The Ninth Circuit Court of Appeals Affirms the Constitutionality of Local Ordinance Requiring Landlords to Pay a Tenant Relocation Fee

By Cameron J. Schlagel and Eric S. Pezold

On February 1, 2022, the Ninth Circuit released its opinion in Ballinger v. City of Oakland ¹ affirming the district court’s dismissal of a lawsuit in which the plaintiffs claimed that the City of Oakland’s Uniform Residential Tenant Relocation Ordinance (the Ordinance) was unconstitutional under the Fourth, Fifth and Fourteenth Amendments to the United States Constitution. 

That decision has broad implications. California’s state tenant protection laws require “just cause” for eviction subject to limited exceptions, and many local governments, like Oakland, have enacted laws that impose even stricter requirements. Over the last two years, the State and many local governments have cited the COVID-19 pandemic as justification for further restricting the rights of property owners to evict residential tenants. The Ninth Circuit’s decision in Ballinger signals that courts will view those restrictions as a constitutional exercise of the State’s police power to regulate the landlord-tenant relationship, leaving property owners with limited and costly remedies to remove unwanted tenants. 

Background. In 2016, the Ballingers leased their Oakland home for one year while they were out of the state for military duties. After the one-year term expired, the lease converted to a month-to-month tenancy. Under Oakland’s Municipal Code, even after a lease term expires and converts to a month-to-month tenancy, the landlord may only end the tenancy for “good cause,” which includes when a landlord-property owner chooses to move back into the home. 

In early 2018, Oakland adopted the Ordinance, which requires landlords who re-take occupancy of their homes at the end of a lease to pay tenants a relocation payment calculated based on rental size; moving costs; the duration of the tenants’ occupancy; and demographic factors such as whether the tenants have low income, are elderly or disabled, or have minor children. Tenants, however, are not obligated to spend that payment on relocation costs; they can use the money towards anything while there are strict penalties for landlords who, in bad faith, fail to make the relocation payment. In such circumstances, the Ordinance allows a tenant to sue the landlord for injunctive relief, the relocation payment, attorneys’ fees, and treble damages. 

When the Ballingers were reassigned to the Bay Area, they decided to move back into their Oakland home. The Ballingers gave their tenants 60 days notice to vacate and paid the relocation payment as required by the Ordinance, half up front and the remainder after the tenants vacated, for a total of $6,582.40. 

The lawsuit. The Ballingers subsequently sued Oakland, arguing that the relocation payment was an unconstitutional “ransom” of their home. They claimed that the relocation fee was a physical taking of their money for a private purpose and without just compensation. In the alternative, they claimed that the fee was an unconstitutional exaction of their home, and an unconstitutional seizure of their money. The district court dismissed each claim. 

The Ninth Circuit affirms. In a unanimous decision, the three-judge panel affirmed the district court’s dismissal of the Ballingers’ claims. In regard to the Ballingers’ claim under the Fifth Amendment’s Takings Clause, which is the focus of this article, the panel held that the relocation fee required by the Ordinance was a constitutional regulation of the landlord-tenant relationship, not an unconstitutional physical taking of a specific property interest. 

According to the panel, the essential question in cases alleging a physical taking “is whether the government has physically taken property for itself or someone else—by whatever means—or has instead restricted a property owner’s ability to use his own property.”² In that regard, the court noted that the Supreme Court has consistently affirmed the broad power of States to regulate housing in general “and the landlord-tenant relationship in particular without paying compensation for all economic injuries that such regulation entails.”³

The court proceeded to analogize the relocation fee to a traditional rent control ordinance, explaining that the Ordinance “imposes a transaction cost to terminate the lease agreement” and merely regulates the Ballingers’ use of their property by regulating the landlord-tenant relationship. The Ballingers’ voluntary choice to lease their property and to “evict” under the Ordinance, the court reasoned, was a voluntary surrender of their liberty or property, thus the State did not deprive them of any constitutionally protected interest. The court explained, “the relocation fee required by the Ordinance is a monetary obligation triggered by a property owner’s actions with respect to their use of their property, not a burden on the property owner’s interest in the property.”⁴ The court applied similar reasoning in affirming the dismissal of the Ballingers’ exaction claim and seizure claim. 

What this means. The Ballinger decision signals that courts in the Ninth Circuit will likely view regulations of the landlord-tenant relationship as a constitutional exercise of the State’s police power. Although the takings argument in Ballinger was limited to a physical taking, as opposed to a regulatory taking, the court indicated in a footnote that regulations like the Ordinance have generally been upheld under the regulatory taking analysis.⁵ Indeed, the Ballingers apparently made a strategic decision to rely solely on physical takings law and forego a regulatory taking claim. 

Though, it is worth noting the Ballinger court’s suggestion that the outcome might be different “were the statute . . . to compel a landowner over objection to rent his property or to refrain in perpetuity from terminating a tenancy.”⁶ Considering the scope and duration of many pandemic-related tenant protection ordinances, which force landlords into continuing to rent their properties despite not being paid monthly rent in many cases, a physical or regulatory taking challenge to those laws might fare better than the claim in Ballinger. But Ballinger suggests such claims will face an uphill battle.