What Every TIC Owner Should Know Before Renting Out His/Her Unit
by: Andy Sirkin
Although the vast majority of TIC buyers intend to occupy their new homes, people move more and more frequently, and the permanency and duration of these relocations is often unclear. A consequence of this cultural and economic shift is a tendency of relocating homeowners to keep and rent out their home in case they need it later. The temptation to hold and rent is amplified by rising rental income potential, and by the increasing number of owners whose affluence makes it unnecessary to sell the old home in order to buy a new one.
In light of this trend, TIC buyers must understand the unique aspects of renting a TIC unit. San Francisco's eviction control laws, which govern all buildings constructed after 1979, require "just cause" for tenant eviction. And while the desire of an owner to move into his/her home is just cause, the law imposes requirements that many TIC owners cannot satisfy.
One requirement for an "owner move-in" eviction is 25% ownership. The application of this rule in the TIC context is widely misunderstood. In a TIC, no one owns a particular apartment; rather, each TIC group member owns a percentage of the entire building, and the percentages are generally not equal. The result is that many TIC owners do not hold title to 25% of their building, especially if the building has four or more units. Moreover, even a 25% owner cannot evict if the building had a prior owner move-in at another unit.
A state law called the Ellis Act provides an alternative method for owners wishing to occupy their TIC unit. But the Ellis Act requires that all the tenants in every residential unit be evicted, and then limits all re-rentals at the building for 2-5 years (depending on circumstances).
Since evictions under both the owner move-in rule and the Ellis Act have a direct impact on future evictions and rentals for all of the TIC owners, and can also delay or block a future condo conversion, most TIC Agreements require the unanimous approval before an owner can evict. As a result, even where a TIC owner has a legal right to evict under San Francisco's rent ordinance, the inability to get all the TIC members to agree can block the eviction.
Many TIC buyers incorrectly assume that having a tenant sign a one-year (or other limited-duration) lease will ensure the owner's ability to re-occupy their home. But a San Francisco tenant in a pre-1979 building is not required to move out at then end of a lease no matter how and what he/she has promised the owner. A "tenant buyout" can be a solution, but there is no guarantee the tenant will agree and, under a new law, even buyouts can permanently affect or block a future condo conversion.
For all of these reasons, TIC units should be purchased strictly for owner-occupancy. If the homeowner needs to move, the prudent strategy is to sell the unit rather than rent it. Once a tenant has possession of the TIC unit, there is usually no way for the owner to get it back, and the value of the unit to a future buyer or lender will be significantly diminished.