice must be one year. (Government Code Section 7060.4)
12. Provides that in rent-control jurisdictions, the rent control ordinance may require owners to give notice before withdrawing the building from the market. The owner must provide 120 days’ notice — or one year’s notice in the case of tenants who are disabled or more than 62 years old, provided they have lived in the accommodations for at least one year prior to the date of delivery to the public entity of the notice of intent to withdraw — before terminating the tenancy. (Govt. Code Section 7060.4).

FISCAL EFFECT: Unknown.

COMMENTS:

Background: In Nash v. City of Santa Monica (1984) 37 Cal.3d 97, the California Supreme Court upheld the power of a city, in the context of a land use ordinance, to require a residential real property owner to obtain a removal permit, under specified criteria, before the owner could demolish his or her rental property and cause its removal from the marketplace. SB 505 (Ellis), Chapter 1509, Statutes of 1985, preempted a local government's authority to compel a rental property owner to stay in the rental housing business by prohibiting a local government from enacting or implementing any law to compel a residential real property owner to offer, or continue to offer, the property for lease or rent.

The Act only applies when an owner seeks to remove all the units within a building or all units on a property within a building containing three or fewer units from the market, and only has real effect in cities or counties with rent control and just cause evictions. The Act authorizes local governments to place restrictions on how property owners can "Ellis" a property and exit the rental property market. An owner can be required to give tenants 120 days' notice that the property is being withdrawn from the rental market. Tenants who are over 62 or disabled must receive one year's notice, provided they have lived in the accommodations for at least one year.

A number of restrictions apply to situations where owners offer units for rent within certain time frames (2 years, 5 years, and 10 years) after removing a property from the rental market pursuant to the Act. For example, owners are required to re-rent a unit at the rent control amount at the time the unit was withdrawn, if they offer it for rent within five years of filing to withdraw or withdrawing the property.

As documented in the media, Ellis Act evictions have increased in recent years. A 2016 investigation by the Los Angeles Times revealed that 1,137 rent-controlled units in Los Angeles were removed from the market in 2015—a number that has almost tripled since 2013, while the number of evictions from rent-controlled units has doubled. Across Los Angeles, over 20,000 units have left the market since 2001. In Santa Monica, Ellis Act evictions jumped 75 percent between 2013 and 2014, according to a 2015 report by the Anti-Eviction Mapping Project.

The removals peaked during the housing bubble, bottomed out in the recession, and have risen significantly since then. As the Times investigation notes, many of the recent evictions have been carried out by developers who have purchased the buildings with the intention of demolishing them to construct pricier housing. At least 51% of the Los Angeles properties removed under the Act in 2013 had been purchased within the previous year.

Purpose of this bill: According to the author, “Some landlords are evicting all the tenants from rent-stabilized units in a property and claiming that they are leaving the rental market and going out of business when in actuality, they have no other plans for the property. By requiring landlords to permanently go out of the rental business, this will help prevent these more egregious abuses that encourage landlords to empty entire buildings in order to evade rent limitations. This will also reduce the incentive for landlords to “Ellis” a property and then let much-needed housing units lie fallow for more than 5 years simply to re-rent the units at market rates.

Landlords are taking advantage of a perceived ambiguity in the law by driving as many tenants out as possible even before any notices of eviction are served. Some landlords believe that this “loophole” allows them to re-rent units that were vacant at the time of the withdrawal at any time without adhering to the law’s restrictions on units returned to the market within certain time periods. This amendment would clarify that the Act prohibits the return to the rental market of less than all the units in the same way that the withdrawal of less than all the units is prohibited. In other words, once any unit is returned to the rental market, the entire property is considered back on the rental market for purposes of the Act. Finally, the law should make explicit that the payment of a penalty does not extinguish the landlord’s obligation to comply with the law.”

Arguments in support: According to the Western Center on Law and Poverty and the California Rural Legal Association Foundation, “the bill clarifies that there can only be one withdrawal date for a property for purposes of determining when timelines under the Act begin to run. Likewise, units in a property that has been Ellised cannot be brought back on to the market in a piecemeal fashion. The original intent of the Ellis Act was to allow landlords to cease being landlords. The Senate Judiciary analysis of the Act in 1985 states: “The [sponsors] of this bill … assert that a property owner should have the right to conduct his personal affairs and cease rental operations without restriction when he no longer wishes to bear the responsibilities of being a landlord. In many cases … the rental of property involves not only the very considerable potential of personal liability, but also the continued expenditure of time and resources in the management of the property.” AB 1399 consistent with the original intent of the proponents of the Ellis Act, clarifies that landlords cannot have one foot in and one foot out of the rental business with respect to a particular parcel. Finally, the bill clarifies that language in the Ellis Act specifying the amounts of punitive damages does not permit a landlord to pay these damages and absolve themselves of their responsibilities under the Act. Compliance with the law is still required. Together these changes will provide critical clarifications to the law, increase certainty and reduce litigation. This will ensure that tenants, landlords and enforcement agencies all have clarity with respect to Ellis Act evictions and enforcement. Thank you for authoring this important legislation, and for all of your work over the years to advance the cause of tenant rights.”

Arguments in opposition: According to California Association Apartment, “While we do not object to the clarifying language, especially for those property owners who attempt to skirt that law, we want to make clear the law's intent. AB 1399 proposes to add the word ‘permanently’ to the intent language, implying that property owners can never return units to the rental market. This is inconsistent with the current statute. The Ellis Act does allow a property owner to bring units back to the market place after the time lines have been exhausted. Over time, circumstances change, new owners buy and sell the property. To discourage property owners from bringing rental units back to the market, so long as they follow the legal requirements, would be counter to the provisions of statute. Finally, given the clarifying penalty language included in AB 1399, the bill should also make clear that in situations where no tenant resides at the time the units are removed from the market, those units do not fall under the same timelines and provisions outlined in the statute. This has been the practice at the local level today where the Ellis Act is enforced.”

Related legislation:

AB 2364 (Bloom) (2019) Would have made changes to the Ellis Act including the time period in which a landlord would have to offer a unit that is returned to the rental market after it is withdrawn under the Ellis Act. The bill died on the Assembly Floor.

AB 982 (Bloom, 2017): Would have extended the term for withdrawal of accommodations under the Act to one year for all tenants and lessees without regard to age or disability. This bill died in the Assembly Committee on Housing and Community Development.

AB 423 (Bonta, 2017): Would have exempted residential hotels in the City of Oakland from the Act beginning January 1, 2018. This bill failed passage on the Assembly Floor.

SB 1267 (Allen, 2016): Would have required a city or county by ordinance, when the city or county requires notice of intent to withdraw accommodations pursuant to the Act, to give one year’s notice to a tenant with a custodial or family relationship with a pupil enrolled in a primary or secondary school who lives in an accommodation before terminating a tenancy. This bill died in the Senate Transportation and Housing Committee.

SB 364 (Leno, 2015): Would have allowed the city and county of San Francisco to prohibit, by ordinance or ballot measure, a rental housing owner from removing a building from the market pursuant to the Act unless all owners in the property have held their ownership interest for at least five years. This bill failed passage in the Senate Transportation and Housing Committee.

SB 1439 (Leno, 2014): Would have allowed the city and county of San Francisco to prohibit, by ordinance or ballot measure, a rental housing owner from removing a building from the market pursuant to the Act unless all owners in the property have held their ownership interest for at least five years. This bill failed passage in the Assembly Housing and Community Development Committee.

SB 948 (Alarcon), Chapter 968, Statutes of 1999: Made numerous changes to planning and zoning law, including changes to the Act that increased the time when a unit may be withdrawn from the market from 60 days to 120 days after notice is provided to the public entity. Increased the time when a unit occupied by a tenant who is disabled or at least 62 years old may

Double referred: This bill was also referred to the Assembly Committee on Judiciary where it will be heard should it pass out of this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Rural Legal Assistance Foundation

Western Center on Law and Poverty

Opposition

California Apartment Association (oppose unless amended)

California Association of Realtors (oppose unless amended)

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085