San Francisco Ordinance Requires Property Owners to Make Lifetime Rental Offer to Tenants — for Real

(AP Photo/Eric Risberg, File)

So, you and your spouse are living in a medium-sized middle American community and after coming into a little extra money you decided you want to do some planning for your retirement. You come across an investment opportunity in a cosmopolitan city in another state — a six-unit apartment building where you can purchase a co-ownership interest with a plan to move into that building when you retire. The purchase agreement includes a provision that the co-owners will convert the six-unit building into separately owned condominium units by a specified date, and you and your spouse will obtain the right to own and occupy one of those condominium units.

At the time you invest you are still living and working in a different city and state, and the unit that will eventually be yours to occupy is rented to a tenant.

After purchasing your interest, but before the date comes for the condominium conversion, the City Council in this cosmopolitan city amends its condo conversion ordinance, and now requires that a property owner converting a rental apartment to a condominium must offer a lifetime lease to the current resident of the unit being converted.

Just like that, the renter of your soon-to-be-condo has a legal right to live in your retirement home for the duration of his life which might be longer than your lifetime.

If this happened to you, your last name is probably Pakdel and you purchased a condo for your retirement in the City of San Francisco.

I read about this story at the Cato Institute website.

Pakdel sued San Francisco, claiming the amendment to the ordinance violated the Fifth Amendment’s “Takings Clause” which prohibits the taking of private property for public use without just compensation.

Pakdel lost in both the district court and the appeals court, and the proceedings at the administrative level in the City and County of San Francisco are more complicated than the simplified description I have set forth above.

The City and County defended against Pakdel’s complaint in federal court by pointing to various agreements made by Pakdel, and failures by Pakdel to assert certain claims as part of the conversion process on a timely basis.  Thus, Pakdel’s hands are not completely “clean” with respect to the way he went about seeking to vindicate his rights as the property owner.

In the federal courts, the question of whether this amounted to an unconstitutional “takings” was never actually considered.  Pakdel lost in the district court based on that court’s determination that his “takings” claim wasn’t yet “ripe” — that at the time he filed his lawsuit the decision by San Francisco with regard to enforcement of the ordinance wasn’t yet final, and there was still the possibility that Pakdel could obtain a waiver of the ordinance’s tenant lease requirement.

The Ninth Circuit upheld the district court’s dismissal of the action but then went further by making it a matter of the record that Pakdel had, in fact, waived many of his rights to contest the requirements of the ordinance by failing to follow the time deadlines in the ordinance for filing applications for variances, and taking advantage of other provisions that might have exempted him from the lifetime lease offer requirement.

The Supreme Court has agreed to hear the case, and it appears that all the merits briefs have been filed.  Here is the brief filed on behalf of Pakdel and his wife. The issues raised are pretty far afield from my practice area, and it’s a little bit late in the evening for me to try to break down the legal arguments set forth.  I’m going to opt for watching the new season of Top Chef instead.

But, one lesson you might take from this is that if you are living in Dayton, Ohio, look for someplace other than San Francisco to invest in a retirement condo — that is if you want to actually live in your retirement condo.