Buying a new home isn’t easy in today’s market and purchasing one occupied with tenants can make the process even more complicated. Earlier this month, at Pacific Union, two prominent real estate attorneys came and spoke to us about a few of the new regulations that came into effect this year that change the rights and responsibilities of SF landlords regarding eviction and the removal of tenants – short term rentals, tenant buyouts and the Ellis Act amendment.
Short Term Rentals
In response to the number of Airbnb and VRBO evictions (over 1,100 evictions between March 2014 and February 2015) and the sheer amount of Airbnb rentals available in SF (estimated 5,000 hosts) the Board of Supervisors penned a new law to remedy the massive amount of evictions and loss of long-term housing in San Francisco. February of this year (2015) San Francisco’s Short Term Rental Ordinance legalizing and regulating short term rentals came into effect.
This new regulation only applies to residential homes with two or more units and does not apply to single-family homes and their owners (who are free to short term rental as they please). In summary the regulations provides that
1. hosts must reside in their unit 275 out of the year;
2. hosts must be present in the unit but, if the host is not the law caps the short term rental at 90 days per year;
3. host many only rent primary residences, not second homes or vacation homes;
4. hosts must register with the city, obtain a permit, and a business license;
5. hosts must pay all applicable hotel taxes;
6. tenant hosts who are renting cannot charge more than the rent they are paying to their landlord;
7. tenant hosts must notify their landlords if they intend to host; and
8. hosting platforms like Airbnb must notify hosts of the city laws and collect from and pay all applicable hotel taxes.
An important note – this ordinance does not affect lease agreement where subleasing is prohibited. If a lease agreement prohibits subleasing, the landlord may evict for breach of lease agreement but must give 30 days notice to cure the violation.
When buying new property or changing the nature of your current property a huge issue for SF landlords is the removal of current tenants. Two common tenant removals are evictions under the Ellis Act or an under-the-table tenant buyout. The rules have changed for both removal options.
In October of 2014, the San Francisco Board of Supervisors passed Ordinance 225-14 which went in to effect March 7, 2015. This new ordinance changes this formerly under-the-radar practice between SF landlords and tenants to one that can be tracked and recorded by the SF Rent Board.
But let’s back up a bit, what is a tenant buyout? A tenant buyout is an agreement between a landlord and a tenant where the tenant agrees to move out of the rental unit and the landlord agrees to pay the tenant a sum of money to vacate the unit. Under the new ordinance, the buyout process must now be documented and disclosed to the SF Rent Board.
The new ordinance provides that a SF landlord must
1. provide tenants with a disclosure of their rights before the landlord begins buyout negotiations, including the right to an attorney;
2. file a form with the SF Rent Board indicating the address of the unit over which negotiations might be taking place; and
3. put the buyout agreement in writing along with a statement of certain tenant rights and file with the SF Rent Board.
1. has 45 days to rescind a fully executed buyout agreement; and
2. can bring a civil lawsuit against the landlord for actual damages and civil penalties for landlords failure to file proper disclosures (a long with other tenant rights non-profits and the City Attorney).
As of March there have been 34 recorded buyouts totaling over $ 1 million in payouts to tenants in a range of payments from $6,000 to $80,000. SF landlords aren’t too happy with this new requirement either, the San Francisco Apartment Association has filed a law suit in SF Superior County seeking overturn of the law under accusations of free speech violations. In the meantime, disclosure, disclosure, disclosure!
While the Ellis Act is not new it has undergone some recent changes. The Ellis Act provides SF landlords with the right to go out of the rental business and withdraw their property from the rental market.
Seems easy enough but there are some catches:
1. If an owner evicts a tenant under the Ellist Act the landlord must pay tenants a relocation fee of $5,555.21 for each tenant and up to $16,665.59 per household. Further, tenants who are disabled receive and additional $3,703.46.
2. If a SF landlord has evicted tenants under the Ellis Act, the regulations provides for a 5 year period of vacancy.
3. If an owner rescinds the Ellis filing the owner can’t charge more rent than what the evicted tenant was paying.
4. If an owner rescinds the Ellis filing the previous tenant to the unit has a right of first refusal within 10 years of the Ellis filing and can only be charged the same amount of rent charged before eviction plus any rent control increases.
Now to the new part – the amendment to the Ellis Act enacted last summer changes the relocation fee to requiring landlords to pay tenants the equivalent of the difference between their current rental rate and what it would cost to rent a similar apartment at market-rate for two years. As you can imagine this number could get very large given the current rental market – in some areas of the city that could be well over $100,000.
This amendment was challenged by an attorney and declared illegal by the U.S. District Court on the grounds that the new amendment “requires an enormous payout untethered in both nature and amount to the social harm actually caused by the property owner’s action.” The City Attorney’s office is now appealing the decision of the 9th Circuit judge. In the meantime, Supervisor David Campos came to the Board and proposed a new version of the law that in summary caps the relocation fee at $50,000. However, the City is taking the position that they will not enforce the law and is awaiting the Court of Appeals decision on the previous amendment. Until there is some resolution on this matter keep in mind that should the court over rule the District Court’s decision, the amendment will apply retroactively and SF landlords will have to pay the difference.
There have been a lot of changes this year for property owners and we should be expect to see more as San Francisco’s real estate market continues to grow and evolve.