The lawsuit claims the law "illegally and unconstitutionally requires rental property owners to transfer massive sums of money...to tenants before they can take their property off the rental market."
California's 1985 Ellis Act allows landlords to remove rental units from the market and evict the tenants who occupied them. It also allows cities to take measures to mitigate the impact on tenants.
This spring, the San Francisco Board of Supervisors revised a previous ordinance to increase the payments landlords must provide to tenants evicted under the state law.
The new measure, which went into effect June 1, requires landlords to pay an amount equal to the difference between the tenant's current rent and the cost of comparable housing in the city for two years.
Lawsuit plaintiffs Daniel and Maria Levin, who own a two-unit building on Lombard Street and live in the top unit, say the law requires them to pay $118,000 to a downstairs tenant so they can remodel the building and use both units for themselves.
Another landlord plaintiff, Park Lane Associates, says the law will force it to pay $1.45 million to the occupants of 15 currently rented units before it can convert the 33-unit building to a tenancy-in-common property.
The city law "effects a blatant transfer of wealth from some private citizens to others," the lawsuit alleges.
The lawsuit is based on claims that the city ordinance is an unconstitutional taking of private property and violation of due process.
It seeks a court declaration that the measure is unconstitutional and an injunction barring the city from enforcing it.
Other plaintiffs in the case are the San Francisco Apartment Association and Coalition for Better Housing. The plaintiffs are represented by the Pacific Legal Foundation, a Sacramento-based public interest law firm that supports property rights and free enterprise.