In its continuing effort to maintain the City’s existing rental housing stock and rent-controlled units in particular, the San Francisco Board of Supervisors passed new legislation this week that tightly regulates buyout agreements between landlords and tenants. When a landlord wants to vacate a rental unit without a cause recognized by the Residential Rent Stabilization and Arbitration Ordinance (the “Rent Ordinance”), the landlord may negotiate a “buyout” agreement with the tenant, whereby the landlord pays the tenant a lump sum in exchange for the tenant voluntarily vacating the rental unit. Until now, such buyout agreements were unregulated by the Rent Ordinance-presumably because they involve a voluntary negotiation and agreement between a landlord and tenant.
Under the new legislation, such buyout agreements are subject to strict regulation under the Rent Ordinance. Prior to commencing a buyout negotiation, a landlord must now disclose to the tenant that the tenant (1) has a right not to enter into a buyout agreement, (2) may consult an attorney or the San Francisco Rent Board, and (3) may rescind a buyout agreement for up to 45 days after full execution of the agreement. Failure to provide the required disclosure may result in civil actions against a landlord for actual damages and civil penalties, which civil actions may be filed not just by the tenant, but also by the City Attorney or a tenant rights group. Landlords must also file with the Rent Board copies of executed buyout agreements so that the Rent Board may compile the agreements into a searchable database accessible to the public and provide annual reports to the Board of Supervisors regarding tenant buyouts. Strict timeframes apply to the required filings. The public will now have access to information about the number, location, and terms of buyout agreements in the City that was otherwise not disclosed to the public prior to the new legislation.
The new legislation also amends the San Francisco Subdivision Code to restrict or prohibit buildings from entering the condominium conversion lottery if owners have entered into certain buyout agreements. Prior to the new legislation, landlords could vacate rental units using tenant buyout agreements with no impact on condominium conversion of the building. Because a tenant buyout is not a regulated no-fault eviction, there was no restriction on conversion in a building in which buyouts had occurred. Under the new legislation, an owner is prohibited from converting a building into condominiums where seniors, disabled, or catastrophically ill tenants have vacated a unit under a buyout agreement after October 31, 2014, or where two or more tenants entered into a buyout agreement after October 31, 2014 and within 10 years prior to submittal of a condominium conversion application. These new rules are in addition to existing provisions of the Subdivision Code that restrict conversions of buildings where certain evictions have occurred.
The new legislation does not prohibit tenant buyout agreements. It adds new restrictions to buyouts that were previously unregulated. Except with respect to condominium conversions, the new regulations are largely procedural in nature. So long as a landlord follows the rules closely, tenant buyouts remain an option for a landlord wishing to vacate a unit or building.
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.