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San Francisco Legislative Updates for 2015: Regulation of Tenant Buyout Agreements

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Ordinance 225-14 becomes operative on April 6, 2015. It adds section 37.9E to the Rent Ordinance, and it imposes onerous requirements to the conduct of an owner/landlord who wishes to negotiate for a “buy-out” with their tenants. Some of these requirements even apply prior to the commencement of negotiations.

The Rent Board will create a form with some required information that a landlord needs to provide a tenant prior to commencing negotiations. The form includes a dated signature from the tenant, indicating when they received the disclosure. Then – and still prior to “negotiating” – the landlord has to file a form with the Rent Board with some biographical information about the landlord, tenant and property and an affidavit that the tenants received the form.

Then… the landlord can start negotiating. The actual agreement must be in writing, and it must include several specific statements – the lack of any of which will allow the tenant to rescind the agreement at any time! And, even if all of those statements are included, the tenants may rescind for up to 45 days after execution.

Buy-out agreements must also be filed with the Rent Board, after the tenant’s right to rescind has expired, but no later than 59 days after execution (i.e., there’s a two week window).

This also requires the Rent Board to make a searcheable database of buyout agreements. So, this is probably headed toward creating an “MLS of buy-outs” to equip tenants with better information for fetching the highest price for their rent controlled tenancies.

This section creates civil liability and provides an attorneys’ fee provision for tenants in suing landlords who haven’t complied with the requirements, and it has a four year statute of limitations.

It also imposes strict limitations in the condo conversion lottery. This will add language to section 1396 of the Subdivision Code preventing conversion if the owner has bought out a single elderly or disabled tenant, or if they’ve bought out any two tenants within ten years of final map approval.

Legislative language available here.

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San Francisco Legislative Update for 2015: Compensation, Or Substitute Housing Service, for Tenants Affected by Temporary Severance of Specified Housing Services During Mandatory Seismic Work

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Ordinance 173-14 became effective on August 30, 2014. Building Code chapter 34B requires building owners to perform seismic retrofitting work on wood-frame buildings. This ordinance altered the language of section 37.2(r) of the Rent Ordinance (“rental units”), to allow for “housing services” to be severed from the tenancy when it is necessary for the specific purpose of performing this retrofit work. It also added chapter 65A to the Administrative Code, which describes the procedure and sets the rate of compensation for the severance.

Landlord’s severing housing services to retrofit must give thirty days notice to the tenants of the housing services to be severed and the amount of time they’re going to be severed. The rate is either the value of the housing service as stated in the rental agreement (if applicable) or the per diem cost of a replacement service on the open market, not to exceed 15% of the base rent, per unit.

Legislative language available here.

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San Francisco Legislative Update for 2015: Amending Regulation of Short-Term Residential Rentals and Establishing Fee

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Ordinance 218-14 will become operative on February 1, 2015. It is a big piece of a broader effort by San Francisco to regulate AirBnb, VRBO and other hosting platforms in the increasingly popular “sharing economy”. The changes impact the eviction provisions of the Rent Ordinance, as well as the interpretation of this kind of use within the Residential Unit Conversion Ordinance. The short version is that owners may not offer rental units on hosting platforms, and tenants might be able to, under certain conditions.

In order to comply, a tenant has to register the unit with the new Planning Department registry for keeping track of transient use. They have to obtain insurance and a business license, pay the transient occupancy tax. They must occupy the unit for at least 275 days out of the year (or 75% of a prorated year), and they cannot profit off the “subletting” (to the extent they are subject to the rent-control provisions of Section 37.3 of the Rent Ordinance).

This new exception expressly does not supersede restrictions against housing platform listings in CC&Rs, leases or TIC agreements, so, as with many landlord-tenant issues, the first place to check for authorization is the lease agreement itself.

The biggest change for landlords is probably the new language in Rent Ordinance Section 37.9(a)(4): “The tenant is using or permitting a rental unit to be used for any illegal purpose, provided however that a landlord shall not endeavor to recover possession of a rental unit solely as a result of a first violation of Chapter 41A that has been cured within 30 days written notice to the tenant.” (New language in bold.)

Legislative language available here.

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San Francisco Legislative Update for 2015: Campos Amendment relocation assistance on Ellis Act Evictions

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Ordinance 54-14 amended the Rent Ordinance to increase relocation assistance to two years worth of rent payment differential between the existing unit and a comparable unit. At the moment, this has been found unconstitutional (see, Jacoby, et al. v. CCSF, San Francisco Superior Court Case No. CGC-14-540709, and Levin v. CCSF, Federal District Court case no. 3:14-cv-03352), but the City is appealing the decision. Keep checking Costa-Hawkins.com for updates.

Legislative language available here.

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San Francisco Legislative Update for 2015: Temporary Tenant Household Dislocation Compensation

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Ordinance 44-14 became effective on May 18, 2014, and it was enacted to bring the Rent Ordinance into compliance with California Civil Code, section 1947.9 (January 1, 2013,), which limits relocation assistance payable for temporary evictions where the landlord carries out capital improvements or rehabilitation work.

Section 1947.9 limits the compensation that a landlord would otherwise have to pay to tenants (under section 37.9C) for displacements of twenty days or less to $275 per day and actual moving expenses. Or, in lieu of payment, the landlord can provide a “comparable dwelling unit”.

Legislative language available here.

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San Francisco Legislative Update for 2015: “Authorization of Dwelling Units Constructed Without a Permit in an Existing Building Zoned for Residential Use”

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Ordinance 43-14 became effective May 7, 2014. It allows an owner of a building with an illegal “in-law” unit (one built without a permit), which was built before January 1, 2013, to apply to the Building Department for a permit to legalize it.

The owner may not legalize the in law unit where they have evicted a tenant under section 37.9(a)(8) of the Rent Ordinance (“owner move-in” eviction) within five years or under any of the other non-fault eviction provisions within ten years (with an exception for capital improvement evictions if the tenant received an offer to re-rent and/or actually moved back in). The owner may not pass costs of conversion through to the tenant. And the new unit is not eligible for condo conversion.

Legislative language available here.

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San Francisco Legislative Update for 2015: “Hearings on Alleged Wrongful Endeavor to Recover Possession Through Tenant Harassment”

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Ordinance 1-14 became effective in February 13, 2014. It added subsection 37.9(a)(l) to the San Francisco Rent Ordinance, and it creates a procedure where tenants can file a report with the Rent Board based on alleged tenant harassment (within the meaning of section 37.10B). Then the Rent Board can set a hearing, take evidence and either file a civil action or refer it to the DA for prosecution.

Legislative language available here.

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Surreal Estate Q&A #1: San Francisco Permissible Rent Increases

I’ve got a quick question regarding rent control policies in San Francisco. I have a single family home that is rent controlled. My landlord wants to raise the rent 4% (above standard rent control increase, I believe). Additionally, the tenant before me was evicted which I believe has some impact on this policy. Can you provide any insight as to his rights?

~ Kate (San Francisco, CA)

First, I see a red flag with “a single family home that is rent controlled”. This is certainly possible, but it is rare. The general rule is that single family houses are exempt from rent control by state law (i.e., Costa-Hawkins).

This is the current link for allowable rent increases in San Francisco. SF Rent Increases. The current annual increase is 1%, and 4% is obviously greater than 1%. However, this is only relevant if the house is rent-controlled. Otherwise, market-rate increases are permissible.

As for the eviction in the previous tenancy, section 37.3(d)(1)(A) of the San Francisco Rent Ordinance says: “The owner’s right to establish subsequent rental rates under this paragraph shall not apply to a dwelling or unit where the preceding tenancy has been terminated by the owner by notice pursuant to California Civil Code Section 1946 or has been terminated upon a change in the terms of the tenancy noticed pursuant to California Civil Code Section 827: in such instances, the rent increase limitation provisions of Chapter 37 shall continue to apply for the duration of the new tenancy in that dwelling or unit.”

“Eviction” is a little vague. Actually, so is “tenant”. The issue is not merely if the previous tenant was evicted, but whether the entire previous “tenancy” (i.e., this had to be everyone, not just your former housemate) was terminated and whether that termination was based on a “non-fault” “just cause” for eviction, under the San Francisco Rent Ordinance.

To clarify: If a landlord evicted all of the previous tenants because they, e.g., didn’t pay rent or breached their lease, they would have used a Cal. Code Civ. Proc., §1161 “eviction” notice (not a Cal. Civ., §827 or §1946 notice), and this doesn’t make a difference to your situation. On the other hand, if the previous tenancy was terminated because the owner wanted to conduct capital improvements or rehabilitation work or reside their as their permanent place of occupancy (i.e., an “owner move-in”), they would have used a Cal Civ., §1946.1 notice to terminate the tenancy.

You can call the rent board (see the section “Find Your Local Rent Board” under the “Resources” section of the menu), which should have information about recorded, non-fault “notices of termination of tenancy”. Unfortunately, without such a termination, it sounds like the unit probably isn’t rent-controlled, so 4% is actually a deal.

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Reading Legislative Intent into Costa-Hawkins: Burien, LLC v. Wiley, Cal. Court of Appeal, 2nd Appellate Dist., 5th Div. 2014

“[T]he court is not prohibited from determining whether the literal meaning of a statute comports with its purpose or whether such a construction of one provision is consistent with other provisions of the statute.”

In Burien, LLC, the Court of Appeals of California, for the Second District, dealt with the Costa-Hawkins exemption from rent control for dwelling units with new certificates of occupancy.

As followers of Costa-Hawkins.com know, the general rule for periodic (“ongoing”) tenancies in California is that the landlord can increase the rental rate to market rate on (usually) 60 days’ notice. A dozen cities in California provide an exception in the form of rent ordinances. In those cities, “covered units” have rent increase limitations that generally key rent increases to increases in cost of living.

In 1996, California enacted the Costa-Hawkins Rental Housing Act, which established exemptions for certain categories of units that local rent control laws would not inhibit. Specifically, Costa-Hawkins exempts units from rent control that have a certificate of occupancy issued after February 1, 1995, that were already exempted under local rent control when Costa-Hawkins came into effect, or where the dwelling unit is “alienable separate from the title to any other dwelling unit”. (The latter was amended in 2001, to impose further restrictions on condominium units.)

The court in Burien, LLC addressed a novel issue where an apartment building, protected against rent increase limitations under the Los Angeles Rent Stabilization Ordinance, was later converted into condominium, with a new “certificate of occupancy” based on a “change in use”, in 2009

Of course, the apartments already had a certificate of occupancy. The defendant in Burien, LLC had been living in the building since 1981. However, when the landlord purchased the building, converted it into condominiums, and obtained a new certificate of occupancy in 2009, it asserted that the newly issued certificate fell within the Costa-Hawkins exemption for dwelling units with “a certificate of occupancy issued after February 1, 1995”. (Cal. Civ., §1954.52(a)(1).)

The landlord’s argument sought to assert the exemption’s semantics over its substance. It was, of course, technically accurate that, while the apartment in question was previously rent-controlled from 1981 through 2008, as the landlord obtained a new “certificate of occupancy” in 2009, the new certificate was clearly issued after 1995. However, after acknowledging that it was authorized to disregard plain language in favor of harmonizing the exemption with its broader purpose, the court considered that, e.g., the rent ordinances of Los Angeles, Oakland and San Francisco specifically extend the exemption only to new certificates of occupancy, and concluded that it was reasonable to apply the exemption only to the first certificate of occupancy that created new residential units. In other words, the California Legislature meant for the §1954.52(a)(1) exemption to apply to either new construction or repurposed buildings. In either case, the landlord is increasing the supply of residential dwelling units, and she should be rewarded for doing so. But a mere “change” in use – from one kind of residential unit to another – does not achieve the goal of the exemption.

And this legislative intent was reaffirmed by the 2002 Amendment to Costa-Hawkins. Prior to 2002, wily landlords were using the third exemption from rent control in Costa-Hawkins – for separately alienable units – to obtain all the permits for conversion of rent-controlled apartment buildings to condominiums, availing themselves of the “separately alienable” exemption, but never actually alienating – i.e., never actually selling the condominiums to owner-occupiers, as an affordable housing alternative. They achieved the best of both worlds – multi-unit dwellings, occupied entirely by renters, but without rent increase limitations.

The California Legislature closed this “loophole” in a 2002 amendment to Costa-Hawkins, by withholding the exemption from condominiums, unless the condominium unit was sold separately to a “bona fide purchaser for value” or else the subdivider sold every other unit except one, and she lived in that unit for at least a year.

The court in Burien, LLC stressed that the 2002 amendment would have no purpose if a landlord merely had to obtain a pretextual “certificate of occupancy” based on a condo-conversion: if a landlord received a new certificate of occupancy, based on a change in use, she would necessarily meet the exemption under the landlord’s interpretation of §1954.52(a)(1), without either the bona fide purchaser requirement or the one-year-residence requirement of §1954.52(a)(3)(B)(ii).

Costa-Hawkins is not a model of clarity; but the Court of Appeals elucidated the first exemption, by holding that a certificate of occupancy must be the first certificate of occupancy that approves a building for its first residential use.

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Burien, LLC V. Wiley (2014) 230 CAL. APP. 4TH 1039

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Federal District Court Overturns Enhanced Ellis Act Relocation Payments

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Last week, the United States District Court for the Northern District of California invalidated an amendment to the San Francisco Rent Ordinance requiring an increase to the existing relocation payments owed to tenants in non-fault evictions pursuant to the Ellis Act. The new, enhanced payments were calculated based on market rate differentials – the difference between the tenant’s rent-controlled rental rate and the cost of a comparable unit on the open market. In some cases, this number reached six figures per unit.

Finding that the new law constituted a monetary exaction, prohibited under the Takings Clause without the payment of “just compensation”, Judge Breyer found that there was no “essential nexus” between the right to change the use of property (i.e., to no longer allow rentals) and there was no “rough proportionality” between the costs a displaced tenant faced on the open market and the direct consequences of a decision by the landlord to go out of the rental business. (By contrast, challenges to the previous relocation payment scheme, requiring a payment based on the cost of first months’ rent, last months’ rent, and security deposit at a new rental unit, have been upheld as comporting with the Ellis Act.) The City is expected to appeal the decision to the 9th Circuit.

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