Landlords Sue to Overturn San Francisco’s Vacant Unit Tax

San Francisco landlords have filed a lawsuit to overturn a new city tax on apartments that sit empty for more than six months.

A consortium of landlords and trade groups have sued to challenge the city’s tax on vacant homes as unconstitutional and a violation of state law, the San Francisco Chronicle reported.

Proposition M, “The Empty Homes Tax” passed by 54.5 percent of voters in November, imposes a tax on property owners for each unit left vacant for more than 182 days in a given year, starting in 2024.

It applies to buildings with three or more apartments, not to single-family homes or duplexes.

The taxes start at $2,500 for units smaller than 1,000 square feet and go up to $5,000 for units with more than 2,000 square feet. They escalate over each subsequent year a unit is vacant, and later are adjusted according to the Consumer Price Index.

The measure’s goal is to help solve the city’s housing crisis by pushing property owners to rent their units, according to proponents. The lawsuit argues that’s misguided.

“The government cannot compel a property owner to rent his or her property to third parties without violating” the Takings Clause of the U.S. Constitution, the lawsuit said.

The lawsuit was filed by several small landlords, the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, and the San Francisco Association of Realtors.

California law also would bar enforcement of Prop M, according to the complaint.

“The right not to offer residential units for rent is also enshrined in preemptive state law, specifically the Ellis Act,” it states.

The lawsuit says some San Francisco property owners choose to keep their rental units vacant.

It also said they wish to avoid the “burdens” imposed by the city on landlords – including rent control, eviction laws, registration and notice requirements, relocation payment mandates and “severe restrictions on an owner being able to live in, or allow an immediate family member to live in, a unit they own if it is occupied by a tenant.”

In other cases, the suit says, landlords may wish to rent out their units but haven’t been able to find tenants in a changing market without slashing rents, which would lock them into those lower rents “indefinitely” because of rent-control laws.

Although Prop M offers a one-year exemption from the vacancy tax while property owners await building permits, the lawsuit notes that the city often takes far longer than a year to approve them.

Supervisor Dean Preston, who championed Prop M, dismissed the case as a frivolous lawsuit filed by “real estate lobbyists.”

“San Francisco voters delivered a clear mandate that it is completely unacceptable to have tens of thousands of vacant homes as more than 4,000 people are living on our streets,” Preston said in a statement.

According to city data, there were 61,473 empty homes in San Francisco in October, including units with “for rent” signs and ones for sale.

— Dana Bartholomew