[Update: the proposed amendment to the Buyout Ordinance was passed as Ordinance 36-20 on March 6, 2020 with an effective date of April 6, 2020.]
In 2014, San Francisco led California rent-controlled jurisdictions by enacting a “buyout ordinance” to regulate the payment of consideration to a tenant in exchange for their voluntarily vacating. (There are many reasons a landlord would want to do this, but the most compelling one is that Costa-Hawkins permits landlords to charge market rate when a tenant voluntarily vacates their unit. The landlord can recognize a sudden increase in rental income, and the tenant can liquidate the non-transferrable “asset” of rent-control.)
San Francisco’s ordinance imposes certain tenant-protection features, like the compelled notification of tenant rights, including the right to rescind a buyout agreement even after entering one. San Francisco also uses the regulation to collect information on when and how often these agreements are happening. It also collects information about the buyout amount and the status of the displaced occupants. Viewing the loss of low-paying, rent controlled housing as a vice, it applies this information to punish landlords for paying elderly and disabled tenants to move by eliminating certain boons like condo conversion.
To avoid the ordinance, some landlords have filed unlawful detainer actions and settled them to avoid the buyout ordinance. (As currently written, the language expressly exempts the settlement of an unlawful detainer action.)
The Board of Supervisors recently introduced an amendment to the buyout ordinance to capture more agreements within the scope of the buyout ordinance. As introduced, the legislation notes: “Elevating form over substance, some landlords will start buyout negotiations, but then file unlawful detainer actions so that they can resolve the negotiations as ‘settlements’ rather than as ‘buyouts’, and thereby avoid complying with the Buyout Ordinance.”
In its current form, the buyout ordinance would apply to any agreement to settle a pending unlawful detainer action, if the action was filed within 120 days after buyout negotiations commenced. It would also void any such agreement that is not filed with the rent board within 59 days of execution. While San Francisco may have an interest in knowing the circumstances under which its tenants are vacating their rental units, the state (particularly the courts) have an interest in the integrity and enforceability of settlement agreements to fully and finally resolve claims. (And to the extent the City views unlawful detainer actions as “high pressure buyout negotiations”, it might be assured that its Proposition F budget is adequately supporting tenants who prefer not to settle.)
