Ninth Circuit Decision in Apartment-Condominium Conversion Program Dispute

Property owners who claimed the City and County of San Francisco’s apartment-to-condominium building conversion program’s lifetime lease requirement constituted an unjust taking lost in court this week. The U.S. Ninth Circuit Court of Appeals noted that the property owners did not ask for an exemption to the lifetime lease requirement until after their conversion was approved. The claim did not fail on the merits, but because the court found that the property owners’ takings claim was not “ripe.”

The property owners in Pakdel v. City and County of San Francisco challenged the City’s Expedited Conversion Program, which regulates apartment building conversions to condominium ownership. In the City, ownership of multi-unit buildings is often shared by different people through ownership known as tenancy-in-common. A tenancy-in-common is a form of shared property ownership in which “each owner has an equal right to possession and use of the entire property.” Many of these owners sought to convert their ownership rights to individually owned condominiums. In a condominium, “each owner has exclusive ownership and possession of a single unit and common ownership only for the common areas.”

The City was backlogged with these requests and created a lottery system. But, when the lottery system became backlogged, the City suspended the lottery system and replaced it with the Expedited Conversion Program. One requirement of the ECP program is that the owners had to agree to offer any existing tenants lifetime leases in units within the converted property. The plaintiffs owned such a property.

The plaintiffs went through the conversion and agreed to offer their tenants a lifetime lease as a condition to converting their property. The plaintiffs had duly received final approval from the City to convert. During the process, the plaintiffs had several opportunities to request an exemption from the lifetime lease requirement, but did not do so. At the last minute, the plaintiffs refused to execute the agreement. Instead, they sued the City, contending the lifetime lease requirement constituted a “taking” of property without just compensation under the “Takings” clause of the Fifth Amendment — a claim often raised by property owners in response to a host of local property regulations.

These owners premised their “takings” claim on the assertion that converting their tenancy-in-common interests into condominiums provided superior title and improved credit opportunities. Condominium owners in the City also derive significant economic value from selling their properties after conversion because condominiums are not subject to the City’s rent control law once converted.

The plaintiffs’ claim foundered on the procedural bar referred to as “ripeness.” The Ninth Circuit agreed with the City that a takings claim was not ripe because the owners had not obtained a final decision from the City regarding the lifetime lease requirement. Under the U.S. Supreme Court’s 1985 decision in Williamson County, “a final decision exists when (1) a decision has been made ‘about how a plaintiff’s own land may be used, and (2) the local land-use board has exercised its judgment regarding a particular use of a specific parcel of land, eliminating the possibility that it may soften the structures of the general regulation it administers.’” The Ninth Circuit held that “a court cannot determine whether a regulation has gone ‘too far’ until it knows how far the regulation goes.” The Court expanded further and held that this requires a final and authoritative determination of how the regulation will be applied to the property in question.

Here, the plaintiffs, did not ask the City for an exemption from the lifetime lease requirement during the ECP approval process, even though they concededly had opportunities to do so. The plaintiffs did not ask for an exemption until 6 months after they obtained final approval of their conversion map and 7 months after they had committed to offering a lifetime lease in exchange for the conversion benefits.

The failure of the property owners to seek a final determination on the exemption means that they never created a federal “takings” claim ripe for adjudication. 

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