The Property Management Shop

When Does Prop. H Apply?

by Marc Wilson

Q. I need to replace the tile and subfloor in the bathroom of one of my occupied units. The tenant in possession has always had a “difficult” personality. Last week I called him to schedule the work; it will mean three to four days without a shower or a toilet. The tenant has demanded that I pay him $4,500 pursuant to Proposition H. I’m not forcing him to vacate; I’m just replacing some tile. Do I really have to pay this man $4,500?

A. Your tenant appears to be employing a very loose interpretation of Proposition H. It is true that the voters in San Francisco have approved this measure, which forces rental property owners to pay higher relocation expenses to eligible tenants for certain types of evictions. Under this new law, relocation payments similar to those required under the Ellis Act will now be required for any evictions for owner move-in, permanent removal of unit from housing, temporary relocations for capital improvements or rehabilitation work, and/or substantial rehabilitations. I won’t bore you with the details, but the mandated payments start at $4,500 per head, up to a maximum payment of $13,500. I don’t think that three days without a toilet fulfills the definition of temporary relocation or substantial rehabilitation, and I think a jury would side with me. You don’t have a problem with Prop. H; you have a problem with your management and communication style. Why did you engage in verbal interaction with your tenant in the first place? You knew that this tenant was difficult. Why give him a golden opportunity to be problematic? No tenants are interested in losing the use of their bathroom for four days—why should your tenant be any different? This kind of communication should always be in writing.

Your only job is to fix the bathroom. Why not send the tenant a letter indicating what work needs to be done and how long it will take? In your letter, ask the tenant to inform you, in writing, of any four-day period during the next four months when it is convenient to have this ordinary and necessary work completed. You should inform the tenant in your letter that his failure to tender a written and acceptable four-day period would result in the scheduling of the work without his input. Upon receipt of this four-day period of time, send the tenant a routine 24-hour written notice of your intent to enter the unit, of the work to be performed, and of the days and time frames involved. Then simply schedule the work with your contractor. Another strategy is to do the work when you have a vacancy in another unit at the property. In this way, you can schedule the work on a time frame that is convenient for you and your contractor, and simply give the tenant access to the vacant unit’s bathroom for the four-day period. Your communication with the tenant needs to be as unilateral as possible. You have the right to fix the apartment. You have the right to enter the apartment. You have the right to engage in ordinary, necessary and routine maintenance jobs within the apartment. You do not need to ask for these rights. Don’t lead the tenant to believe that he has any choice relative to these improvements. Don’t give him the opportunity to be difficult.

If the tenant does not tender a four-day period, then schedule the job during a time frame that is convenient for you and give the tenant the appropriate notices. The tenant will not prevent you from entering the apartment. The tenant will not disrupt or in any way hinder the progress of the work. These are serious offenses that always result in somebody’s eviction. The tenant might demand some kind of compensation for the loss of his toilet for four days. In this event, instruct the tenant to place his demand in writing. Obviously any demand that exceeds the daily rental value paid by the tenant should be denied. I don’t pay for fancy hotel stays. I don’t reimburse tenants for restaurant bills. I just give suitable rent rebates that fairly represent the loss of habitability, and the total habitability of an apartment can never, ever exceed the daily rent value. Any tenant request that exceeds the daily rent value is patently absurd and should always be dismissed out of hand. If you can’t come to an agreement, just beg the tenant to take you to the San Francisco Rent Board. What are the chances that the board will award a rent reduction for more money than the daily rental value of the apartment? Slim to none.

I’m not particularly concerned about the negative effects of Proposition H. I just own and manage apartment buildings. I’m not in the business of converting apartment buildings into for-sale tenancies-in-common (TICs). Nor am I in the business of occupying an apartment unit as my permanent place of residence or otherwise contemplating an owner move-in eviction. When will I ever have to pay a tenant $4,500 to temporarily vacate an apartment? I only rent apartments that are in perfect condition, so there is virtually no chance of incurring a substantial rehabilitation of an occupied apartment during the life of a tenancy. The only foreseeable event that might necessitate compliance with Proposition H is a building fire. After most serious fires, the tenants must vacate the property during the building reconstruction. The last building fire I had was pre-Proposition H. At that time, the relocation cost was $1,000 per tenant. I had to pay two tenants to temporarily vacate. The total cost was $2,000 and the insurance company paid every dime. It is the same thing now, only the cost has gone up. One way or the other, the insurance company will pay.

We didn’t get saddled with Proposition H because San Francisco property owners are or were temporarily evicting tenants to repair occupied apartments. As we discussed, there is virtually no probability of having to substantially remodel an occupied unit during your ownership career. Long-term owners and operators of apartment buildings are simply not affected by Proposition H. We got saddled with Proposition H because of TIC developers and their systematic pursuit of vacant apartment units. Lots of tenants have been evicted over the last few years and they all vote. These voters contacted their supervisors and we ended up with Proposition H. I don’t think the passage of Proposition H is necessarily horrific for TIC developers or for owner move-in eviction practitioners either. The total amount of money spent in compliance with Proposition H is not significant relative to the total costs involved in a TIC conversion and/or multiunit apartment building purchase for occupancy. In most cases, a TIC developer will have to pay $9,000 to vacate a unit occupied by two long-term tenants. The sales price for the unit on the back end is at or near $500,000, so the tenant payment is 2% of the sales price, less than the real-estate commission. I don’t think these payments will wag the dog on a TIC-conversion candidate.

Don’t get me wrong, the very idea of having to pay a tenant to vacate a piece of real estate that one owns is pathetic. But we have to be realistic. Tenants still comprise at or near 67% of the voting block in San Francisco. We can’t “take the gloves off” quite yet. The day will come when tenants comprise less than 50% of the population and when that day comes, the city will commence its long journey back to civic, economic and political health. Hopefully the situation will not be beyond redemption at that time. Besides, I kind of like the spirit and message of Proposition H. Think about it: the average San Francisco tenancy is now valued at $4,500. Sounds like a bargain to me. For a measly $4,500, we get to replace a rent-controlled apartment with an owner-occupied home. We get elevated property taxes for the general fund and citizens who actually care about something other than rent control. Now that’s what I call a fantastic return on an investment.

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Marc Wilson has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright � 2007 by the SF Apartment Magazine. All rights reserved.