Feature
by Barbara Herzig
With the enactment of legislation that places additional restrictions on the types of buildings that can be converted to condominiums, the San Francisco Board of Supervisors took another step toward accelerating the flight of the middle class from the city. The legislation, sponsored by Supervisor Aaron Peskin, disallows condo conversions in buildings where certain types of evictions have occurred.
In general, 200 lottery-selected units can be converted to condominiums in any year. In order to qualify for the lottery, a 2-, 3- or 4-unit building must be occupied by an owner of record for three years prior to the lottery date; 5- or 6-unit buildings must be occupied by three owners of record for three years prior to the lottery date. Only 2-unit buildings in which each unit has been owned and occupied by an owner of record for one year can bypass the lottery. Buildings of more than six units cannot be converted into condominiums.
The Peskin legislation prohibits the conversion of certain buildings that might otherwise qualify for conversion under the general rule. The buildings to which the prohibition applies are: buildings in which there have been two or more evictions with each eviction associated with a separate unit and buildings in which there has been an eviction of a senior, disabled or catastrophically ill tenant.
The type of eviction that will cause a building to become ineligible for conversion under the new law is an eviction that took place on or after May 1, 2005, and is based on one of the following just causes for eviction: owner or relative move-in [S.F. Admin Code Sec. 37.9(a)(8)], permanent removal of a rental unit from housing use [S.F. Admin Code Sec. 37.9(a)(10)], temporary removal of the unit from housing use in order to be able to carry out capital improvements or rehabilitation work [S.F. Admin Code Sec. 37.9(a)(11)] and removal of a building from rental housing use under the Ellis Act [S.F. Admin Code Sec. 37.9(a)(13)]. I will be referring to these evictions in the rest of the article as “tainted” evictions.
For purposes of the legislation, a “tainted” eviction occurs when the notice terminating tenancy is issued. If an eviction notice is issued and then withdrawn and the tenant who received the notice remains in the property for at least 120 days following the expiration of the notice, issuance of the notice will not be considered a tainted eviction.
While the legislation states that a building in which a tainted eviction occurred is eligible for conversion after 10 years, in reality most buildings with such an eviction will never be able to convert. The right to convert after 10 years only applies if no protected (elderly, disabled or catastrophically ill) tenant has been evicted. If a protected tenant has been evicted under a tainted eviction, the building can never be converted to condominiums. As for a building with a tainted eviction that does not involve the eviction of protected tenants, conversion at the end of the 10-year period will be impossible in most cases because of more stringent eligibility requirements and existing limitations under the lottery system.
Owner-occupied 2-unit buildings with a tainted eviction will be able to bypass the lottery only after the units have been continuously owned and occupied by the same owners for 10 years, instead of one. If one owner sells during the 10-year period, the ownership period begins over again. For lottery projects with a tainted eviction, the three-year owner-occupancy requirement for eligibility to enter the lottery is extended to 10 years.
And even if the building can meet the 10-year owner-occupancy requirement for lottery eligibility, the 2004 amendments to the Subdivision Code essentially limit the number of units available to buildings with tainted evictions to 25 each year. According to the current code, any building in which there has been even one tainted eviction will only be considered a lottery winner if it is selected among the last 25 units drawn from the lottery. (In a particularly mean-spirited blow to tainted-building owners, the law says that if 175 untainted buildings aren’t drawn from the lottery, then the lottery stops, even though there could be many buildings with tainted evictions that applied to the lottery.)
The obvious impact of the new Peskin amendments will be on owners who seek to obtain possession of their properties under the Ellis Act, for their own use or use by a relative. But, by including as tainted evictions those based on permanently removing a housing unit or temporarily vacating a unit in order to repair and rehabilitate, the legislation will trap the unwary, with some very unfair results.
Take, for example, the owner of a 2-unit building with an illegal in-law who is cited by the San Francisco Department of Building Inspection and required to remove the illegal unit. The owner evicts the tenant of the illegal unit in order to permanently remove the unit from housing use, resulting in a tainted eviction. (Remember, even though the unit may not be legal, it is still considered a housing unit.) Several years later, the owner sells the building to two TIC owners. At the time of the sale, one unit is vacant and the other is rented. The new owners evict the tenant and then each take possession of a unit. This building will be subject to the new restrictions on conversions because there were two or more tainted evictions—one to permanently remove the illegal unit from housing use and the other for owner-occupancy—and each eviction was associated with a separate unit.
Or let’s say an owner had purchased a 2-unit building that needed a lot of work, so she asked the tenants to temporarily vacate under section 37.9(a)(11) in order to perform repairs and renovations. The tenants move back in after the work has been completed. Five years later, the owner sells the building to TIC partners. At the time of the sale, both units are vacant and there have been no more evictions. The TIC partners own and occupy the building for a year and apply to convert. Their application will be rejected because of the two evictions that took place when the seller asked the tenants to temporarily vacate in order repair the units. The owners will be able to convert after 10 years, but only if they both continuously own and occupy the building for the entire 10-year period.
Taking the Peskin Subdivision Code amendments together with the 2004 Daly Subdivision Code amendments, it appears that the activist community is embarking on a course of action that it has used successfully in the past in the area of rent control. As originally introduced, the legislation that passed in the fall of 2004 would have eliminated the 2-unit owner-occupancy lottery bypass and would otherwise have made condominium conversions more onerous. The law as introduced didn’t pass, but the anti-conversion forces were able to pass legislation making it virtually impossible to convert a building in which there had been a tainted eviction. About a year later, the activists regrouped and came back with the present Peskin amendments. Again, the legislation as originally proposed did not pass, but the activists were able to make further progress in restricting conversions in the bill in its final form. For the first time, restrictions have been placed on the ability of 2-unit owner-occupied buildings to convert to condominiums. In addition, the ability to convert a building from which a protected tenant has been evicted was eliminated completely, and the ability to convert otherwise eligible lottery projects with tainted evictions exists on paper only. Elimination of the 2-unit owner-occupied lottery bypass is obviously one of the goals of the “no home ownership” forces, with the ultimate goal of stopping all conversions. I think we can expect more legislation in the future that further chips away at the right to convert.
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. Barbara Herzig is a subdivision attorney who has done condominium conversions in San Francisco since 1979. She can be contacted at bherzig@hbcondolaw.com. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.