SF Apartment : October 2017


No-Doubt Buyouts

by Clifford E. Fried & Matthew Lanza

There was a time when a landlord couldn’t offer a tenant a buyout because it was considered a wrongful endeavor to recover possession in violation of the Rent Ordinance. Trying to buyout a tenant, back then, could result in a huge judgment, jail time or both.

Things changed when the Court of Appeal ruled that landlords have a right of free speech in communicating with tenants. The court ruling meant that offers to buy out a residential tenant in San Francisco are covered by the First Amendment. The decision opened the floodgates of tenant buyouts in San Francisco.

This didn’t sit well with tenant advocates and the Rent Board who felt that landlords were in a better position to negotiate and that tenants didn’t know their rights or what their tenancies were worth. Also, city officials wanted to know how many buyouts were going on.

So, in March of 2015, the San Francisco Board of Supervisors passed the Tenant Buyout Agreement Ordinance (TBA) regulating the disclosure, negotiation, and processing of buyout/settlement agreements between landlords and tenants.

As with any government regulation, the TBA has created some problems (in this case, for landlords) with lots of paperwork where none existed before. And much of this paperwork is filed with the Rent Board for the public to see. Who is doing the buyouts and for what amounts has become public knowledge.

One of the benefits of these regulations, however, is that there is a large amount of data provided by the San Francisco Rent Board that allows landlords to get a better sense of what their checkbook is in for before pursuing a buyout. This article discusses the buyout process, the buyout data that is available, and the “going rate” for a buyout.

What is a Buyout Agreement?

A buyout is an agreement between an owner and a tenant. Typically, the tenant agrees to vacate a rental unit in exchange for money, free rent or both.

What are Buyout Negotiations?

A buyout negotiation is a discussion or bargaining, oral or written, between a landlord and tenant, regarding the possibility of vacating.

Disclosure Requirements

A landlord must give each tenant written notice before negotiating a buyout that:

  • the tenant has the right not to enter into an agreement or negotiations;
  • the tenant may consult with counsel;
  • the tenant may rescind the buyout agreement for up to 45 days;
  • the tenant may obtain more information about negotiations and buyouts from the Rent Board;
    provides a list and contact information for tenants’ rights organizations;
  • explains the implications for condo
    conversions; and
  • provides the names of all individuals who will be negotiating on the landlord’s behalf (if the landlord is an entity).

The Rent Board has created a form that contains all the necessary disclosures to the tenant. The landlord must use that form. The landlord must retain a copy of each signed disclosure form for five years with a proof of service of the disclosure on each tenant.

Notifying the Rent Board

A landlord must provide the Rent Board with certain information before negotiating a buyout with a tenant, including:

  • the name, address, email and phone number of the landlord;
  • the name of each tenant with whom the landlord will be negotiating;
  • the address of the rental unit; and
  • a statement signed under penalty of perjury that the landlord provided each tenant with the necessary disclosures.

The Rent Board has created a form that contains all the necessary information to be included in the tenant notification. The landlord must use that form.

Requirements for Buyout Agreements

Each buyout agreement shall:

  • be in writing;
  • notify the tenant that he or she may rescind the agreement within 45 days;
  • notify the tenant of the right not to enter into an agreement and the right to consult with an attorney and tenants’ rights organizations;
  • explain the implications on condo conversions and request whether the tenant is elderly or disabled; and
  • be filed with the Rent Board between 46 and 59 days after the agreement is signed by all parties.

Rescission of Tenant Buyout Agreements

Tenants have a right of rescission up to and including 45 days after execution by all parties to the agreement. The tenant must hand deliver, email or mail notice of rescission to the landlord.
There have been no reported cases of a tenant rescinding their agreement. We suppose tenants want their money and have all honored their buyout agreements. If only they would honor their rental agreements the same way.

Penalties and Enforcement

Tenants may file a civil lawsuit for failure of the landlord to comply with the TBA. Tenants may seek damages incurred plus penalties of up to $500 for failure to disclose and up to 50% of tenant damages for failure to file with the Rent Board plus reasonable attorney’s fees. Also, the City Attorney or certain tenants’ rights organizations may also pursue a landlord and seek $100 in administrative penalties per day for each day the landlord failed to file a buyout agreement with the Rent Board up to $20,000 plus reasonable attorney’s fees. We are unaware of any actions having been filed against a landlord based on the TBA.

Our Findings

Now, on to the information you are itching to know: How much is it going to cost me?

After conducting extensive research of the San Francisco Rent Board’s records on buyout declarations and agreements, we have come to find that the average buyout cost in the city rests at about $38,000/per unit. However, you may have better luck (or not) depending on where your property is located. For example, the average cost of a buyout (per unit) ranges from approximately $16,000 (zip code 94127) to $48,000 (zip code 94114).

The average cost of a buyout also varies based on the number of tenants living in a unit. While the average between one and two tenants only differs by approximately $3,500, the jump from two to three tenants is much more alarming. The increase in average payoff is around $12,000.

The San Francisco Rent Stabilization and Arbitration program does not disclose information regarding the length of tenancies, which carries a substantial amount of weight when it comes to calculating the cost of a buyout.

In fact, there are countless other factors in the cost of a buyout, including attorney’s fees, the nature of the landlord-tenant relationship, whether the tenant is disabled or elderly, the urgency of a landlord for the tenant to move out, and more. Consult with an attorney before engaging in buyout negotiations in San Francisco.

Hopefully, this article will give landlords, property owners, and property managers a better understanding of San Francisco’s Buyout Ordinance. We are optimistic you can and will refuse outrageous demands for six figure buyouts.

Clifford E. Fried and Matthew Lanza are with Fried & Williams, LLP and can be reached at 415-421-0100.