November 27, 2002

By Camille T. Taiara

The recent downturn in the economy doesn't seem to be affecting attorney Andrew M. Zacks's business too adversely. At the height of evictions in San Francisco during the dot-com boom, Zacks became known in tenant activist circles for helping kick out senior and disabled residents from their long-time homes so landlords could make a killing off the city's inflated real estate market (see "Eviction Specialist," 1/19/00). He is a man property owners tend to employ when they want to thwart San Francisco's tenant protection laws.

Landlords' latest onslaught has taken the form of two separate lawsuits against San Francisco spearheaded by Zacks: In Tom v. the City and County of San Francisco the plaintiffs – Small Property Owners of San Francisco, the San Francisco Apartment Association (which represents owners of 60,000 rental units), the Greater Association of San Francisco Realtors, and a handful of individuals – seek to overturn local restrictions on the number of rental units that can be taken off the rental market and converted into tenancies in common. In Small Property Owners v. the City and County of San Francisco landlords are demanding $7.8 million in compensation for what they claim the city forced them to overpay in interest on tenants' security deposits during a waning economy.

Property owners have already won one round in their battle against local TIC restrictions. On Feb. 13 Superior Court Judge A. James Robertson II ruled that the city's ordinance regulating TIC conversions, which was sponsored by Sup. Jake McGoldrick and passed by the full Board of Supervisors in July 2001, was preempted by the Ellis Act, a state law that grants owners the right to remove their property from the rental market.

McGoldrick's ordinance was instituted precisely to limit the number of affordable rental units disappearing in the city. Before it was passed, Ted Gullicksen of the San Francisco Tenants Union says, most Ellis Act evictions in the city were used to empty buildings of tenants so as to sell them as TICs. An SFTU study released in April 2001 found that Ellis Act evictions were resulting in the loss of thousands of affordable units, and from 1998 until 2001, for every five affordable units lost in the city, only one affordable unit was built. (For seniors, the quota was even worse: nine affordable senior units were lost for every one created.)

At the root of the dispute is whether the procedure for converting those TICs in which different sets of owners exclusively occupy different units in the building can be the same as those for buildings that are transformed into condominiums. (Not all TICs include such an agreement. In fact, the original concept behind the creation of TICs was more akin to a cooperative living arrangement.)

"A tenancy-in-common agreement is simply a way for San Franciscans of more moderate means to own a home rather than rent," Zacks says in an e-mail statement to the Bay Guardian. "The agreement does not create a subdivision.... Persons who purchase tenancies-in-common usually cannot afford to buy single family homes or condos."

While it's true TICs are cheaper than condominiums (in which owners own their unit rather than simply a share in the building as a whole), they are far from affordable for the great majority of San Franciscans. "A survey of TIC prices in 2001 found that the average cost of a two-bedroom unit in a TIC was $459,000," Gullicksen says. "If anything, that would be higher now, as sale prices have continued to increase."

With a limited number of residential units on the market, the Board of Supervisors sought to balance the needs of potential home buyers against those of working-class and low-income San Franciscans.

McGoldrick and his allies on the board argued that if a TIC looks like a condo and acts like a condo, it should be required to follow the same regulations for conversion as a condo. "If owners of a TIC give each other exclusive rights to occupy separate units in the building – whether officially or not – then it's a condo in everything but name," says deputy city attorney Andrew Schwartz, chief litigator for the city on the case. Otherwise, he says, owners who make such arrangements are abusing TICs to circumvent local and state condominium-conversion laws that protect tenants by, among other things, requiring lifetime leases for senior and disabled residents and offering other renters a one-year lease or $1,000 in relocation benefits.

McGoldrick's ordinance closed that loophole by requiring owners to formalize any exclusive-occupancy agreements in the deed and then follow the condo-conversion process. It also doubled the existing limit on conversions to 400 units a year – with the stipulation that the extra 200 be sold to renters who wish to buy the units they live in. (The second category also includes safety mechanisms to ensure other tenants in the same building aren't displaced and limits the amount of profit those who buy in to the TIC can make by selling their share).

Supervisors mitigated the damage of Robertson's February ruling by amending the original ordinance's problematic language. But the change was not enough to assuage Zacks's clients. Now landlords are hedging their bets on some legal gymnastics included in the lawsuit: The fact that McGoldrick's ordinance says TIC owners cannot have exclusive rights to occupy separate units in the building without going through the condominium-conversion process, they contend, violates those owners' rights to privacy and due process. Furthermore, the argument goes, the ordinance requirements constitute a "taking" – a legal term that denotes that property owners who are deprived, through governmental regulation, of the effective use of their property are entitled to remuneration.

If Robertson's preliminary ruling is any indication, they might just get their way. On Nov. 8, Robertson issued a tentative finding in support of the landlords' allegations.

"The tentative ruling of the judge was quite muddled and vague," says Schwartz, who noted that Robertson asked for more briefings and set another hearing for Dec. 4.

"We definitely have this fear that Robertson is looking for a reason to rule against the ordinance that passes the laugh test," Gullicksen says.

Schwartz says the city attorney intends to file an appeal should the judge rule against the city.

Robertson, as luck would have it, is also the presiding judge on Small Property Owners v. the City and County of San Francisco, filed Nov. 7 of this year. In that case, the plaintiffs argue that the mandatory 5 percent interest rate San Francisco landlords had to pay renters on their security deposit every year also constituted a "taking," as it was higher than what landlords were able to earn by investing the deposits in short-term money market accounts once the economy took a dive last spring. (In August the Board of Supervisors changed the ratio, originally established in 1983, to abide by the Federal Reserve's discount rate, after a judge ruled a similar standard interest rate on security deposits in the city of Santa Monica contradicted California's constitution.)

Zacks contends that if tenants want to recoup any extra funds that might have been rightfully theirs, they should take the city to task, too.

"I think [the plaintiffs'] larger mission is an overall attack on tenants' rights," Gullicksen says. "They take potshots wherever they can."