Can a Landlord Go Out of Business?


Of all the issues that we will be heavily invested in this year, one will be opposing legislation that will try to blunt the right of a landlord to go out of business. The State law that permits a landlord to go out of business is popularly known as the Ellis Act. First, let’s take a look at the Ellis Act.

The Ellis Act gives landlords the right to go out of the rental business. It was adopted by the Legislature in 1985 in response to Nash v. City of Santa Monica, 37 Cal. 3d 97 (1984), a California Supreme Court case that upheld a city ordinance that forced a landlord to stay in the residential rental business despite his wish to “go out of business.” Understanding the unfairness of the ruling, and the need to allow rental property owners to go out of business, the Legislature quickly passed the Ellis Act, named after Senator Jim Ellis, the author of the bill.

Codified under Gov. Code Section 7060, the Ellis Act allows landlords to withdraw rental units from the market under the following conditions:


  • All units of a property must be withdrawn
  • The landlord must give at least 120 days’ notice to tenants prior to withdrawal. Exception: landlords must provide at least one-year notice to any disabled and elderly persons who have lived in the units for at least one year.
  • Cities and counties may require landlords to provide relocation assistance.
  • If units are returned to the market within 10 years, evicted tenants have re-occupancy rights.
  • If units are returned to the market within five years, landlords may charge only the rent-controlled rent.
  • If units are returned to the market after five years, market rate rent may be charged.
  • Landlords who re-offer rental units with in two years after withdrawal are liable to tenants for actual and punitive damages. The city attorney may also institute a civil proceeding against any owner who has again offered Withdrawn Units for rent within two years.

And why should landlords be able to get out of the rental housing business?

No person or business owner should be forced to stay in business. We don’t force people to work, which would be tantamount to forced labor in violation of the 13th Amendment. Similarly, there are no private industries or business entities that the government forces to stay in operation. The private rental industry should be no different.

The Judicial Branch agrees. Take a look at some of these famous quotes:

“There exists an undefined yet real notion of freedom which is violated by the idea of compelling an individual to work in a given business. This freedom is protected from the most egregious infringements by the Thirteenth Amendment of the United States Constitution. Yet the degree to which the individual is restricted need not rise to the level of involuntary servitude before it offends this notion of personal liberty.” Nash v. City of Santa Monica, 37 Cal. 3d 97, 118.

“Like the right to enter an occupation, the right to terminate a business involves a personal decision concerning the individual’s role in the economy. Both protect the individual’s ability to use his or her talents and resources in the manner best suited to bring life satisfaction and economic security.” Id.

“[T]he realities of the economic world require [landlords] to perform numerous personal services and assume onerous obligations and serious potential liability. Indeed, under many circumstances that liability can be financially devastating.” Id. at 113.

“[B]eing a landlord entails active and vigilant management. Thus when the city compels one to remain a landlord against his will, it is not merely freezing an investment, it is requiring him to perform constant personal services. Since 1865 involuntary personal service has been an anathema in a free society.” Id. at 114.

What if a landlord wants to go out of business?
What are a landlord’s options to go out of business?

The options to go out of the rental housing business are very limited. The Ellis Act permits the government to enforce environmental standards, require approval for conversions of property from one type to another, and require permits for the demolition and redevelopment of the property. Thus, rent control jurisdictions already have the power to deny a landlord’s application to (a) convert his or her property to another use, (b) demolish the property, or (c) rebuild on the property. Furthermore, in San Francisco, condo conversion is not an option because a moratorium on condo conversions currently exists.

What options are left?

• Sell the property, which alone does not trigger compliance with the Ellis Act.
• Sell each unit as a Tenancy in Common (TIC), which does trigger compliance with the Ellis Act.
• Do nothing, and keep the building off the market, which also triggers compliance with the Ellis Act.

In San Francisco, most units removed from the market under the Ellis Act are sold as a TIC because it’s the only viable option for a landlord to go out of business. A TIC is a type of joint owner ship where all tenants in common hold an individual, undivided ownership interest in the property. Technically, each owner owns a fractional portion of the entire building. In practice, owners act in a manner consistent with owning individual units and sharing ownership of the common areas, much like condo minimum ownership single-family homes. The idea behind the TIC is that a group of people could pool their resources to buy an apartment building and move into the building, each owning a fractional interest that represented one unit.

TIC ownership is popular with first-time property owners and middle-income earners because it is often too expensive to buy a condo or a house. Thus, TICs often represent the only option for middle income earners to own property in San Francisco.

Why will the Legislature consider legislation this year?

The City and County of San Francisco is a hot bed of Ellis Act activity. This matter is so controversial that we, not unlike others, have amassed a large stack of media releases about the Mayor and Supervisors causing the introduction of a number of local ordinances. Among other things, those ordinances:

• Will propose doubling the cost of relocation payments from $18,000 per household to $36,000.
• Require landlords who seek to go out of business to pay an Ellis Act tenant the difference in rent that the tenant is to pay for two years.
• Require landlords to go through the public hearing process before they can go out of business. The Mayor has asked Senator Leno and Assembly Member Ammiano to introduce State legislation to prohibit landlords from going out of business... a moratorium if you will, for a period of years.

To cap it off, tenants’ groups are suing landlords seeking to go out of business. One such lawsuit claims that landlords are violating the State Penal Code claiming elder abuse, and condemned landlords who “invoked the Ellis Act as dangerous criminals.” The theory behind this lawsuit is that an Ellis Act eviction against a senior citizen qualifies as a criminal act under law because elders can suffer physical harm as a result of being evicted.

Ron Kingston can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

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