As we reported in our July 13, 2013 Update, last year the San Francisco Board of Supervisors (“Board”) passed an ordinance establishing the Expedited Conversion Program (“Program”), designed to alleviate the huge backlog of Tenancy in Common (“TIC”) units waiting to convert to condominiums. The Program permits qualified TIC owners to convert their units to condominiums, in exchange for payment of a conversion fee (“Fee”) of $20,000 per unit (although the fee may be reduced for qualifying units).
The ordinance provides that an applicant for conversion under the Program may appeal to the Board for a reduction, adjustment or waiver of the Fee “based upon the absence of any reasonable relationship or nexus between the impact of development and the amount of the fee charged…” While this standard for appeal is vague, it appears to be limited to a general challenge of the Fee requirement in the Program, as opposed to a challenge based upon the impact of the Fee as applied to a particular TIC owner. To the Board’s chagrin, this right of appeal of the Fee resulted in appeals not anticipated by the ordinance, such as an appeal based upon an owner’s inability to pay the Fee due to financial hardship.
To avoid further appeals not permitted by the Program, Supervisor London Breed sponsored an ordinance that was passed by the Board on April 29, 2014. The new ordinance authorizes the Clerk of the Board to reject appeals of the Fee if the Clerk determines that the appeal on its face does not challenge, on a factual or legal basis, the relationship or nexus between the impact of development and the amount of the Fee charged. To temper this authority granted to the Clerk, a Board Supervisor may permit the appeal and schedule a hearing, even if the Clerk determines that the appeal does not meet these standards.
To balance the limitation of appeals in the new ordinance with the legitimate concerns of cash-strapped TIC owners who are unable to pay the Fee when required under the Program, the new ordinance permits certain qualifying low and moderate income owners to defer payment of the Fee until six months after the condominium map is recorded. This is intended to give such owners time to refinance their units based upon its increased value as a condominium, and presumably use money from the refinance to pay the Fee.
To participate in the conversion Program, certain units must have been continuously owner-occupied for designated periods of time (typically 3 years), with no gaps in occupancy greater than 3 months. This presents a hardship for those buildings in which there was a foreclosure due to an owner’s failure to pay its mortgage, as such units often stay vacant for several months until a TIC new owner occupies the unit. Such a foreclosure would prevent the other innocent TIC owners from converting under the Program through no fault of their own. To alleviate this hardship on innocent owners in a TIC building where a unit has been unoccupied for greater than 3 months due to a foreclosure, the new ordinance increases the permitted period gap in occupancy for one qualifying unit per TIC building to one year.
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
