COURT REINSTATES HOTEL SUIT CHALLENGING CITY RULING: OUTCOME IN THE SAN REMO CASE CONCERNING CONVERSION LAW COULD AFFECT ALL SAN FRANCISCO LODGINGS
BY ALEXIS CHIU, Mercury News

A historic hotel that challenged a city law forcing it to pay more than half a million dollars to rent some of its rooms to tourists won a victory Tuesday that could have far-reaching implications for all San Francisco hotels. A lawsuit brought by the San Remo Hotel in North Beach was reinstated in a ruling by the 9th U.S. Circuit Court of Appeals. The panel sent the case to state trial court, where the owners of the hotel will challenge the city's hotel conversion law as unconstitutional.

Attorneys for the hotel owners said they were elated by the ruling in the complicated and long-running battle. ''This is a pretty major victory for property rights in San Francisco,'' said plaintiff's attorney Andrew Zacks. ''We think it means it'll be very difficult for the city to prevail in this case.'' Zacks seized on vague language in the written opinion that appears to support the contention that the law is unconstitutional and orders the trial court to ''enter a new order in conformity with this opinion.'' Should the trial court conclude the law is unconstitutional, the ruling could be used by every hotel owner in San Francisco who wanted to challenge the city, Zacks said. At least three other cases are pending involving residential hotel owners who have sued for the right to convert rooms to tourist use. The city's lawyer did not respond to a message left late in the day seeking comment on the ruling. At the heart of the fight is a city law requiring that hotel owners who want to switch from renting rooms to residents to renting rooms to tourists provide either a one-for-one replacement for lost residential units or pay a portion of replacement costs. Under the Residential Hotel Unit Conversion and Demolition Ordinance, the city ordered the San Remo Hotel to pay a $567,000 ''conversion fee'' for the right to rent rooms to tourists. ''We call it ransom,'' Zacks said, adding that the city's refusal toallow hotels to convert some residential rooms to tourist use amounts to an unconstitutional confiscation of their property. The San Remo's owners, who paid the $567,000 under protest, claim the hotel was erroneously pegged as a residential hotel in 1981, when the ordinance went into effect. The appeals court ruling states that the owners have operated the San Remo ''primarily as a European-style bed and breakfast inn for overnight guests, with between 10 and 20 long-term or residential guests in addition. (They) have at all relevant times had a permit from the City to operate as a hotel, and the City has always collected local taxes on the Hotel's rentals to tourists.'' The ordinance's initial stated objective was to protect low-income, elderly and disabled residents from being displaced by the conversion of residential hotel units to more lucrative units for tourists. Zacks, who has represented more than 10 other hotel owners in similar suits, contends the law is a misdirected attempt to hold hotel owners responsible for a citywide burden. ''They're singling out a small class of individuals to deal with a problem that is really the problem of the entire community, of all the taxpayers,'' he said. ''Providing low-cost housing is important, but it shouldn't be placed on the backs of a small group of property owners.'' The San Remo is seeking a return of the $567,000 and all legal fees, along with the ability to operate as a tourist hotel and a declaration that the conversion law is unconstitutional. The 62-unit hotel was built in 1906 by A.P. Giannini, the founder of the Bank of America, and was used to temporarily house people displaced by the great earthquake and fire of that year. In 1916, the city approved the operation of a hotel and restaurant on the site.