A New Era for Tenant Buyouts in San Francisco
By Jeffery Woo, Esq.*
Cooper, White & Cooper LLP
In the midst of our housing crisis, the Board of Supervisors has enacted a law which would appear to make a casualty of common sense. Effective March 7, 2015, the process, and even terms, of a voluntary buyout agreement between property owners and their tenants have become highly regulated.
To start, before an owner and tenant can speak about the subject of a buyout, the owner must have already served a disclosure form on the tenant and file a declaration with the Rent Board. Failure to comply with these pre-negotiation requirement may subject an owner to a lawsuit by either the City, the tenant, or a non-profit organization formed to protect the interest of tenants, such as the Tenderloin Housing clinic or any of the other dozen such organizations that exist in San Francisco. We routinely advise clients to serve these documents now whether or not they ever intend on soliciting a buyout from their tenant.
Once served and filed, there is an unlimited period in which you can speak with your tenant and, in this town, you never know what might happen.
Once the disclosure form is served and the declaration is filed with the Rent Board, you are free to speak with your tenant about a buyout. If you can work out a deal with your tenants, the buyout agreement must contain a number of mandatory provisions in 14-point type, including the statement "You, the tenant, may cancel this agreement at any time before the 45th day after all parties have signed this agreement." Failure to include all the required provisions makes the agreement rescindable by the tenant at any time. If may also subject to you to a lawsuit.
This 45-day rescission period creates a number of problems for both landlords and tenants. Firstly, as a practical matter, it will highly discourage landlords from paying any money to a tenant before the expiration of the 45-day period. If a landlord were to do so, he risks paying money only to have to chase a tenant who later rescinds. This hurts both sides as often, tenants will need money up front to have sufficient funds to move.
Secondly, for those tenants who are willing to move quickly, the 45-day period put up a road block to such agreement. Either the tenant must take a risk and agree to be paid 46 days later, or the owner must take the risk and pay earlier than 46 days. Beyond the mandatory language, a buyout agreement must now be registered with the Rent Board and its information will become public. More importantly, a buyout will now effect an owner's condo conversion rights. The new ordinance provides that if an owner buys out more than one tenant in a building, the property will lose condo rights for 10 years. If just one protected or disabled tenant is bought out, the property will lose condo rights permanently. These rules are in addition to the prior existing rules relate the evictions and their effect on condo rights.
This new law creates substantial risks for the unaware. The complexities of negotiating with a tenant and complying with the new law have become higher than ever. Owners and their REALTORS® are advised to seek the advice of a qualified attorney. . . or just don't speak with you tenant.
* Jeffery Woo is a partner with law firm of Cooper, White & Cooper LLP, where he heads the Complex Rental Property Group. He specializes in litigation issues related to residential and commercial real estate. He is the 2012 past President of the San Francisco Association of REALTORS® where he continues to serves as a director. Mr. Woo also serves as a director for the California Association of Realtors, where is has been appointed Key Contract for Assembly Member Phil Ting. He has been elected as a delegate to the State Democratic Caucus. He has served as a past president of the Chinese Real Estate Association of America, past director for the San Francisco Apartment Association, and past director for the Asian Real Estate Association of America. He has published over two dozen articles on the subject of Real Estate, Property Rights and Rent Control.