The Property Management Shop
by Marc Wilson
Q. The property management industry appears to be abuzz about the Baba v. Rent Board Case, a case that has something to do with tenant buyouts and the Daly Amendment. Can I offer to pay a tenant to vacate? Can I get sued for offering money to a tenant to vacate? What is the current status of and practical realities inherent in tenant buyouts?
A. I abhor negotiating with tenants. I can’t help it. I find the entire process of buying out a tenant sickening. I doubt there is any singular thing that so clearly demonstrates the taking nature, the bitter unconstitutionality and the grotesque unfairness of rent control as much as the act of paying a tenant to vacate a piece of real estate that I own. Think about it. When you pay a tenant to vacate, you are transferring assets from you, the owner, to a third party, the tenant. You, as the owner, are not voluntarily transferring your assets to the tenant. You are transferring your assets to the tenant in an effort to free yourself from monthly “takings.” Yes, my friends, a tenant who is paying a below-market rent is taking from you on a monthly basis. When you buy off a tenant, you are ending the monthly takings by paying one big taking.
How in the world can tenant activists argue that rent control is not a taking? Money is paid and assets are transferred. In my own case, my bank account shrinks and the tenant’s bank account grows. None of this is happening with the consent and goodwill of the property owner. Believe me, the property owner would rather just raise the rent or terminate the tenancy—property rights that, I might remind you, exist in 99% of all other rental communities in this great nation. I do not voluntarily allow my tenants to pay a below-market rental rate. The government forces me to do this. I do not voluntarily pay my tenants to vacate. The government forces me to do this. The government is taking from me and giving to the tenants.
A couple of years ago Supervisor Daly promulgated, and the other supervisors approved, a couple of interesting amendments to the Rent Ordinance that contained three requirements of all owners who seek to end the monthly takings by paying one big taking (known as buying out a tenant). The first requirement compels an owner to put the owner’s threat or request for a tenant to move in writing within five days of making the initial threat or request. Second, independent tenant counsel and court approval are required for a valid waiver of tenant rights under the Rent Ordinance. Third, landlords must file settlement agreements, for example buyout agreements, with the Rent Board.
I know you will find this hard to believe, but Supervisor Daly apparently has an even lower opinion of the average San Francisco tenant than I do. Supervisor Daly does not think that the average San Francisco tenant is capable of negotiating his/her own big taking. Supervisor Daly feels that—for whatever reason—the average tenant is not contractually capable and is also, in my opinion, mentally incompetent or otherwise incapacitated as well. Why not just force the tenants to get a note from their mommy authorizing the agreement?
Needless to say, the court ruled that Daly’s amendments were unconstitutional. The city, in all its wisdom, appealed. In December 2004, the city lost its appeal. I will not get into all the details (please read San Francisco Apartment Magazine, January 2005, Court Talk column for more information), but the courts’ ruling belittles and demeans the Daly Amendments and, I assume, any person or body that would be in support of such legislative garbage. I actually have sympathy for the City Attorney. Can you imagine being forced to defend something like the Daly Amendments in a court of law? You could not pay me enough to clean up after Supervisor Daly’s legislative odysseys. I am simply too dignified.
I guess I should answer your question. If you are so inclined, you do have the right to negotiate a big taking (a buyout) with your tenant. Remember that the entire process is fraught with legal risk and is an inherently distasteful action. The buyout process has always been and remains very entrepreneurial. You should never initiate buyout conversations with a tenant without talking to someone who really, really knows this business. Even if you are approached by a tenant who wants a buyout, you should seek legal counsel. Never put anything concerning a buyout in writing or say anything in front of a third party concerning a buyout until you have obtained competent counsel. For me or anyone else to give you a pragmatic list of buyout policies and procedures is really an impossible task. Each situation is different and needs to be handled with care and prudence. I can tell you what I do when tenants call me and request a buyout—I inform them of my sincere and heartfelt intention to outlive them.
opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Marc Wilson is the current president of SFAA. He has been managing and selling San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.