Planning Ahead

New Planning Department Policies on the Merger of Dwelling

by M. Brett Gladstone

The San Francisco Planning Department has received close to 100 applications for unit mergers in the last two to three years. Three factors are driving the increased trend to merge units:

(1) single-family homes are now more valuable than many two-unit buildings;
(2) families who have additional children or who care for elderly relatives need more space but cannot afford to buy a new building; and
(3) owner/occupants wish to create tenancies-in-common (TICs), which could lead to condo conversions, but the number of units in a building makes the building ineligible or more difficult to convert to condos.

Unless one can prove that a unit was created without permits, all requests for merger must go before the San Francisco Planning Commission for approval. The Planning Commission approval will occur only if three of the following five criteria are met that show:

(1) minimization of hardship to tenants resulting from displacement;
(2) the units being merged have design or functional deficiencies;
(3) removal of the unit will make the lot conform more closely to the immediate area's average number of units per lot;
(4) removal of a unit is necessary to preserve an historic structure; and
(5) the units are intended for occupancy by the owner.

The Planning Department is also considering adding two additional criteria:

(1) removal of the units would not eliminate rent-controlled housing (this is almost always the case and would make mergers even more difficult) and
(2) removal of the units would not eliminate affordable rental units as defined by the city.

Currently, the city defines affordable to mean those units that are rented out at a level that can be afforded by tenants who make as little as 60% of the median income. An affordable two-bedroom unit could be defined as one that rents for approximately $1,500, which gets adjusted for bedroom size.

There may be some ways, which are in the control of the owner, to more closely meet some of the above criteria. One way is to agree not to merge a unit completely but to reduce one unit by perhaps 25% to 50% below its current square footage as long as the unit does not become short of light and amenities. Another way is to deal with the tenant-displacement issue by making a potentially displaced tenant into an owner in a TIC with the existing owner(s).

In deciding whether one is eliminating an illegal unit, the Planning Department has traditionally relied mostly on the 3R Report for the building as the determination for how many legal units are in the property. Since these reports are notoriously inaccurate, you must obtain the actual permits referred to in the 3R Report. However, at times the Planning Department will rely on Sanborn Maps (a very unreliable source), Water Department records, Assessor's records and affidavits from previous building occupants.

The city has recently reported that the Planning Commission approves a majority of the merger cases they review. Some of those turned down by the commission get approved by the San Francisco Board of Appeals, which has chosen to interpret some of the criteria differently. However, what is not reported is that a very large number of applicants who apply for mergers get discouraged by the Planning Department's staff who indicate that the chances of success are very limited, and thus they withdraw their applications before they go before the Planning Commission. How the planning staff assesses chances of success and how land-use attorneys assess it can be very different, as land-use attorneys perhaps can more clearly point out to applicants how to address some of the nuances of the above-listed criteria.

Before closing escrow on a building when a merger of a unit is contemplated, buyers should seek the advice of legal counsel to assess the chances of meeting the above criteria. These criteria are often roadblocks to middle-class families who wish to stay in the city and need additional space, but they cannot afford the extraordinary prices asked by sellers of single-family homes. This dilemma needs to be the focus of those seeking unit mergers. Also, although the city can limit mergers, an important point to remember is that the city cannot force owners to rent out units and owners can legally occupy two or more units at the same time in one building. Perhaps that, along with the tendency of the merger policy to frustrate growing families who need more space, is why some in the real-estate industry who work on these Dwelling Unit Mergers' applications simply call them by their initials: the �DUM� applications.

The 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. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Over the past decade, Gladstone & Associates has carved out an authoritative niche in San Francisco's land-use policy. Copyright ©2005 by the San Francisco Apartment Magazine. All rights reserved.