Q & A: Is My San Francisco Condominium Subject to Rent Control?

“Is My San Francisco condominium subject to rent control?”

This is an interesting question, and the answer is surprisingly complicated. First, some general principles. Cities may constitutionally impose rent control ordinances, so long as they provide fair returns to property owners. San Francisco’s Rent Stabilization and Arbitration Ordinance applies to all “rental units” – a term that includes basically all dwelling units with certificates of occupancy issued before its effective date, June 13, 1979.

However, Costa-Hawkins, effective as of January 1, 1996, exempted certain kinds of dwelling units from local price controls, including those that were “alienable separate from the title to any other dwelling unit” (namely, single-family homes and condominiums). San Francisco eventually amended the Rent Ordinance in 2000 to respect the interplay between state and local law.

In the years after Costa-Hawkins’ enactment, some property owners were claiming the benefits of condominium conversion without actually selling any of them as separately alienable units. Essentially, the owner of an apartment would get final map approval to be able to sell the individual units in a (former) apartment building, using this as a pretext to increase rents on existing tenants. In 2001, the California Legislature identified this as a “loophole” in Costa-Hawkins and passed SB 985, amending Costa-Hawkins to exempt condos only under certain circumstances.

Effective January 1, 2002, these particular separately alienable units only deregulate when each is “sold separately by the subdivider to a bona fide purchaser for value” (or, where each other one is sold separately except a single unit that the subdivider keeps as a primary residence).

Now, as a technical matter, the Rent Ordinance was never amended again to impose this additional requirement, so arguably, condos are only required to be “separately alienable” and not also “sold to a bona fide purchaser for value”. (If the Rent Ordinance doesn’t seek to regulate the unit in the first place, an owner wouldn’t need the help of state law.) However, in this author’s experience, neither the Rent Board nor the Superior Court favor this reading.

City of West Hollywood v. 1112 Investments Co., the principal authority on SB 985 and the 2002 Amendment, notes that the “bona fide purchaser” requirement only applies prospectively. So, if your building was condo-converted before January 1, 2002, it does not need to have been sold separately. (Although, Costa-Hawkins does not extend this exemption where the preceding tenancy was terminated for a non-fault basis (like an Owner Move-In eviction), so arguably, this could subject a condo to rent control for the following five years (under the Jane Kim Amendment) as to the next tenancy.

Costa-Hawkins does not define “subdivider”, but it probably means that the current owner of the would-be exempted condo cannot have been a co-owner of the multi-unit building during the subdivision or an owner of an entity that performed the subdivision. “Bona fide” is also undefined, and that term is notoriously amorphous in different legal contexts. It probably means that there is a notion of “arms-length” negotiating, but it could potentially include selling to a family member, and even “giving them a deal”, as long as they pay some kind of non-trivial consideration for the property.

It is also important to note that a dwelling unit can be exempt from rent control yet still subject to eviction controls. While San Francisco’s definition of “rental unit” excludes units “to the extent such dwelling or units are partially or wholly exempted from rent increase limitations by the Costa-Hawkins Residential Housing Act”, it only excludes units entirely if they are “new construction” – those with certificates of occupancy issued after the effective date of the Rent Ordinance.