San Francisco Buyout Agreements and Condominium Conversion Buyout Agreements

Legal Alert

  

Recent additions to Chapter 37 of the San Francisco Administrative Code, The Residential Rent Stabilization and Arbitration Ordinance, create significant disclosure requirements on landlords attempting to enter into Buyout Agreements for property subject to rent control, and great potential liability for those who do not comply.

Specifically, the addition of section 37.9E Tenant Buyout Agreements, subsection (d) requires that “prior to commencing Buyout Negotiations for a rental unit, the landlord shall provide each tenant in that rental unit a written disclosure, on a form developed and authorized by the Rent Board….” “Buyout Negotiations are “any discussion or bargaining, whether oral or written, between a landlord and tenant regarding the possibility of entering into a Buyout Agreement.”   Section 37.9E subsection (d) then specifies ten statements, lists, and other information that must appear on this written disclosure:

  1. “A statement that the tenant has a right not to enter into a Buyout Agreement or Buyout Negotiations”
  2. “A statement that the tenant may choose to consult with an attorney before entering into a Buyout Agreement”
  3. “A statement that the tenant may rescind the Buyout Agreement for up to 45 days after the Buyout Agreement is fully executed”
  4. “A statement that the tenant may visit the Rent Board for information about other Buyout Agreements in the tenant’s neighborhood”
  5. “A list of tenants’ rights organizations and their contact information”
  6. “A statement that information about tenants’ rights is available at the Rent Board’s office, through its counseling telephone number, and on its website”
  7. “A statement explaining the legal implications under Section 1396(e)(4) of the Subdivision Code for a landlord who enters into one or more Buyout Agreements”
  8. “If the landlord is an entity, the names of all people within that entity who will be conducting the Buyout Negotiations, as well as the names of all people within that entity who will have decision-making authority over the terms of the Buyout Agreement”
  9. “Any other information required by the Rent Board consistent with the purposes and provisions of this this Section 37.9E”
  10. “A space for each tenant to sign and write the date the landlord provided the tenant with the disclosure.”

Section 37.9E subsection (d) further requires the landlord to retain each signed written disclosure form for “five years, along with a record of the date the landlord provided the disclosure to each tenant.”

In addition, prior to any buyout negotiations, the landlord must provide further information, as specified in Section 37.9E subsection (e), to the Rent Board, on another form “developed and authorized” by the Rent Board. Required information includes the landlord’s name, business address, email address, and telephone number, the name of “each tenant with whom the landlord wants to enter into Buyout Negotiations,” the address of the rental unit, and a “statement signed under penalty of perjury that the landlord provided each tenant with the disclosure required by subsection (d) prior to commencing Buyout Negotiations.” This information will be available to the public; however, the identity of the tenants will be redacted.

The additions to the Administrative Code, in subsection (f), also create specific requirements of the Buyout Agreements themselves, including required statements, the minimum font size of the statements, and a place for tenant to initial these statements. If the Buyout Agreement fails to satisfy any one of the specific requirements in this subsection, then the Buyout Agreement will not be effective and can be rescinded by the tenant “at any time.”

Even if the Buyout Agreement meets the specific requirements of subsection (f), the tenant will have 45 days to rescind the Buyout Agreement. The Buyout Agreement must then be filed with the Rent Board by the landlord “no sooner than the 46th day after the Buyout Agreement is executed by all parties, and no more than 59 days after the agreement is executed by all parties.”  If the Buyout Agreement is rescinded during the 45-day window, then it does not need to be filed.

The Rent Board will have a “searchable database” of the filed Buyout Agreements. This database will “redact all information regarding the identity of the tenants.” However, nothing is mentioned as to redacting any information regarding landlords.

Liability for Failure to Comply

 Under Subsection (k) of the additions to the Residential Rent Stabilization and Arbitration Ordinance, a tenant who has vacated a unit pursuant to a Buyout Agreement can bring an action for failure to comply with subsections (d) and (f). The potential recovery for a tenant on such an action is tenant’s damages. There is also a penalty of up to $500.00 for violation of subsection (d) and 50% of tenant’s damages for subsection (f). Perhaps the largest liability from the new additions is, “The court shall award reasonable attorneys’ fees to any tenant who is the prevailing party in a civil action brought under this subsection (k)(1).” Additionally, if a landlord fails to comply with subsection (h) (the time for filing Buyout Agreements), the “City Attorney or any [tenant’s rights organization] may bring a civil action for failure to comply.” The penalty includes “$100 per day for each document the landlord failed to file” with a maximum of $20,000 per action. And again, the “court shall award reasonable attorney’s fees and costs to the City Attorney or a nonprofit organization that is the prevailing party in a civil action brought under this subsection (k)(2).” The amendments include a four-year statute of limitations for these actions.

These new disclosure requirements apply to all buyout negotiations which are initiated March 7, 2015, or later. The filing requirements apply to all Buyout Agreements executed March 7, 2015, or later.

Condominium Conversion

 An amendment to Section 1396 (e)(4) of the San Francisco Subdivision Code will further restrict the condominium conversion of units. This amendment
a) prevents the selling of residential condominium conversion lottery tickets to,
b) prevents the accepting residential condominium conversion applications from, and
c) denies a tentative or final subdivision or parcel map for condominium conversion from
“owner(s) of a building if, on or after October 31, 2014, (A) a senior, disabled, or catastrophically ill tenant in the building entered into a Buyout Agreement…for any unit in the building, or (B) two or more tenants entered into Buyout Agreements during the period beginning ten years prior to the date of the application and ending on the date of the final or parcel map approval.”

It does not matter whether the current owner was a party to the previous Buyout Agreements. The amendment defines a senior tenant as a person who is 60 years or older and has been living in the unit for at least ten years. A disabled tenant is one who is disabled under Title 42 United States Code 12102, and a catastrophically ill tenant is one who is disabled and “suffering from a life-threatening illness as certified by his or her primary care physician and has been residing in the unit for five years or more at the time of the Buyout Agreement.”

Conclusion

These recent additions create a new layer of obligations for those landlords desiring to enter into Buyout Agreements and provide even more need to have legal counsel involved at the earliest stages.

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. While KTS provides clients with information on legislative changes, our courtesy notifications are not meant to be exhaustive and do not take the place of legislative services or membership in trade associations. Our legal alerts are provided on selected topics and should not be relied upon as a complete report of all new changes of local, state, and federal laws affecting property owners and managers. Laws may have changed since this article was published. Before acting, be sure to receive legal advice from our office. For contact information, please visit our website: www.kts-law.com. For past Legal Alerts, Questions & Answers and Legal Articles, please consult the resource section of our website.

 

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