The California Court of Appeal recently ruled against the City and County of San Francisco in the case of Eric Debbane et al. v. City and County of San Francisco (docket number A172067), effectively blocking the enforcement of Proposition M, a measure aimed at taxing owners of vacant residential units. This decision has significant implications for property owners and the city's ongoing struggle with housing shortages.
Proposition M, which was approved by San Francisco voters in November 2022, sought to impose a tax on owners of residential units kept vacant for more than 182 days in a tax year. The measure aimed to disincentivize prolonged vacancies and increase the availability of housing units for occupancy. However, a group of plaintiffs, including property owners and local real estate associations, challenged the proposition on several legal grounds, arguing that it was unconstitutional and violated state laws.
The plaintiffs in this case included Eric and Andrew Debbane, Robert Friedland, Natasa Zec, the San Francisco Apartment Association, Small Property Owners of San Francisco Institute, and the San Francisco Association of Realtors. They filed their lawsuit in February 2023, claiming that Proposition M constituted an unconstitutional taking of property, was preempted by the Ellis Act, and violated various constitutional rights related to familial living arrangements and privacy.
The Ellis Act, a California law, allows landlords to exit the rental market without facing restrictions from local ordinances. The plaintiffs argued that Proposition M conflicted with this state law by imposing a tax on property owners who chose not to rent out their units. After hearing cross-motions for summary judgment, the trial court ruled in favor of the plaintiffs, concluding that the proposition violated the Takings Clause of the Fifth Amendment and was preempted by the Ellis Act.
The California Court of Appeal affirmed the trial court's decision, stating, "The Ellis Act does not permit the City to condition plaintiff’s departure upon the payment of ransom." The court emphasized that Proposition M imposed a significant tax that effectively forced property owners to either rent out their units or face financial penalties, which it viewed as an infringement on their rights under the Ellis Act.
In its ruling, the court also noted that the City had failed to demonstrate a valid justification for the tax that would override the protections granted to property owners under state law. The court found that the proposition's intent to increase housing availability did not provide sufficient grounds to impose such a tax on property owners who chose to keep their units vacant.
This ruling could have far-reaching implications for similar local measures aimed at addressing housing shortages across California. It highlights the tension between local governments seeking to regulate housing markets and state laws designed to protect property owners' rights. The decision also raises questions about how cities can effectively address housing shortages without infringing on the rights of property owners.
Moving forward, the ruling sets a precedent that may deter other cities from implementing similar vacancy taxes or regulations that could conflict with state laws. Property owners across California may feel more secure in their rights to manage their properties without facing additional financial burdens imposed by local governments.
As for the City of San Francisco, it has the option to appeal the decision to the California Supreme Court, but it remains unclear if they will pursue this route. Meanwhile, the Board of Supervisors has already passed an ordinance to suspend the Empty Homes Tax pending a final decision in this case, indicating a shift in the city's approach to addressing residential vacancies.
In conclusion, the California Court of Appeal's ruling in Debbane v. City and County of San Francisco has significant implications for both property owners and local governments. The case underscores the importance of balancing the need for affordable housing with the rights of property owners, a challenge that many cities across the state will continue to face.