Just when you thought you had the condo conversion lottery system figured out, SF lawmakers throw it all into disarray 

As you may have seen, the radically altered tenants-in-common conversion legislation passed the SF Board of Supervisors this week. There are MAJOR changes to the condo conversion law which has implications for anyone owning a non 2-unit owner-occupid bypass building. It may mean tenants could get Lifetime Leases and it could mean owners of 5- and 6-unit buildings will no longer be able to convert their properties into condo units and would be therefore more inclined to evict tenants using the Ellis Act with proscribed relocation fees rather than pursue  the more typical tenant buyout of $40,000+

Itching for Seven Years No More

It’s not all bad for owners, as they now have certainty as to when their units may convert into condos because the 200 building annual cap on the number of buildings that could convert is no longer in effect until the lottery returns anywhere from 10–12 years from now. In Lottery’s place will be a set seven-year schedule for buildings that were already in, eligible for or ones that had TIC agreements in place and where 1/2 of the total units were in escrow this year — the final date of which will be determined — will convert according to that schedule with no cap on the number that can convert. The tenants in those units will be offered LIFETIME leases for their units (that will probably extend to a significant other or long-term roommate there if both are elderly) that will be subject to rent control and, even if the law changes, will be creatures of contract law and therefore unbreakable. A tenant, of course, is still obligated to pay rent and cannot otherwise violate terms of their lease, but only the tenant can decide to terminate the lease but for their own breach of the lease.   Confusing eh? More details are to be determined but other noteworthy items include: a new $20,000 fee per unit will be tacked on the overall conversion costs; speaking of tacking, owners who sell to other owner-occupiers who move in to the unit within 3 months of the previous owner leaving will be allowed to tack their ownership years together to meet owner occupancy time minimums; did I mention that there can only be one three-month gap per building? How anyone is going to enforce this provision and sort out lifetime lease terms with tenants on and off leases will keep lawyers busy for some time to come. Andy Sirkin, the father of TIC use in San Francisco said that the legislation is confusing, complicated but good for his business as it will be for other lawyers versed in this area of the law in San Francisco.

Won’t Someone Stop this Please?

Last note: speaking of lawyers, the drafters of the legislation garnered enough votes to make the bill supposedly veto-proof. And if someone files a lawsuit (any number of parties could) then there’s a ‘poison pill’ that would SUSPEND nearly all conversions during the entire duration of litigation. Ouch. Yours truly spoke with Andy Sirkin about this after he briefed us at Vanguard and I will be meeting with his former legal partner Lyssa Paul early next week to work on synthesizing guidance to this latest San Francisco treat!

Read more about the TIC Reforms from Andy Sirkin here.

Read more about Lyssa Paul here.

To attempt to decipher the law, be baffled here.