San Francisco Voters Reject A Proposed New Tax On The Sale Of Multi-Unit Residential Buildings

San Francisco voters have rejected Prop G, which would have imposed a tax equal to 24% of the sales price (not a typo – the price and not the profit) on the sale of a residential building with up to 30 units that is sold within 5 years from the date of purchase.  Although characterized as a tenant protection measure by its progressive sponsors on the Board of Supervisors, the voters apparently saw the measure as an unfair tax which would not make a significant contribution to addressing the City’s housing shortage.

The voters rejection of Prop G comes on the heels of the United States District Court ruling on October 21, 2014 which overturned on constitutional grounds a San Francisco Ordinance that forced a payment of $118,000 by a landlord to a tenant to simply enforce the landlord’s right under the 1985 state law known as the Ellis Act (Cal. Govt. Code Section 7060 et seq.) to exit the rental business. The proposed legislative solutions to the housing shortage have fallen short of passing constitutional muster and from finding voter buy-in.  Property owners are batting 3 for 3 in this week’s update.

The U.S. District Court noted that the San Francisco Ordinance violated private property rights guaranteed by the Constitution and unfairly punished landlords for market conditions over which they had no control. 

“A monetary exactions taking “does not implicate normative considerations about the wisdom of government decisions,” nor posit whether the exaction is “arbitrary or unfair”…  Th(e) Court’s task is to determine whether the exaction demanded by the City in exchange for an Ellis Act withdrawal bears the “required degree of connection between the exactions imposed by the City and the projected impacts” of the property owner’s proposed change in land use.  (See Dolan, 512 U.S. at 377).  This is because, “[w]hatever the wisdom of such a policy, it would transfer an interest in property from the landowner to the government” and thus “amount[s] to a per se taking similar to the taking of an easement or a lien.”

Under the new San Francisco Ordinance adopted in June 2014, landlords had been required to pay their tenants the difference between their old and new rents for two years, as a required condition of going out of business.  (Pre-existing legislation required landlords to pay each tenant only about $5,200.  That legislation has not been challenged.)

The City has announced that it will appeal the U.S. District Court ruling limiting the landlord’s required payout to tenants in order to quit the rental business.  (Daniel and Maria Levin, San Francisco Apartment Association Parkland Assoc., LP, and the Coalition for Better Housing v. City and County of San Francisco), U.S. District Court, Northern District of California, October 21, 2014, Case No. 3: cv03352 (October 21, 2014).


On October 23, 2014, the California Court of Appeal (Second Appellant District) overturned a permit requirement by the California Coastal Commission that imposed a public access easement one mile long and 25-50 feet in width, parallel to the ocean, as a condition for issuance of a coastal development permit, where a family had sought to repair their farmhouse and rebuild their barn in the Cayucos area of unincorporated San Luis Obispo County.  All proposed work was within the footprint of the existing structures.  

The court cited Constitutional restrictions on takings of privately owned property as described by the United States Supreme Court in Nollan v. California Coastal Commission (1987) 483 U.S. 825, and Dolan v. City of Tigard (1994) 512 U.S. 374: a governmental entity may require an uncompensated exaction, such as an easement, as a condition of a development permit only where there is “rough proportionality” between the condition and the burden the development places on a public interest.

The court held that there was no rational nexus, and no proportionality, between the work on a private residence located one mile from the coast, and a lateral public access easement along the coast.  Accordingly, the easement requirement was an unconstitutional taking of private property by the Coastal Commission.  The proposed work did not impact the public or public access to neighboring Harmony Headlands State Park.  Work already performed at the residence under a separate over-the-counter permit for removal of dry rot and repairs to the roof and deck did not constitute collateral estoppel (i.e., a bar to reigniting or re-litigating an issue) against the permit applicant, because the repair and maintenance activities were independently exempted from coastal development permit requirements by the San Luis Obispo County Code.  The collateral estoppel doctrine necessarily calls for equitable results.  The court found that the lack of a nexus between the renovations and the access easement precluded it from finding that the equity requirement had been met.  In other words, the completion of some repair work did not confer a benefit on the permit applicant that precluded the applicant from appealing the Commission’s permit condition.

The court followed the evidentiary standard set forth in La Costa Beach Homeowners’ Association v. California Coastal Commission (2002) 101 Cal. App. 4th 804, that under the substantial evidence rule (Code of Civ. Proc., § 1094.5, subd. (c)), a court must consider “all relevant evidence even if it detracts from the administrative decision.”  Accordingly, the court based its decision on its own interpretation of the facts.

The court thus emphasized that constitutional restrictions on governmental takings of private property, as enumerated in Nollan and Dolan, will be faithfully applied against the government’s imposition of coastal access easements.  Developments that have no conceivable impact on the public or access to public areas should be free of Coastal Commission imposition of access easements.  While the facts of this case are somewhat unique in that the home in question was located one mile away from the coast, the court has signaled that the nexus requirement cannot be minimized or downplayed by the Coastal Commission, or by any public agency.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient.  Readers should consult with legal counsel before relying on any of the information contained herein.  Reuben, Junius & Rose, LLP is a full service real estate law firm.  We specialize in land use, development and entitlement law.  We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.