Passed by the State Legislature in 1985, the Ellis Act provides that no public entity (local government) can compel an owner of rental property to continue to offer their housing for rent. At the same time, the law expressly allows local government to impose a variety of requirements on rental property owners who desire to exit the rental market. Dependant upon the proposed use of the property after its removal from the market (i.e. condominium conversions, owner occupancy) local governments have enacted numerous requirements, including relocation assistance to displaced tenants, specific notice periods, and deed restrictions on future use of the property.
The History – Nash vs. City of Santa Monica
The Ellis Act was adopted in direct response to a California Supreme Court decision in the case of Nash v. City of Santa Monica (37 Cal. 3d 97 (1984)). This case arose out of a local ordinance adopted in the City of Santa Monica. In the late 1970’s, the City was reportedly experiencing a severe lack of rental housing. This situation was precipitated by what came to be known as the so-called “Demolition Derby,” a 15-month period in which more than 1300 rentals were raised and many others converted to condominiums (Nash at 100). The City’s voters responded to the widespread removal of rental units by passing a local measure to preserve what remained of the City’s rental housing stock. Among the provisions of the measure, landlords were required to obtain a permit before they could remove units from the rental housing stock. Permits could be issued only if all of the following conditions were met: (1) the unit was not occupied by a person of low or moderate income; (2) the rent was unaffordable to those of low or moderate income; (3) removal of the units would not adversely affect the City’s housing supply; and (4) the landlord could not make a reasonable return on his or her investment.
The Nash case was brought by Jerome Nash, “who became disenchanted…with operating rental housing.” (Nash v. City of Santa Monica 37 Cal. 3d at p. 101) Nash elected to demolish his building, stating that, “There is only one thing I want to do, and that is 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) When Nash realized he would not be granted a permit by the City to demolish his rental units, he challenged the City’s ordinance. (Id at pp. 101-102) Although Nash prevailed in the trial court and on appeal, in 1984 the California Supreme Court opined that the burdens imposed on Nash’s liberty interests were minimal and that the City’s permit requirement was reasonably related to the City’s goal of protecting its scarce rental housing supply. (37 Cal. 3d at pp. 99, 104)
The Ellis Act Provisions
In direct response to the Nash decision, Senator Jim Ellis introduced, and the State Legislature adopted, legislation now known as the Ellis Act. The Act expressly provides that it is “the intent of the Legislature to supersede any holding or portion of any holding in Nash v. City of Santa Monica, 37 Cal. 3d 97 … so as to permit landlords to go out of business. The Act prohibits any public entity from “compel [ling] the owners of any residential real property to offer, or continue to offer, accommodations in the property for rent or lease.” As part of the legislative negotiations, the Ellis Act also established procedures that municipalities could impose upon owners prior to withdrawing property from the rental market.
Some of the requirements under the Act include notice and recording requirements as well as the imposition of rental restrictions and other penalties if an owner re-rents the units within a specified number of years. A local jurisdiction may, for example, require an owner who re-rents “Ellised” property within ten years to first offer the unit to any displaced former tenants and to re-rent the unit at its prior rent. A public entity may also allow a displaced tenant to sue for actual and exemplary damages if an owner fails to comply with its regulations regarding re-rental, and a public entity may itself initiate a suit against an owner under such circumstances. The Act provides a defense to an unlawful detainer proceeding by allowing a tenant to assert that the owner has not complied with the Act.
Finally, the Act provides that while it is intended to permit landlords to go out of business, it is not intended to:
|(a)||Interfere with local governmental authority over land use, including regulation of future use of housing removed from the rental market;|
|(b)||Preempt local or municipal environmental or land use regulations;|
|(c)||Override procedural protections designed to prevent abuse of the right to evict tenants;|
|(d)||Permit an owner to withdraw from rent or lease less than all of the accommodations;|
|(e)||Grant any public entity any power which it does not possess independent of the Act; or|
|(f)||Alter the law relating to withdrawal of accommodations in a mobile home park from rent or lease.|