A San Francisco County judge has struck down the city's controversial new tax on allegedly "vacant" apartments and other potential rental homes, agreeing with landlords and apartment owners that the tax violates property owners' constitutional rights.
On Nov. 26, San Francisco County Superior Court Judge Ronald E. Quidachay issued a written judgment formally declaring the so-called "Empty Homes Tax" amounts to an unconstitutional taking of property by the city and further trespasses on property owners' rights to allow family to live in apartments or keep certain units empty, rather than leasing to strangers.
He further agreed the San Franciso tax violates their rights to privacy under the California state constitution by forcing them to "share the property on which they reside with others, against their will," or face what amounts to a costly annual financial penalty.
The legal challenge to the "Empty Homes Tax" has been waged in San Francisco court since early 2023, when a collection of San Francisco rental property owners filed suit against the city.
They were joined in the action by several San Francisco real estate-related trade associations, including the San Francisco Apartment Association and the San Francisco Association of Realtors.
The "Empty Homes Tax" was codified in San Francisco's Business Tax and Regulations Code under a voter initiative, known at the time as Proposition M. San Francisco voters approved the measure in the fall of 2022, with 54.5% voting "yes."
Under the new tax measure, the city would assess taxes against rental property owners who allow apartments or other rental homes to remain unoccupied for at least 182 days of the preceding calendar year.
Dwelling units subject to the tax include a "house, apartment, mobile home, group of homes, or a single room that is designed as separate living quarters," in which people "live and eat separately from any other persons in the building and which have a kitchen and direct access from the outside of the building or through a common hall."
Buildings with two or fewer units would have been exempt.
The tax would first be charged in 2025 and would escalate for each year officials determine the dwelling remains unoccupied, as defined by the regulation. The amounts charged in 2025 would begin at $2,500 for a dwelling unit of less than 1,000 square feet; $3,500 for a unit between 1,000-2,000 square feet; and $5,000 for dwelling units measing more than 2,000 square feet.
However, by 2027, the owners of the smallest units would be hit with charges of $10,000 annually and those owning units of more than 2,000 square feet would be hit with a $20,000 per "unoccupied" unit charge.
The tax would be assessed per empty unit, with no limit on the total charge property owners could face.
The tax would apply to dwelling units leased to "a co-owner, spouse, domestic partner, child, parent, or sibling" and to units "whose owner is actively marketing it but is unable to rent it out."
Supporters of the "Empty Homes Tax" said it was intended to force landlords to lease all available units, ostensibly to help ease San Francisco's homelessness and home availability crises.
Opponents, however, said the law violates their constitutional rights to manage the properties they own.
Plaintiffs, for instance, included brothers Eric and Andrew Debbane, who said the measure would illegally tax them for declining to share one of the "several small residential buildings" they own in various parts of the city with people who are not related to them.
According to court documents, the Debbane brothers have lived in a five-unit building in Russian Hill they co-own since 1984, and which they have removed from the market since the late 1990s to allow them to move their aged mother into the building with them.
While their mother has since died, the Debbanes have not returned the property to the market, as "they have no desire to share the property they live on with people other than those living with them already."
They estimate the "Empty Homes Tax" would still slam them with annual tax bills of more than $30,000 as early as 2027.
Other landlord plaintiffs similarly said they own apartment units they do not wish to be forced to lease out or face the threat of moving out of homes they have occupied for decades, because they can't afford the onerous tax.
Last year, the judge denied the city's efforts to throw out the lawsuit, rejecting the city's arguments that the plaintiffs needed to first be forced to pay the tax before they could sue, saying property owners should not need to wait until 2025 to file suit against a city regulation codified in 2023.
Judge Quidachay's written ruling comes nearly a month after a different judge, Charles Haines, indicated from the bench during an Oct. 31 hearing that he would strike down Prop M and the "Empty Homes Tax" as unconstitutional under both the U.S. and California constitutions and under California's state Ellis Act, which empowers landlords to evict tenants and pull properties off the market without selling the property.
The written order indicated Judge Quidachay signed the order on behalf of Judge Haines.
Judge Quidachay stayed the ruling for 10 days, until Dec. 6.