Local attorney Scott Freedman of Zacks, Freedman and Patterson PC gives us the latest information surrounding tenant laws and the status of COVID-related guidelines in San Francisco.
Ruth:
Hi, Scott. How are you today?
Scott:
I’m doing well, Ruth. How are you?
Ruth:
I’m great. I’m here with Scott Freedman and he’s going to talk to us about tenants and COVID law and any other questions that pop up surrounding tenant laws in San Francisco. Scott I know we had some laws around evictions and stuff that happened during COVID. Has anything changed there? Have any of those been lifted and what are we looking at there on timelines?
Scott:
Well, that’s a very good question. What are we looking at, in terms of timelines? And it’s been a constant push since back in February or March of last year, when everything kind of shut down. And as they’ve gone on from there, it’s been every couple of months where some new set of rules has come in and replaced the old ones. And we’ve tried to get closer and closer to a solution that is fair for everybody and that works for everybody. Ideally, property owners should get their rents since that’s what they signed up for. And tenants should get the time that they need to be able to pay their rent so that they can stay in their homes as well. And so now what they have been able to work out, although they’re still dealing with the logistics, is to set up a relief fund, similar to how they did with the PPP funds for businesses.
Scott:
They have allocated a lot of money now, which will become available for folks to help tenants pay their rent and help landlords backfill for rents that weren’t received. And they’ve got these programs which have been set up, but they don’t have all the rules figured out yet for how they actually get the money out. So what we have is these programs, kind of like what happened with the PPP, where all the money is there, but it’s not yet gotten to people. And until they get that money to people, I think we’re going to see these eviction rules and rent rules and things like that continue, because what they ultimately want to do is what I said at the beginning there, provide for tenants to be in their home and landlords to get their rents.
Scott:
So for now… And bear in mind, we have rules on the federal level, we have rules on the state level and we have rules on a local level. So bear in mind we’ve got resets of rules we’re playing with. But generally speaking, right now until the end of September, tenants are entitled to stay in their apartments as long as they’re paying 25% of the rent that’s due. And they’re documenting that they are unable to pay the balance because of something having to do with COVID. And there were a variety of ways that they could do that. But generally speaking, that’s the most basic restriction. And that’s in place as of now through the end of September. I think the likelihood is we’re probably going to see that extended out at least until the end of the year, but that’s going to be dependent in part on how quickly they can get some of this rent relief money to where it’s supposed to go.
Ruth:
So up until now, a landlord has basically been bearing the cost of this idea, right?
Scott:
Absolutely. And totally unfairly. And we’ve gone to courts, lawyers have been going to court about this since it started. And what judges have basically been telling them is, “We think you’re right, Mr. And Mrs. Landlord and landlord groups, but this is an unprecedented situation we find ourselves in and we need to figure out a solution to it that balances everybody.” So what they’re not doing with these rules is wiping out the rent obligation. But ultimately, the property owners… At least what the promises have been until now, the property owners are going to get their money.
Scott:
And obviously it hasn’t come in the way it normally would have or should have. But the promise is the landlords are going to get their money and they’re going to be made whole on what they’ve been forced to bear over the course of the past 18 months. And that’s an awful thing for folks to swallow, because landlords, like anyone else, have other expenses they need to pay. And many of them rely on that rent money to be able to meet their most basic expenses. So the good news is there’s these relief funds that have now been set up. The bad news is I think somewhere about 15 to 20% of the applications for that money have been processed. So you got a long way to go to get that money actually into the hands where it’s supposed to go.
Ruth:
And I think I know the answer to this, but there’s no relief for, say… The rent also dropped substantially and I think some people were just scrambling to take anything from their tenants in order to just have it occupied. So in the event that somebody was negotiating 50% off the rent, there’s no relief fund for that sort of negotiation that would have happened over the last 18 months. Is that correct?
Scott:
You mean for a landlord to try and backfill… Let’s say they made an agreement with their tenant that they would take 50% of the rent for some period of time to go in and backfill the other 50% now?
Ruth:
Yes.
Scott:
I don’t think that’s out of the question. I think the promise that’s been made to landlords is, “We’re going to make you whole on what you’ve been forced to bear over the course of the past 18 months.” And whether that’s going to be 100% true, I don’t know. But I’m encouraged by all the good things they were able to do with that PPP program. And I hope we were able to repeat that for the benefit of property owners and for tenants.
Ruth:
And what is the proof that a tenant has to bring forward, in order to say that they have been affected by COVID?
Scott:
So for now, what they need to do… And this is actually a requirement on a landlord, well, there’s a couple of different requirements on a landlord, but they need to let their tenants know that there are these programs that are available and that there are these temporary rules that are in place. One of which is that if the tenant documents by way of a declaration, that they have been impacted by COVID in one of the list of allowable ways, that that’s sufficient for them to pay 25% of the rent that’s due right now and defer the balance. So there’s a form, which says either, “I had an interruption in my job or my spouse has had an interruption.” Or a variety of other things that are more indirectly caused by COVID. And as long as the tenant provides that for now under the current rules, that’s sufficient to defer to balance.
Ruth:
Got it. And how does one go about finding out more about the fund that’s available for both on the tenant side and the landlord side?
Scott:
Sure. So in the state, each of them has a website, not surprisingly. On the state side, the website is housingiskey.com. And on the local site, it’s sf.gov/renthelp. And so at those websites there’s a bunch of information about the programs, who’s eligible, what the paperwork is that’s required, all that sort of stuff.
Ruth:
Okay. And then moving away from COVID, so I get questions all the time about, “I want to sell my condo. I want to sell my house and it’s tenant occupied. So I’m just going to ask the tenant to leave, and then I’m going to hire you to sell my house.” And I respond, “Ah, well, please consult with an attorney before you talk to the tenant.” So can you talk a little bit about what the steps would be if somebody has a tenant and they think they want to have them vacate, what is the proper way to handle that?
Scott:
Okay. Well, first off, we need to make sure we follow the rules that the city has put in place. It’s probably now five or six years ago that the city decided they wanted to regulate that process. It had gone on for many, many years before that, as long as rent control existed, but the city decided, “Hey, landlords are taking advantage of tenants, or at least they could. So we want to make sure there’s a process so the tenants are getting good information.” So the first step is give your tenant a form, which says, “I want to have a discussion with you about your tenancy. You’re not obligated to talk to me, but if you want to, here’s a page long list of some places where you can get some information about your tenancy, what it might be worth, et cetera.” So the landlord has to start out by giving that form to the tenant.
Scott:
The tenant should return it, or at least indicate that they got it and they want to keep talking. The landlord then has to go to the rent board and file a separate piece of paper that says, “I’ve given this form to my tenant and he has said that they want to be talking. And here’s the property address.” From there, the landlord can engage in the discussion that you mentioned there without violating the law, which is to say, “Would you like to vacate? And if so, what sort of terms might be attractive to you?” Now, folks all the time, will go to their tenants and say, “Would you like to have that type of discussion?” The tenants will usually be willing to at least listen, but the question is what is that going to cost the landlord? And so if you’re just going to them and saying, “Hey, would you like to move out?”
Scott:
The number that’s going to come back is going to be much higher than if there’s some reason where the tenant sees that they may otherwise have to move out. And so that’s a question where I agree with you. It’s certainly good to talk to a lawyer about that and look at the circumstances and see, “Hey, is this something that I might want to bring up or not bring up?” But generally speaking, as long as you take those two first steps at that point, you’re free to have discussions with your tenant about that topic.
Ruth:
Right. I may not be using the right language here, but in my mind, there’s different levels of rent control. There’s the rent control that TICs and multi-unit buildings fall under built up prior to 1978, I think, is the year. Is that correct?
Scott:
Oh, it’s ’79. But they more recently moved that date forward. So now, actually, most units in San Francisco are actually subject to rent control, with the exception of condos and absolutely brand new construction. So a lot of the properties in San Francisco at this point are rent controlled, but the newer stuff is obviously at higher rents. And you’re going to have a different discussion with the tenant who’s paying a higher rent closer to market, than one who’s paying $500 a month for something that’s worth 10 times that.
Ruth:
So what properties fall under this thing where people tell me they’re giving a 60 day notice to move out? Which properties are those?
Scott:
That they’re given a 60 day notice to move out?
Ruth:
Yeah. They’re like, “I’ve talked to my attorney and I’m just going to issue a 60 day notice that…” I don’t know if I’m using the right words. Probably not.
Scott:
So just a terminated tenancy you’re talking about?
Ruth:
Yeah. Well, so let’s say, the lease is over, which we know in San Francisco, at least it’s never really over. But the year of the said lease has come and went, so they’re not… It’s rolling over, but it’s a little bit different after that time?
Scott:
Well, it’s different after, in terms of whether the units are subject to eviction control or not subject to eviction control. Is that what you’re saying?
Ruth:
Yes.
Scott:
Right. Correct. So that was 1979 for a significant period of time. And I’m actually double checking because I don’t want to give you the wrong year for the current number, but they brought it forward. And for now, to be clear, under COVID rules, all properties are subject to just cause limitation. So there is no such thing as a 60 day notice to move out right now.
Ruth:
Right. But let’s pretend that we’re not going to be in COVID forever for a moment. I know it seems like it’s the thing that’s never going to end. So fast forward to next spring, and then where are we on this issue, assuming that the COVID restrictions have been lifted?
Scott:
Right. And that’s the year that I’m pulling up here to make sure I give you the right one. So I will do that while we’re talking.
Ruth:
No worries. Got it. I mean, typically the advice that I give people is, “Just call me when your tenant vacates.” And that’s the best time, right? They’ve willingly given their notice. The value is significantly affected if it’s not vacated because there’s a smaller buyer pool. You are only appealing to either an investor who wants to take it on, assuming there’s good rent there. Or somebody who has some level of risk tolerance where they’re wanting to do an owner move in or something like that, in which case they still want a deal. So I mean, we typically see that the value differs about 20% for selling a property with a tenant in it, versus what the tenant gets out of it. We can’t prep the property. We can’t show it as easily.
Ruth:
So obviously there can be good financial reasons for them wanting it to be vacated, but it seems that there’s this large range of what maybe a landlord should expect to pay, based on where the property falls, in terms of how… I don’t want to say protected, that’s the wrong word, but how much that… I mean, there are certainly tenants that are protected, but a lot of these that I’m talking about are not the protected tenants, but it seems like there’s different levels of kind of where the values would be assigned, depending on what the house is and if it’s a single family home or a condo or a multi unit building, and then certainly the kind of… If the tenant is protected, that also falls into that value.
Scott:
Right. So you hear it a lot, the phrase protecting tenants. And that phrase has actually a number of different meanings and a variety of different versions of the rental lease. Protected tenants, from our perspective in a real, true legal sense, are somebody who has the ability to actually block a certain type of eviction. So for example, tenants who are disabled and have been living in a unit for more than a certain period of time, actually had the ability to block, in order to move an eviction of that particular unit in many circumstances. So a tenant who has that type of protection is obviously going to, A, want more money to move out and B, have more impact on the value of the property. So those are the types of circumstances you want to look at, relative to putting a piece of property on the market or looking at a piece of property, trying to figure out, “Can I do what I want to do here?
Scott:
If I can’t, then obviously this property is not worth as much to me as it would be if I could. So folks will ask us all the time, “What does the buyout cost?” Well, a buyout costs something, depending on what the circumstances are. So if you’ve got a tenant who can block your ability to do what you want or what most people would want to do with the property, that buyout is going to cost you a lot more than a tenant who you have the ability to terminate their tenancy and pay them, for example, $7,000 in relocation money, give them a 60 day notice, and that’s the end of the story.
Ruth:
And so that, that you just described, the 60 day notice and the $7,000, what would fall into that? A single family home, correct?
Scott:
Well, I was talking about the owner move in scenario. So if we’re speaking in normal times, an owner move in eviction is a 60 day notice and about $7,000 or $8,000 of relocation expense. If a tenant has the ability to block that eviction, obviously those numbers are out the window and you’re, in some cases, negotiating for six figure buyouts. There was an article about one that was $475,000 that was done not too long ago here. So the numbers go up and up and up.
Ruth:
So clearly if my clients are looking to sell, they don’t want to do an owner move in, then they would be stuck selling it with them in there. But if it’s something where it would be a simple owner move in, like you just described, then what would a fair buyout typically be in a situation like that?
Scott:
Well, again, that’s going to depend somewhat on the circumstances, because if you’ve got somebody who owns a lot of property, for example, there are other restrictions in the owner move in rules, let’s say if you own other properties and they’re comparable, you’ve got to occupy vacant ones that you have, as opposed to displacing a tenant.
Scott:
Another way that it can vary is, again, if the tenant is paying $500 versus $5,000 for something, that may have some bearing. The owner may also not really want to commit to the owner moving in restrictions, which say that you need to occupy that property as your primary place of residence. They may say, “I’d like to use it here and there, but not really as my primary residence. My primary residence is really somewhere else.” So assuming we don’t have any of those outside factors and somebody who’s gung ho, “This is going to be my home. This is my residence.” And a tenant is paying roughly market or similar to market, we look at for a single tenant in a circumstance like that, maybe $15,000, $20,000, somewhere in that range. And, of course, it goes up as you have more occupants there, because they’re each entitled to their own relocation money. So you multiply that number by the number of people who were there to get to a reasonable buyout number for that particular unit.
Ruth:
Is every occupant actually entitled to that, even if they’re not on the lease?
Scott:
Well, generally speaking, authorized occupants are entitled to relocation. We get into debates sometimes about whether somebody has been authorized or not authorized. But generally speaking, what we say to folks is, “It’s not worth having a battle about that because if you don’t pay the money and you go to court, you may end up losing because you didn’t pay the money. And then the fact that you didn’t pay $7,000 ends up costing you six months of additional time and $20,000 in legal expenses. And then you have to start over.” The good news, though, is that the relocation money caps at three times the base amount. So if you have six people living in a unit, you don’t pay each of them the relocation amount. It caps at three times the amount per occupant. So generally speaking, it’s going to be about $25,000 at a max. Although, folks who are elderly or disabled can qualify for an additional payment.
Ruth:
Got it. And now that buyouts are supposed to be registered in this way, which I think just happened in the last couple of years, people, both tenants and landlords, can go online and see what the going rates are for these kinds of conversations. Is that correct?
Scott:
That’s true. It’s been published in a variety of places, but the rent board has been tracking that. And that’s part of the rules that I was talking about before, where you start out with one disclosure form and you have another disclosure form. At the end of that process, you’re supposed to take your agreement to the rent board and provide them with a copy of it, and then they enter it in this database. And so when folks give the initial form to the tenant that says, “You can go to the rent board and get some information about this.” The tenant can then call up the rent board and say, “Hey, what do folks in my neighborhood get for buyouts?” And they can actually go and search through the information and find out.
Ruth:
Has that changed things for either tenants or landlords?
Scott:
Honestly, it hasn’t changed because I think for the most part, folks were making deals that were based on what the market is, and the market was… And it is what it is, regardless of whether the rent board’s tracking that or not. I think there probably have been some bad actors who have been brought into line by those rules, which is a good thing. And I think really, the primary benefit of that process that the rent board put in place is it gets tenants more information about their circumstances. So everybody thinks, “Well, gosh. I read this article in the paper about somebody who got $500,000 for buyout. I should get $500,000 for a buyout.” The good thing about a tenant talking to somebody at the rent board or tenant attorney is they tell them, “No, that’s not exactly true. Different circumstances, warrant different buyouts.” So we have an easier time negotiating with someone when we can explain that to them, and they’re hearing the same thing from somebody that they think, in their opinion, is more trustworthy.
Ruth:
Right. So what happens if somebody didn’t have this information and they already approached their tenant and they did not give them the form and they just thought they were having a simple conversation with them. What are the rules or repercussions?
Scott:
Well, for folks who actually have signed some form of agreement with their tenant and they moved out, you mean?
Ruth:
Yeah. Or, I mean, either the landlord started having a conversation and then the tenant went and found out they were supposed to get this piece of paper. They didn’t get that piece of paper. It was genuinely an honest mistake, but what are the repercussions, if any?
Scott:
Well, there are penalties built into those ordinances for folks that either don’t do the disclosures that are required or don’t record copies of their agreements. I’m not aware of any instances where those penalties have been applied against somebody who actually hasn’t entered into an agreement yet. So what I would advise somebody if they had started the process and not being aware of these rules is to comply with them as quickly as they can. If somebody has actually entered into an agreement and the tenant has already moved out and the rules weren’t complied with, unfortunately what the rules say, at that point, is the tenant has the ability to undo the agreement if they want to and we take possession of the unit. And then they also have the ability to sue for that if somebody else has been put into the unit in place. So hopefully that’s not the circumstance that anyone finds themselves in, but complying after the fact but before you get caught is always better than complying after you get caught.
Ruth:
So in the event that something has been sold… Let’s say that a seller comes to me and says, “I want to sell. I had a tenant there, we had a buyout. I did everything by the book.” I’m not actually verifying that. Maybe I should be. I might be after this conversation. And then that sold, and now there’s a new buyer there, and let’s say that wasn’t done. Then that tenant comes back and says, “I want to live there.” Does that happen?
Scott:
Well, I haven’t heard that happen yet. That doesn’t mean it hasn’t happened. Doesn’t mean it won’t happen. The good news is that folks are doing things properly and there should be records of this stuff at the rent board. If they’re just totally unaware or they choose to ignore them, then obviously there won’t be records at the rent board. But that’s something I always advise folks to do, if they’re looking at a property that has tenants, go and take a look at the files that the rent board has because they keep records on every property that’s ever been before it. So they would have records of priority evictions. They would have records of prior buyout negotiations, prior complaints, et cetera. So that’s a good place to look for that information. Of course, it’s not proof, because if somebody didn’t comply with the rules in the first place, there wouldn’t be records. But it’s always a good thing to do to double check that against whatever the disclosures are that you might get from the seller.
Ruth:
Yeah. Because the sellers are not required to disclose a buyout agreement. There is like an estoppel, which I think is oftentimes missed. So anyway, this is a good note to myself, on both sides of the transaction. On the buy side, it’s like we can be verifying that for our buyers and making sure that they’re safe because what a mess, really, for everyone involved in the transaction. So thanks for bringing that up.
Scott:
It would be. And hopefully it never will be.
Ruth:
Yeah. Well, anything else? I know we’re getting to the end of your time and I know your time is really, really valuable. And I really, really appreciate you taking this time. Anything else that we should know, any hot button topics that we should know, regarding tenants or buyouts or COVID and tenant?
Scott:
Well, I guess relative to COVID, we’re taping this in mid August here, if you’re watching this at any point in September or later, the rules have probably changed by now. So certainly stay tuned for anything related to COVID. For anything related to buyouts, make sure you understand the rules before you start the process. For anything involving buying property, I always tell folks, and I’m sure you do as well, Ruth, read the documents that you get. And nobody expects buyers to understand every piece of paper, but that’s what the due diligence process is for is asking questions and getting answers and still your chance to do that when you still have an alternative to walk from the property, “Oh, gosh. I was planning to move into this property and as it turns out, I actually can’t move into this property.” So read in that stuff, and if things don’t add up or something is missing, ask questions about that. Get that stuff, read it, and keep reading it and keep asking questions until you understand what you’re getting into beforehand.
Ruth:
Awesome. So Scott Friedman is a great attorney, and we always, always recommend that our clients talk to an attorney anytime there’s a tenant situation involved, because we always want them to understand how to play by the book. And even if they’re purchasing a property that is tenant occupied, or thinking about selling a property that’s tenant occupied in either of those situations, we highly, highly, highly encourage speaking to an attorney. Not all real estate transactions in San Francisco have an attorney involved, but anything that has a tenant involved in it, we would like our clients to be speaking to legal counsel. So Scott, I’ll include all of your information in the follow-up, and we’ll be sending this out via email for people to read and listen to and they will hopefully be able to reach out to you with any further questions or hopefully work with you in the future. So thank you so much for your time.
Scott:
Well, thank you, Ruth. It’s been a pleasure. And, of course, we’ll be happy to help. And thanks again.
I realized I never circled back to the question I said I would. As of 2020, the 1979 date for application of the rent ordinance’s eviction rules was deleted. As a result, all units in San Francisco are subject to the eviction rules. The rules about rent increases are a bit more complicated, but as our discussion was about eviction, I wanted to make sure I circled back. Sorry, I completely spaced on that during the conclusion of our call and forgot to get back to it!
