Feature

by Lawrence M. Scancarelli & Jerod Hendrickson

Editor’s Note: This is the second part in a two-part series on protected tenants. The first article in the series, which concentrated on evicting protected tenants, can be found in the July issue of this magazine.

There is no comprehensive all-purpose definition of the term “protected tenant.” The San Francisco Rent Ordinance and San Francisco Subdivision Code (governing condo conversions) contain different definitions and requirements for protected or eligible tenant status. Previous evictions of protected or other tenants can impact future conversions, which is why existing and previous tenancies and evictions must be disclosed to a buyer in a sale. But buyers must also conduct their own diligent investigation on the issues of tenants and evictions, especially where the buyer desires to occupy a rental unit.

To better understand and analyze special-tenant status as it relates to condo-conversion and building sales, we have divided the subject into several areas, framed as questions.

In this article, we are only covering protected tenant and eligible tenant issues under the local Rent Ordinance and Subdivision Code. In general, the eviction protections of the Rent Ordinance apply to rental units where there was a certificate of occupancy before June 13, 1979. We will not cover fair housing issues and protections under federal, state or other local laws (many of these were covered in the April issue of this magazine). There are also special protections for military service members under federal law, special rules for Section 8 tenants and other rights for certain tenants during the condo-conversion process. These will not be discussed specifically in this article.

1. Would the eviction of a protected tenant impact future condo conversion?
Yes. The 2006 Peskin Amendments to the SF Subdivision Code (Section 1396.2) prohibit the conversion of certain buildings where there have been “tainted” no-fault evictions on or after May 1, 2005: two or more evictions with each eviction associated with a separate unit; and where there has been even one eviction of a senior (60 or older), disabled or catastrophically ill tenant. Evictions for “fault” reasons are not included, like failure to pay rent, breach of covenant, nuisance or use of unit for illegal purpose. The types of no-fault evictions covered are owner move-in/relative move-in, demolition or permanent removal of a unit from housing use, temporary removal for capital improvements or rehab work, and Ellis Act evictions. If a protected tenant, as defined in the Peskin Amendments, has been evicted under a tainted eviction, the building cannot be converted. This would include two-unit buildings, which, if otherwise qualified (both units owner-occupied for one year, etc.), could bypass the condo-conversion lottery and other restrictions. If there are two or more evictions of unprotected tenants, the building is ineligible for conversion for 10 years.

A so-called “tainted” eviction occurs when the eviction notice is “issued.” If the notice is issued and later withdrawn and the tenant who received the notice remains in possession for at least 120 days following expiration of the notice, it is not considered a “tainted” eviction. Grandfathering provisions exempt properties that were 100% owner-occupied on April 4, 2006, from these new restrictions.
The Daly Amendment, Section 1359(d) of the San Francisco Subdivision Code, was enacted in 2005 and created a special category of buildings where protected tenants were evicted after November 16, 2004. These buildings, even if they are not affected by the Peskin Amendment, would become ineligible for the first 175 lottery spots and left to compete with the pool of 25 spots for “tainted” buildings with these kinds of evictions.

In the Dufty Amendment, Section 1396.3, enacted in 2006, preferences for the condo-conversion lottery are given to buildings that have had three unsuccessful lotteries, but if there has been an eviction of an elderly, disabled or chronically ill tenant on or after January 1, 2000, with exceptions (for certain temporary evictions where the original tenant reoccupied the unit), that preference is denied.
Under these amendments, the definition of “disability” is from the Federal Americans with Disabilities Act, which defines disability as “a physical or mental impairment that substantially limits one or more of the major life activities of an individual.” It is a question of fact, and the standard is subjective and less favorable to the owner. It would be possible, for example, for a tenant to have a disability under this standard but not under the stricter OMI/RMI rules. A recent article in the San Francisco Chronicle on parking states that San Francisco residents (total population about 750,000) hold about 90,000 permanent and temporary handicap parking placards.

In addition to the remedies for wrongful eviction and other violations in the Rent Ordinance, Section 37.10A(b) specifically makes it unlawful and a misdemeanor for a landlord to refuse to rent or lease or otherwise deny to or withhold from any person any rental unit because the age of a prospective tenant would result in the tenant acquiring rights under the Rent Ordinance.

2. What are the mandated sales disclosures regarding protected tenants?
Under an amendment to the Rent Ordinance, Section 37.10A(f), it is unlawful for a landlord to knowingly fail to disclose, in writing, to the buyer, prior to entering into a contract for the sale of property consisting of two or more residential units (including an illegal unit), the specific legal grounds for the termination of the tenancy of each residential unit to be delivered vacant at closing, and also whether the unit to be delivered vacant was occupied by an elderly or disabled tenant at the time the tenancy was terminated. “Elderly” and “disabled” mean the definitions for “elderly,” “senior” and “disabled” under the OMI/RMI provisions of the Rent Ordinance and the Daly Amendment to the San Francisco Subdivision Code. The amendment also states that sellers/owners can comply with a flyer or other document describing the property, which is made available to prospective purchasers at each open house and any tour through the property. Even if Section 37.910A(f) does not specifically apply, under state law a seller has a duty to disclose all material facts affecting the value or desirability of the property, which would include facts about the protected status of tenants and other important facts about the tenants and tenancies.

3. Can the owner avoid the laws relating to protected or qualified tenants through a buyout agreement with the tenant?
Experienced landlord-tenant attorneys have differing views on the legality and enforceability of a noncoercive tenant buyout deal (tenant vacates for consideration) where there has been no eviction notice. The Rent Ordinance provides that waivers of tenant rights are unenforceable; and an appellate court decision invalidated a previous Rent Ordinance requirement that, for such a waiver, the tenant had to have an attorney, and it had to be approved by a judge or retired judge. If the tenant initiates the process, there would be much lower risk for the owner, as it is unlikely that there would be an “endeavor to recover possession,” a requirement for wrongful eviction or attempted wrongful eviction.

There is more risk where the landlord initiates the process. Any agreement should include a full release of rights. It is likely that the buyout prices will increase in light of the higher tenant relocation payments for no-fault evictions and the Peskin and Daly Amendments to the subdivision code. Even with the risks, however, a tenant buyout without an eviction notice would not be considered an eviction under the Daly and Peskin Amendments to the subdivision code.

A few years ago, the city attempted to deny a condo conversion for a building over four units, based on the broad language of Subdivision Code Section 1386, which states: “When the City Planning Commission determines that vacancies in the project have been increased, or elderly or permanently disabled tenants displaced or discriminated against in leasing units, or evictions have occurred for the purpose of preparing the building for conversion...” The language in Section 1386 includes “displacement” and increased vacancies, not just evictions, and could possibly be interpreted to include tenant buyouts.

4. What can a buyer do to determine the protected or other status of a tenant?
With 2006’s Proposition H (relocation benefits) and other recent amendments, it becomes even more critical for a buyer to investigate not only the protected status of tenants but also whether the occupant(s) are authorized occupants and the building’s eviction history. A buyer should obtain all tenant documents from the seller/owner, including estoppels, 6.14 notices, evictions and other notices and any other documentation that might provide guidance about whether a more recent occupant is an eligible tenant. There may be issues of waiver if the owner accepted the new occupant as a tenant. Often, the seller/owner’s records are not complete, particularly when the property was not professionally managed. But the buyer should not just rely upon the seller’s disclosures. Buyers should also review the Rent Board file for the property and the civil index of the San Francisco Superior Court. Owners are required by the Rent Ordinance to file all eviction notices with the Rent Board, except three-day rent notices. However, even if it was not filed, such a notice could count as an eviction notice that was “issued” for purposes of the San Francisco Subdivision Code amendments.

Our office recommends that a buyer obtain three separate estoppel certificates from the tenant: the standard estoppel; a special estoppel and notice for protected status under Section 37.9(i)(4); and a special estoppel to cover the protected tenant and eligible tenant issues other than Section 37.9(i)(4). It could be possible that there was a previous eviction or attempted eviction (like a temporary move-out for capital improvements) that may affect the buyer’s rights. A buyer should also have the seller sign off in a supplemental disclosure that they warrant or at least are not aware of any bad evictions or protected tenants. Finally, as recommended in the San Francisco Association of Realtors sales contract form, the buyer is advised to “obtain legal advice from a real-estate attorney knowledgeable and experienced in San Francisco rent-control law to determine the effect of this ordinance on the property and buyer’s intended use.”

The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. Lawrence M. Scancarelli and Jerod Hendrickson can be reached at 415-398-1644. Copyright © 2007 by SF Apartment Magazine. All rights reserved.