Tales from the corridors

The Ol’ Switcheroo

written by Lilith

How much do property owners really need to know about what’s going on in their units?

As a property owner in San Francisco, I hear a lot of stories from my peers. Some stories teach me what not to do with tenants while other stories teach me about the ins and outs and responsibilities that come along with owning property here in San Francisco. For those of you considering becoming rental property owners, I urge you to educate yourself through the various local organizations and to not assume that owning multifamily residential property is an easy way to make some money. The San Francisco rental housing industry is a highly regulated, always changing, unpredictable, tenants’ rights heavy place that involves constant upkeep of the property itself as well as personally keeping track of the current legislative measures that are passed every single day.

“Tales from the Corridors” is a new column that will illustrate some of the harder lessons my fellow property owners have experienced in San Francisco so you can the same mistakes.

The stories in this column are based on true events, however, names and details have been changed to insure privacy.

Three’s a Crowd
My good friend—Eve—owns, operates and lives in a single-family home with an additional dwelling unit in the Castro. She lives in the top half of the house and rents out the bottom. She had a long-term tenant who lived downstairs for over five years with a lease agreement.

Unbeknownst to Eve, her tenant moved out and subleased the bottom unit to his sister, Esther.

As I said before: Eve is a good friend of mine, but organization is not her strong suit. Without realizing what she was doing, Eve accepted rent payment from Esther, thus entering into a contract with her and adding her to the existing lease as a master tenant.

Eve’s first mistake was not keeping rent records of who paid the rent. Had Eve not accepted the rent check from Esther, then Esther would not have become a master tenant with a claim to the unit.

As a master tenant, Esther gained a right to move in roommates up to the occupancy level—which for a studio apartment is three people. She moved in two extra roommates and was then able to split the rent by three. To get along with Eve, Esther offered to pay half of the utilities (Esther had historically paid the entire utility bill). Eve accepted the offer graciously and increased Esther’s rent by $125 per month, which totaled half of the PG&E bill and half of the water bill. Eve believed that this was fair—especially because Esther had offered the extra income—and for a few months all seemed well.

Eve’s second mistake was not addressing the terms of the original lease with Esther. Everything is dictated by the lease and because the lease said that Eve would pay the utility bills, Eve should have turned down Esther’s offer to pay half of the utility bills each month.

Six months went by, and although having two additional people living below Eve meant more foot traffic and noise, Esther paid the rent on time and rarely asked Eve for anything. Then came the notice from the Rent Board accusing Eve of performing an illegal rent increase on Esther. Eve was shocked—how could the Rent Board think that she had performed an illegal rent increase on Esther when Esther was the one who offered to pay half of the utility bills?

Eve attended the mediation at the Rent Board and was horrified when she was told she would have to repay the $750 ($125 x 6 months) in 15 days or deduct it from Esther’s next rent payment. Of course, Eve immediately paid the $750 to Esther and commenced paying the entire utility bill in full each month.

Eve was devastated when she told me the story. She felt like her tenants had manipulated her, but she also acknowledged she’d made some grave mistakes along the way. Eve told me that in the future, she would never accept rent from someone not on the lease; the only rent increase she would give would be the allowable percentage each year by the Rent Board; she would include in future leases a payment process for utilities for her tenants; and that even if she thought her tenants were being nice by offering extra money, she would never accept extra payment from her tenants.

This’ll Kill You . . . Financially
This is the unfortunate story about a property owner named Claudia who owns a three-unit building in the Mission.

In the middle of the night, the tenant living in the first-floor unit (Priscilla) woke up to water pouring into her kitchen and living room. At first, Priscilla was unsure of where the water was coming from, but she soon guessed it was from the unit above hers. So, Priscilla went upstairs and woke up her neighbor, Saphira, who seemed unaware of the problem.

Saphira investigated her kitchen and found the floor wet. She assumed the water was coming from the dishwasher, which she’d turned on before she went to bed. Because it was 2:00 a.m. and she was exhausted, Saphira simply put some towels on the kitchen floor and went back to sleep.

Claudia’s first mistake occurred long before this event took place. Had Claudia defined an emergency service request and procedures to follow at the inception of each tenancy, perhaps Priscilla or Saphira might have called Claudia at 2:00 a.m. instead of waiting seven hours to report the water emergency. 

Claudia recalls receiving a phone call from Saphira the following morning around 9:30, when Saphira arrived at work. She told Claudia what had happened and gave her permission to enter her unit to investigate the water damage. Claudia rushed over to the building to find sopping wet towels all over the kitchen floor and realized that the water had slowly seeped into the living room, drenching Saphira’s rug for at least five hours.

Claudia immediately removed the soaking towels and rug and replaced them with dry rags, hoping to soak up the remaining water. She then went downstairs and investigated Priscilla’s unit, which had some minor water damage and would need remediation, especially around the hardwood floors. Claudia then called a dishwasher repairwoman, who inspected the problem that afternoon and found that a broken pipe had caused the water to rush into Saphira’s unit and then Priscilla’s. Unfortunately, the repairwoman needed to order a part to remedy the situation, and until then, the water in the kitchen needed to be turned off. Next, Claudia contacted a water remediation company who estimated two weeks for the remediation.

At this point, Claudia was quite upset and reached out to a local property owner association to see what, if any, of the cost could be passed on to Saphira, considering the damage was due to the dishwasher in her unit. She asked the association if Saphira’s renters insurance might cover part of the cost, but was told that renters insurance only covers the tenant’s personal property. In this case, only Saphira’s rug would be covered by her insurance. Additionally, Claudia was told that because there were habitability concerns, she would be responsible for paying a relocation fee to both units for the two weeks that it would take to remedy the situation. The current relocation fee for periods of fewer than twenty days is $379 per day. For Claudia, relocation costs for two units for a period of two weeks totaled $10,612—and she’d also be responsible for moving expenses for both units. 

Claudia’s second mistake was not setting up an emergency repair savings account when she decided to put a unit on the rental housing market. Claudia was forced to take the more than $11,000 out of her own personal savings account.

Desperate, Claudia reached out to her insurance company who provided some support. They would cover the cost of the water remediation for both units, but they would not cover the relocation cost nor the cost to fix the broken pipe or the dishwasher itself.

This story is very unfortunate, but not uncommon. When you own property, it’s always possible for something to go majorly wrong. The lesson is to communicate with your tenants and explain the difference between an emergency situation and an urgent situation; make sure you have adequate insurance, and have an emergency savings account to cover the cost to repair and remedy a problem in an effective, efficient manner.

Lilith is a third generation San Franciscan landlord and community activist who enjoys trading industry stories with her friends and colleagues. She can usually be found playing pool in the Castro or at Dolores Park embracing the few sunny days in the city.