Legal Corner Q & A

Rent Board Changes

By Various Authors

Q. We own a small mixed-use apartment building, with two residential flats and a commercial unit below. What are the rules for condo-conversion, especially in regard to the commercial unit?

A. San Francisco’s residential condominium conversion rules vary, depending on the number of residential units on the lot. Commercial units are not counted when determining the applicable conversion rules. This means that the two-unit conversion rules apply to a building with two residential units and one or more commercial units.

Under the two-unit conversion rules, there are two ways for you to qualify a building for conversion. The first way is to owner-occupy both residential units for one year, with each residential unit occupied by a different owner. The second way is to owner-occupy one residential unit for three years and then win the annual condominium conversion lottery. The chances of winning the lottery are currently about 4 percent for first-time entrants, but your odds increase each year as you accumulate lottery priority. You must continue to owner-occupy one of the residential units until you win.

Once the building qualifies for conversion, the owners submit a conversion application that currently takes the city 12-18 months to process. A building inspection is part of the process. Any work performed without a permit, as well as any health and safety violations, must be corrected. Each of the units, both residential and commercial, will be a separate condominium at the end of this process. The cost of conversion for a 2-4 unit building is approximately $12,000. This amount includes city fees, surveying fees and attorney fees, but excludes the cost of repairs. More information is in my pamphlet, “Condominium Conversion In San Francisco,” available free at www.g3mh.com.
– Andrew Sirkin

Q. Supervisor Peskin recently passed two new changes to the San Francisco Rent Ordinance. What are these two changes?

A. The first change pertains to a tenant’s right to distribute letters and communications, or “leafleting.” Several years ago, a major apartment building owner successfully challenged a tenant association’s activity of passing out literature in the owner’s building. The California Supreme Court eventually decided the case. The court held that the Golden Gateway Center could limit and restrict the right of the building’s tenant association to distribute letters and information in the common areas of a building. The court reasoned that simply restricting leafleting in the hallways and lobby did not impede free speech, as this space was private property not akin to a public forum. According to the court, management’s “decision to forbid leafleting was not a state action which impinged on the association’s free speech rights.”

As usual, San Francisco ignored a Supreme Court precedent by passing an ordinance allowing tenants to use common areas in order to “distribute literature to other building tenants, including literature distributed on behalf of a tenants’ association…where the literature relates to issues of common interest or concern to the building’s tenancies.” This legislation means that not only can internal tenant associations distribute newsletters, but also citywide organizations such as the San Francisco Tenants Union could arguably use the new law to leaflet your buildings. The ordinance allows owners to establish “reasonable requirements as to the time, place, manner and volume” of such distributions, but the practical enforcement of leafleting restrictions is questionable at best. Hopefully, a disgruntled owner will file legal action to prevent ongoing enforcement of this legislation.

The other new law limits an owner’s ability to impose operating and maintenance (O&M) rental increases. As many of you know, the Rent Ordinance allows an owner to increase rent when there is a substantial increase in a building’s operating and maintenance budget. For example, higher property taxes, insurance, debt service, etc. often burden a new owner. Existing owners may experience a hike in water/sewer charges, garbage removal and janitorial servicing. The rent regulations (Section 6.10) set forth the various guidelines used to justify these types of increases. Before this year, an owner could receive up to a 7 percent increase beyond the allowable annual increase for each O&M petition filed.

Petitions filed after October 28, 2003, for buildings with six or more units, are now subject to a new limitation. The same owner cannot impose more than a total 7 percent base rent increase on any unit in any five-year period due to an increase in operating and maintenance costs. This means that, even if O&M costs dramatically increase in the second, third, fourth and fifth years after the O&M petition was granted in the first year, the owner is capped at a 7 percent total increase per unit and must absorb the subsequently incurred losses. For big building owners, this law could potentially have a serious impact on the bottom line, especially if a high inflationary period occurs and prices begin to escalate. Again, someone needs to present a legal challenge to this legislation.

Please remember to pay attention to the legislative updates and alerts. SFAA often sends mailers to you requesting your help in opposing harmful legislation that is under consideration. Even in this down rental market, the Board of Supervisors, as well as some lawmakers in Sacramento, continue to assault our ever-diminishing rights as owners. Make sure you stay involved.
– David Wasserman

Q. When a tenant notifies a landlord that she will be vacating the property, when does the clock start ticking on a Resident’s 30-Day Notice of Intent to Vacate? Is it 30 days after the postmark or after receipt? What if he or she telephones first?

A. Any notice of termination, whether it is served by the landlord or tenant, must comply with Civil Code Section 1946. That law provides that a notice of termination may be served in the following ways: (1) personal service; (2) serving any competent adult and mailing a copy (sub-service); (3) posting a copy in a conspicuous place and mailing a copy (nail & mail); or (4) certified or registered mail.

On a technical level, the 30 days begins to run on personal service when the landlord receives the notice or, with any of the other methods, when the notice is mailed (though with certified or registered mail, the case law is unclear whether an additional 5 days must be added). On a practical level, your tenant is not likely to understand or comply with all the requirements of Section 1946. I recommend that you send the tenant a letter acknowledging the communications and setting forth your understanding of the move-out date. Communication is the key with tenants to avoid conflicts.

A reminder that if the tenant does communicate his intention to vacate, you are obligated to give him written notice of his right to a pre-move out inspection. If the tenant elects to have a pre-move out inspection, the landlord must give the tenant an itemized statement specifying proposed repairs or cleaning that are the basis of any deductions, and the text of Civil Code Section 1950.5(d) (1-4).
– Jeffery P. Woo

The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Andrew Sirkin can be reached at 415-673-5600. David Wasserman is with Wasserman & Taxman, 415-567-9600. Jeffery P. Woo is the principal of the law firm of Woo & Associates, 415-705-6470 or by email at woo@mypropertyrights.com. Copyright © 2004.