Buyout Blues

SF Apartment : March 2017

LEGAL Q&A

Buyout Blues

by Various Authors

Q. Can a landlord negotiate a buyout agreement with a tenant at the start of a tenancy? If so, what terms should be included?
A. This author believes that the answer is definitively no. In March 2015, a “buyout” provision was added to the rent law. The legislative intent behind this amendment was to provide tenants who were negotiating a buyout agreement the opportunity to seek meaningful help from the Rent Board, an attorney, and/or the various non-profit tenant advocacy groups in town. Pro-tenant legislatures felt, rightly or wrongly, that many landlords were unfairly pressuring long-term tenants to take money and leave. Some owners, tenant advocates argued, employed dishonest tactics like eviction threats and outright harassment to strong-arm tenants to accept buyout terms. The Board of Supervisors also wanted to track buyouts and compile regular statistics. So, the law requires that buyout agreements shall be filed with the Rent Board, and the Rent Board must maintain a public database that outlines where each buyout occurred and what was paid.

The primary component of the buyout law is that tenants be given a series of disclosures about their rights before they bind themselves to a contract to vacate, and there is a mandatory rescission period of 45 days after such an agreement is signed. The legislative intent behind the 45-day rescission period is to permit tenants the ability to confer with advisors to contemplate the ramifications of leaving for payment. To this end, before buyout agreements are even initiated, owners must disseminate to their tenants a Rent Board informational form entitled “Pre-Buyout Negotiations Disclosure Form Required by Ordinance Section 37.9E.” In conjunction with delivering the preliminary disclosure to affected tenants, a landlord shall file with the Rent Board a declaration entitled “Declaration of Landlord Regarding Service of Pre-Buyout Negotiations Disclosure Form.” Both of these forms are available on the Rent Board’s website.

Someone who is signing a lease and has yet to move in is not considered a “tenant” entitled to Rent Ordinance protections, so owners including buyout Rent Board forms and move-out agreements as part of the leasing package do not yet have persons subject to rent control rights. For better or worse, our legislators created a mechanism whereby existing tenants who during their tenancy were approached by their landlords would be apprised of available resources to help them when deciding to stay or vacate. To begin the tenancy with a termination mandate thwarts this purpose.

For landlords contemplating a buyout of existing tenancies, note the following. One, even though the law affords a 45-day rescission period, tenants may always change their minds up until the time that they actually leave. Indeed, many landlords believe that once the 45-day period expires, a superior court judge may order the Sheriff to evict the tenant once the agreed-upon date to vacate occurs. That is not true. While the tenant will have to return any received payment, enforcement of a buyout agreement is not a “just cause” for eviction. Two, with regard to evictions, the buyout law states that its provisions do not apply if there is a pending unlawful detainer (eviction) action. Therefore, if you are otherwise evicting your tenant in court and you reach a settlement that involves a payment to vacate, the buyout rules are inapplicable and, incidentally, if the agreement to leave is crafted properly, the court will order the Sheriff to remove your tenant as required by the judicial settlement. Lastly, the buyout paperwork is quite extensive, so you may want to retain a landlord attorney to assist you with the processes; if you do not complete everything correctly, your departed tenant, the City Attorney, as well as a non-profit agency may take you to court.

–David Wasserman

Q. A tenant has hired uninsured, unlicensed, and unbounded contractors. Am I liable in the case of injury? How can I protect myself against injury claims?
A. The landlord’s liability depends on the cause of the injury. A landlord, or any owner of property in California, has a duty to prevent injury to people who enter their property. This means that any landlord is obligated to look after their property, inspect it, and correct any dangerous conditions that they are aware of, or should be aware of. If the property is not in a “reasonably safe” condition, the landlord may be liable for negligence if there is an injury.

What is “reasonably safe” is determined by looking at the situation as a whole, such as the risk of potential injury, the severity of potential injury, how much it would cost to correct, and so on. This includes posting warnings or similar preventative measures when a condition is known to exist but has not yet been abated. However, the landlord is not expected to take extraordinary measures to guarantee that nobody can or will be injured on the property, just ordinary care that the property is reasonably safe under typical circumstances. This should not be confused with complying with building codes or other laws—a property may still be unsafe even if it could pass an inspection or was built to code.

A landlord is not liable for the negligent acts of third parties just because they occurred on the landlord’s property. This is because the landlord must have had control over the cause of the injury. For instance, if a painter falls through a staircase because it was rotted away, the landlord may be liable for failing to provide a reasonably safe staircase. But if the painter fell down the staircase because a co-worker bumped his ladder, the landlord would not be liable, if the staircase was otherwise reasonably safe. Also, if the landlord consents to the workers proposed by the tenant, the landlord may be considered an “Owner-Builder” and the “employer” of those workers, and therefore responsible for worker’s compensation insurance, taxes, and other obligations.

There are two ways to protect yourself from injury claims. First, be proactive. If you are uncertain if a condition is unsafe, err on the side of caution. Warn tenants and anyone else who enters the property with signs or a barricade, then get the condition corrected as soon as reasonably possible. Second, confirm that you have adequate insurance coverage, suitable for rental property. In addition to coverage of “physical” injury, we recommend also obtaining a policy that protects against wrongful eviction, which is a “personal” injury. A standard homeowner’s policy will not have this protection.

Finally, hiring uninsured, unlicensed, and unbonded workers is risky for many other reasons. Whenever possible, the landlord should hire professional contractors themselves, not just to protect themselves from liability, but also to ensure that the work is not causing a breach of the lease or rental agreement in terms of its quality and scope.

–Matthew Quiring

Q. I own a building on the seismic retrofit list. What is the relocation procedure? Can a tenant refuse or delay an order to vacate? If so, what are my options?
A. A landlord is entitled to recover possession of a rental unit to temporarily remove the unit to be able to carry out rehabilitation work, including seismic retrofit work. The following is a general summary of the procedures to displace a tenant for this purpose:

Notice: The landlord must serve the tenant with a written notice to vacate that complies with all state and local law requirements. The notice must give at least 30 days notice to vacate for tenancies less than a year, and it must give at least 60 days notice to vacate for tenancies more than a year.

Permits: Before the landlord can even serve the notice to vacate, the landlord must first have all necessary permits to perform the seismic work.
Uninhabitable: The seismic work to be done must involve work that would make the unit hazardous, unhealthy, and/or uninhabitable while work is in progress.

Temporary: The tenant will vacate the unit only for the minimum time required to do the work. So long as the tenant will not be required to vacate for more than three months, the landlord can proceed without involving the San Francisco Rent Board.

Rent Board extension of time: Prior to serving the notice to vacate, if the landlord knows or should know the seismic work will require the tenant to vacate for more than three months, then the landlord must petition the Rent Board for an extension of time beyond three months before serving the notice to vacate. If it does not become apparent that the work will take longer than three months until after the service of the notice to vacate, then the landlord must immediately petition the Rent Board for an extension of time.

Relocation payments for tenant displacement exceeding 19 days: Where the work will take more than 19 days to complete, all tenants, including minor children, who have occupied the unit for at least one year are entitled to the following relocation payments:

$5,890 per tenant with a maximum of $17,670 per unit. Half of this payment is due with the notice to vacate and half when the tenant vacates.
Additional $3,927 per elderly or disabled tenant (no maximum). Half of this payment is due within 15 days from when the landlord is notified the tenant is qualified, and half is due upon vacating.
Additional $3,927 per household with a minor child. Half of this payment is due within 15 days from when the landlord is notified the tenant is qualified, and half is due upon vacating.
Relocation payments for tenant displacement fewer than 20 days: For work that will take fewer than 20 days to complete, each tenant household is entitled to $275 per day, plus actual moving expenses if it is necessary to move the possessions of the tenant household.

If the landlord complies with all of the procedural requirements but the tenant fails to vacate when required to do so, then the landlord may file an unlawful detainer action in court to seek a judgment for possession of the rental unit. Once a judgment is obtained, the sheriff may enforce it and escort the tenant out of the unit.

Because navigating through all of the procedural requirements to temporarily displace a tenant to do seismic work can be time-consuming and expensive, a landlord may consider alternatives, such as attempting to negotiate a buyout. A buyout can be a permanent or a temporary displacement. Either way, the landlord would be required to comply with the Rent Ordinance buyout requirements. These requirements include giving the tenant written notice of intent to negotiate, filing a declaration with the Rent Board, putting any agreement to vacate in writing, and filing that agreement with the Rent Board. If successful, a buyout could be a win-win for the landlord and the tenant (see page 36 for more information on buyouts).

Whether invoking the right to temporarily displace the tenant or negotiating a buyout, it is advisable to consult with an attorney to help navigate through the complexities of the Rent Ordinance.

–Steven Williams

The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. David Wasserman is with Wasserman-Stern Law Offices and can be reached at 415-567-9600. Steven Williams, David Semel, and Matthew P. Quiring are with Fried & Williams, LLP and can be reached at 415-421-0100.