Oh No They Didn’t… Yet
New SF & State Legislation Could mean No More Ellis Act, Legalized In-Law Units and $47,000 Mandated Tenant-Payouts
By the time May Day 2014 rolls around, the Board of Supervisors may enact legislation radically altering “in-law” units and tenant-displacement payouts under the Ellis Act that you may your in-laws wrote the bill. Lead by Board President David Chiu and in conjunction with Supervisor Scott Wiener in-law units would be legalized — or at least a clear pathway to legality would be created. Among other ideas circulating is an initiative seeks to raise the average $5700 per tenant to more than $47,000 per unit — eviscerating any current per-unit maximum. Apart from legalizing the thousands of in-law units (most times found behind the garage of Sunset/Marina-style homes or at the bottom of a two-unit Edwardian building —you know what they look like) larger implications of the current draft legislation may:
Certain neighborhood groups like those in St. Francis Wood and Balboa Terrace are reportedly opposed to this because legalizing in-law uses in their neighborhoods will impact property values negatively because what sets these areas apart from other parts of the City is the lower density that comes from having detached homes with just single families occupying.
And, the other initiatives taking place concern the Ellis Act. One measure goes so far as to prohibit their use completely, another imposes a 5-year ownership requirement before a landlord can use the Act’s eviction procedures and the other recalculates minimum payouts to tenants using a formula that took the difference in market rent and average rent and multiplying it by a number months arriving at an average figure of $47,000 per unit. To read the notes about the legislation, click here.
No Enlarged Ellis Payouts… for now.
In November 2014, U.S. District Court judge Charles Breyer (Justice Breyer’s brother) struck down Supervisor-passed escalated Ellis Act payments that would have had landlords utilizing the Act to vacate buildings en masse pay relocation fees of at least $40,000 to $100,000 to displaced tenants instead of the $15K-$20K mandated by current regulations. In part, Breyer wrote: “The ordinance requires an enormous payout untethered in both nature and amount to the social harm actually caused by the property owner’s action.” Click here for details.
Trick or Treat? Buyouts of More than 1 Person Can Disqualify Condo Conversion; Increase Ellis Act Evictions Even for 2-Unit Buildings Possible
Did you know that new laws regulating tenant-buyouts by landlords (whereby landlord pays tenants money to leave their rented unit without having to institute a no-fault eviction) are scheduled to come online in March 2015 that may increase Ellis Act Evictions. San Francisco’s Board of Supervisors passed legislation that is slated to come into effect in March 2015 but with consequences for any landlord buyout of more than one tenant taking place after October 31, 2014 that are far-reaching with some potentially causing the very thing the legislation was designed to mitigate, i.e., Ellis Act evictions.
Even 2-unit buildings that have tenants who want to take a buy-out may be impacted by this law. How? Until now, no regulations applied to tenant-buyouts. No records were kept and no bad eviction history that can jeopardize condo conversions was ever recorded. Lucrative condo conversion was only ever put at risk if the tenants disagreed to relocating and an owner had to resort to transitioning tenants out of a property under the Ellis Act or an Owner Move-In eviction. Because the penalty was so draconian, tenants had considerable leverage to exact a higher buyout amount, reportedly averaging $40,000-$75,000 per buyout. In contrast, an Ellis Act or OMI eviction only requires a maximum payout of $20,000-$25,000 per unit (not per person).
The new legislation turns this understanding on its head. Now, if there is more than one tenant being bought out of a unit (i.e., a couple or roommates) or if there is just one ‘protected’ tenant being bought out, the entire unit will be rendered ineligible for condo conversion for at least a decade. Every buyout must now be reported to the Rent Board and comport to legislated requirements regardless. Thus, instead of paying high voluntary buyout costs, if there is more than one tenant who needs to be bought out of a unit (or just one disabled/protected tenant) and take condo conversion off the table, there’s nothing preventing an owner from using the Ellis Act with more impunity. This will radically impact multi-unit building property values and makes it all the more necessary you have the likes of Kevin+Jonathan working for you to sort it all out.
From a disclosure prepared by the SF Realtors:
San Francisco has adopted a new ordinance regulating “Buyout Agreements” (agreements by which a landlord pays a tenant money or other consideration to vacate a rental unit) and “Buyout Negotiations” (any discussion or bargaining, oral or written, between a landlord and tenant regarding the possibility of entering into a Buyout Agreement) for residential rental properties which are subject to local rent control laws. The new law is operative March 7, 2015, but it has a retroactive effect which precludes condo conversions for properties where:
(a) Buyout Agreements were entered on or after October 31, 2014; and,
(b) involved 2 or more tenants (even in the same unit), or any tenant of a “protected class” as defined in the ordinance.
Note that local law presently:
(a) allows conversion of certain 2 residential unit properties where each unit is owner- occupied by a separate owner;
(b) otherwise disallowsconversion of 2–6 residential unit buildings unless approval was sought under the 2013 “Expedited Conversion” Program; and
(c) now prohibits conversion of 5+ residential unit properties.
Under the new law, prior to Buyout Negotiations with any tenant, a landlord must provide the tenant with a written disclosure including, among other things, references to their rights to refuse to negotiate or enter into a Buyout Agreement, consult with an attorney, and rescind (unilaterally terminate) any such signed agreement for a period of 45 days after the agreement was fully executed.
Further, this disclosure must include a statement that the tenant may obtain information from the San Francisco Rent Board about:
- other Buyout Agreements in the tenant’s neighborhood
- a list of tenants’ rights organizations
- a statement explaining the legal implications of condominium conversion for landlords entering any such agreements, and,
- for entity landlords, the names of all people within that entity conducting the negotiations, as well as the names of all people who will have decision-making authority over the terms of the Buyout Agreement.
Additionally, prior to Buyout Negotiations with any tenant, a landlord, among other things, must also
(a) provide notice to the Rent Board of the landlord’s name and contact information, the names of the tenants with whom the landlord intends to negotiate, the address(es) of the unit(s) involved,
(b) a statement under penalty of perjury that a proper disclosure (discussed above) has been provided to each tenant, and,
(c) only enter into written Buyout Agreements and include certain mandatory language in them.
A copy of any executed Buyout Agreement must be filed with the Rent Board within 14 days after the tenant’s rescission period has expired. The Rent Board will be creating a publically searchable database of such agreements, and required disclosure and notice forms to use to comply with this law. If, in considering the purchase of a property, a buyer contemplates any Buyout Negotiations, any such buyer is strongly advised to seek qualified legal counsel concerning such plans before entering into a purchase agreement or removing any relevant contingencies.
The above is only a partial summary of the new law (CCSF Administrative Code §37.9E & Subdivision Code §1396(e)(4)). The full text can be found at: https://sfgov.legistar.com/View.ashx?M=F&ID=3320331&GUID=B92B8C60-2915-4AC5-A262-5C379255863E.
And then there were attempts to legalize those units especially with the ADU program. Take a look at the bits and bob below:
- The Chron’s coverage of the issue
- ADU Guidance
Contact us for more information.