Court revives property owners’ suit against S.F.

The Supreme Court reinstated a lawsuit against San Francisco on Monday by property owners challenging the city’s requirement to offer lifetime leases to tenants before converting a jointly owned residential building to a condominium.

The case involved buildings whose owners purchased them as tenants in common, with each having equal ownership rights and sharing a single mortgage. City approval is required to convert them to condos, in which each owner has an individual unit and can rent it to others.

San Francisco formerly allowed only 200 condo conversions a year, based on an annual lottery, but a mounting backlog of requests led to a new ordinance in 2013: Owners could transform a tenancy in common to a condominium by mutual agreement, but nonresidential owners had to offer lifetime leases to their tenants.

That requirement was challenged in 2017 by an outofstate couple, Peyman Pakdel and Sima Chegini, who bought a tenancy in common in a sixunit building on Green Street in the Russian Hill neighborhood in 2009, an arrangement that gave them the right to use one of the units.

They rented it to a tenant and, after the city changed its rules, agreed at first to offer the tenant a lifetime lease. But after gaining city approval for condominium conversion, the couple said they wanted to move in themselves after they retired, claimed that the lease requirement violated their property rights, and filed a lawsuit seeking either an exemption or financial compensation.

Lower federal courts refused to rule on the claim, saying it was premature. In a March 2020 decision, the Ninth U.S. Circuit Court of Appeals said the owners could have asked the city, under its rules, for an exemption from the lease requirement, had failed to do so, and thus could not claim an intrusion on their ownership rights.

The Supreme Court unanimously disagreed Monday and allowed the suit to proceed. The couple did not have to follow city procedures for seeking an exemption, the court said, because San Francisco had made its position clear: If they did not grant a lifetime lease, the city would enforce its rules.

The couple has already suffered “an actual, concrete injury” by being required “to choose between surrendering possession of their property or facing the wrath of the government,” the justices said in an unsigned ruling.

They also indicated that the Ninth Circuit should reconsider its separate decision that San Francisco’s lease requirement did not amount to a “taking,” or confiscation, of the couple’s property. The Supreme Court cited its June 23 ruling that said California was unconstitutionally “taking” growers’ property by allowing union organizers to enter and talk to workers during nonworking hours.

The ruling was praised by attorney Jeffrey McCoy of the Pacific Legal Foundation, which represents the couple. “Property owners should not have to jump through nonsensical hoops to get their day in court,” he said.

John Coté, spokesman for City Attorney Dennis Herrera, said the city still expects to defeat the lawsuit. He said the couple had agreed to all terms of the city’s condo conversion program, gave the lease to their tenant to sign, and objected only after the condo had been officially recorded.

The court’s “procedural decision” should not affect the merits of the case, Coté said.

The case is Pakdel vs. San Francisco, 201212.