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Tenant Buyouts: Strategy for Success

Tenant Buyouts: Strategy for Success

Tenant Buyouts: Strategy for Success

“You got to know when to hold ’em, know when to fold ’em. Know when to walk away and know when to run.” —The Gambler, Kenny Rogers.

Before I begin, I need to tell you that some landlords, regardless of their real intent, simply won’t pay a tenant more than the statutory relocation payments. The landlord thinks he’s being generous. Or, and I can’t tell you how many times I’ve heard this one, the landlord claims he just doesn’t have the dough. The $2.4 million he paid for two units just tapped him out. This is probably a topic for another post, but holy hosanna, you came up with the $2.4 million and didn’t consider the tenants?  It’s unbelievable and it demonstrates callous disregard for the impact on the tenants individually and the community at large. Many of these buyers consider themselves to be politically liberal or progressive. Yeah, right.

You’re not going to get your down payment.

I occasionally meet with tenants who tell me that they want and even expect the landlord to pay them $300,000.00 to move. An ancient part of me wants to try the drugs they’ve been taking. But I do know what they’re going through. The fact is that the landlord considers a buyout to be a settlement before litigation, not after a tenant has been wrongfully evicted and all evidence collected during litigation points to a smoking gun. At this stage you are not going to get but a small fraction of a potential judgment. If the damages are going to be that great, it’s a good idea to move out and sue later or fight an eventual eviction.

The two most common scenarios for buyouts are OMI (owner-move-in) threats and Ellis eviction threats. With OMI evictions you have to prove that the landlord does not intend to live in the unit for three years. Proving intent is difficult, especially in the absence of an overt, wrongful act. For all intents and purposes, Ellis evictions have no defenses. The point is you’re not going to get rich with a buyout.

Subdivision Code §1396.2

There is one more element to consider before you can begin to negotiate. If you believe the landlord wants to eventually convert the building to condominiums take a look at San Francisco Subdivision Code §1396.2. The code essentially provides that when the landlord evicts two or more tenants using the Ellis Act or uses a no fault eviction to oust a senior 60 years of age or older or a disabled person (Americans with Disabilities Act standard), he will be prohibited, forever, from converting the building to condominiums.

When the condominium lottery was still in effect, landlords with larger buildings (three to six units) had more to lose. under the new condominium conversion law six unit buildings cannot be converted at all. Under the new expedited process, three to five unit buildings have to be tenanted with a larger percentage of TIC owners. While they do not have go through the lottery, the new expedited process takes many years and has more hurdles, e.g. landlords must offer lifetime leases to existing tenant if they wish to convert.  Moreover as of July 2017, the City is not accepting ECP applications from buildings with renters.

Two-unit buildings are exempt, however, and converting them is highly profitable. if you are a protected tenant defined above, and you live in a building with two units, if the landlord offers you a buyout, beware. Under Rent Ordinance § 37.9E, even a buyout would be defined as an eviction for purposes of Subdivision Code §1396.2. You should contact an attorney if you still want to take a buyout.

Negotiate before the notice is served.

Bear in mind that if you want to negotiate a buyout with your landlord it is important to do it before he serves (and files with the Rent Board) an Ellis or an OMI notice. The Rent Ordinance only allows a landlord to rescind a notice if the tenant does not move out.

Negotiation

You know your absolute bottom line. The real question becomes, how much can you add to that? And finally, is worth it to you to take a buyout when the deal is done? Here is a scenario to consider:

Two tenants (partners) have lived in two-bedroom apartment in a six unit building in North Beach for ten years. Their rent is $900.00 per month. They do not have any disabilities and they are both under 60. The landlord asks them to consider a buyout based upon his assertion that he will Ellis evict the building which has only one more occupied unit.

Gather information: Our tenants should speak to the other tenants in the building. Find out what the landlord said to them. Ask them about their plans. Find out if the other tenants are protected on some level by age or disability. They should also find out as much as possible about the landlord, what he’s done in the past, what other properties does he own, etc.

Form alliances with other tenants: It is always a good idea to speak to and, sometimes, to join forces with other tenants in the building. this is especially true with Ellis threats because more than one eviction can screw up the landlord’s future condominium conversion. With Ellis evictions landlords often want to make deals with all of the existing tenants at the same time. They don’t want to spend money to move one tenant and fail to make a deal with the others because, ostensibly, they would still have to invoke the Ellis act.

Do the math: These tenants are entitled to approximately $10,000.00 plus security deposit and interest. They would get a 120 day notice to move per the Ellis provisions. If the market rate of a similar unit is $2,000.00 per month, they will save $4,400.00 just by moving pursuant to a notice. Their real bottom line is closer to $15,000.00.

Assess the landlord’s intentions: Is he a developer who will definitely Ellis? Or is he fishing?  What’s it worth to him?

Assess the value of the unit: How much did the landlord pay for the building? How much will it take to renovate the building for resale? Most importantly try to figure out what your unit will be worth. In our example, if the landlord paid $1 million for the building and the units are all about the same size with the same layouts, the landlord paid about $170,000.00 per unit. If the building is in okay shape, maybe the landlord will have to spend $70,000 per unit to renovate. Because the building is in North Beach, the average sales price of a given unit could be more. If there are no garages the unit could still sell for maybe $500,000.00. (These days the market is lousy. the same unit may have sold for $800,000 two or three years ago. This is another topic, but the so-called free market ain’t so free when it’s being manipulated by purveyors of funny money.) In our example the landlord may be expecting about $260,000.00 in gross profit.

Start high, but not too high: Here’s where the game of chicken begins. If our hypothetical tenants think the landlord is serious about evicting and it looks like the other tenants will move voluntarily, they may not have much room to negotiate. They should consider the implications of a smaller settlement, but still try to negotiate something higher. They don’t want to leave any money on the table.

Our tenants think the landlord is expecting to make about a quarter million bucks per unit. In this scenario and this market I think the tenants would be very lucky to receive $50,000.00, so I might start the negotiation at about $60,000.00. Landlords and landlords lawyers will tell you that they just want to get to the bottom line, but if you give them your real bottom line immediately, they’ll always lowball you. Unfortunately in this scenario, the landlord’s top offer may still be low, as little as $20,000.00.

Don’t whine: Tenants often believe that they prevail in negotiation if they point out how hard a move is going to be for them and show, earnestly, what they will be losing. Think about it. Does the guy on the other end of the conversation really give a rats ass? If he did he wouldn’t be in the business in the first place. I make it my job to point out the benefits of the deal to the landlord. That’s why it’s important to do the research.

More time = less money: This may be obvious but the more time you demand to stay in your unit, the less money you will receive in a buyout.

If the deal doesn’t make sense, don’t take it.

Remember you are selling your future rights to sue. If there is a chance that the landlord just wants you out because your rent is too low (and there is always that chance) and you could demonstrate considerable damages in a future lawsuit, be very careful about taking the money and moving. In the example above, I don’t think I’d recommend that the tenants take $20,000.00.

Like a high stakes poker game, buyouts are complicated. If you want want to get the best deal possible, you must be prepared to analyze the deal using the strategies here. Just plug in your own set of facts. Obviously if you are protected in some manner by the Rent Ordinance, that will change the game considerably. Get ready to stare down the landlord.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Tenant Buyouts: Your Absolute Bottom Line

Tenant Buyouts: Your Absolute Bottom Line

Tenant Buyouts: Your Absolute Bottom Line

Before you begin to negotiate a buyout with your landlord you will need to understand your bottom line. Unless you are familiar with your tenant rights to statutory relocation payments in San Francisco you’ll have no idea of the value of your tenancy. You must live in a rent-controlled unit for more than one year to receive these payments.

I have talked to countless tenants who made deals with their landlords to move out, settling for less cash than they could have received if they had not negotiated at all.

Are you young enough?

Pursuant to Rent Ordinance §37.9C, as of this writing tenants, regardless of age, are entitled to $5,890.00 apiece up to three tenants or $17,670.00 per unit, if they have been in the unit for a year or more. In San Francisco we recognize that children are tenants and we pay them if they are evicted in a no-fault eviction. We also pay families with minor children an extra $3,927.00. Ellis eviction relocation payments are $5,894.63 per tenant up to $17,683.86 for three tenants. Landlords used to argue that children were not entitled to relocation payments under the Ellis Act and their argument were affirmed in Danger Panda v. Launiu. However, the Board of Supervisors rewrote the law to affirm that children are tenants entitled to relocation payments.

Are you disabled enough?

Without getting into a complex analysis of disability law, a person who has a physical or mental impairment that substantially limits one or more major life activities,  will usually be entitled to an additional  relocation payment of $3,927.00, for Ellis Act,$3,929.74. Additionally disabled persons are entitled to a one-year notice to vacate for an Ellis eviction.

If you receive SSI or SSA disability or are disabled within the meaning of the SSI disability standards you will be completely protected from an OMI eviction if you have lived in the unit for more than ten years. If you are catastrophically ill and have been living in your unit for five years you are also protected.

The Ellis Act is California’s upraised middle finger to tenants. It doesn’t give a rat’s ass how old or disabled you are. If you’re served, you’re out, but woo-hoo, you some extra dough and a year to get out!

Are you old enough?

Rent Ordinance §37.9C provides that tenants 60 or older are entitled to an additional payment of $3,927.00. The Rent Ordinance provides a payment of $3,929.74 for an Ellis eviction if you are 62 or older. Usually 60-year tenants are completely protected from OMI evictions. But, as I mentioned earlier, the Ellis Act is a different story.

Understand your absolute bottom line.

Your landlord has approached you and told you that they are considering moving in or Ellising the building. They don’t want to make the first offer. They never want to make the first offer. Some landlords mistakenly believe that it can be construed as harassment. Generally Rent Ordinance constraints on landlords’ offers to buy tenants out have been invalidated or disregarded by the courts. Or more likely, landlords don’t want to tip you off about how much money they have to spend. So before you make an offer you must understand your bottom line.

Remember tenants are entitled to $5,890.00 apiece up to three tenants or $17,670.00 per unit, if they have been in the unit for a year or more. If a tenant is disabled or over 60 years old she is entitled to an additional $3,295. If the tenants are a family with minor children they’re entitled to an extra $3,295.00.

Here’s an example: the tenancy consists of an extended family of 5; dad, mom, grandma and two children under 18. Dad is disabled and grandma is over 60. All the adults have lived in the unit for less than 10 years. (If grandma had lived in the unit more than 10 years, she would be completely protected from an owner move-in eviction.) How much relocation should they be paid? Three tenants (not five)=$17,670.00; plus disability payment for dad=$3,927.00; plus elderly payment for grandma=$3,927.00; plus family with minor children=$3,927.00; for a total of $29,451.00.

Include the security deposit and unpaid interest.

You should also include the amount of your security deposit in your bottom line. I think it is easier to begin negotiations with one number rather than leaving the security deposit to be paid “according to law.” You don’t want to have wrangle around about your security 21 days after you move. If our family has a $1,000.00 security deposit and no interest owed, their absolute bottom line is $30,451.00.

If the landlord offers our hypothetical family $20,000.00 to move they should politely tell him to gently insert his offer into a location devoid of sunshine. And so should you if your landlord offers you less than your absolute bottom line.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Happy New Year, For Tenants Nothing’s Changed!

Happy New Year, For Tenants Nothing’s Changed!

Happy New Year, For Tenants Nothing’s Changed!

Ask yourself, how many landlords made New Year’s resolutions that included, “This year I’m going to be more compassionate to my tenants.” Or more practically,  “This year, I’m going to treat my tenants like I would have them treat me—like human beings.”  Unfortunately, 2009 proved for many big-city tenants that the golden rule was promiscuously traded for gold. Why would 2010 be any different?

In my blog post, Tenants, Thugs and CDOs, I summarized several articles outlining the effect of the predatory equity meltdown on tenants. In San Francisco and New York, the abuse and harassment of tenants by Tishman Speyer and CitiApartments are well known. In both cases the companies over-financed huge residential rental portfolios relying on business plans that included increasing rents by ousting rent-controlled tenants. For them and their ilk tenants are nothing more than cattle to be bought, sold and slaughtered.

A week after I posted the article, The New York Times outlined tenant struggles following  the bankruptcy of another megalandlord–British company, Dawnay Day. Just last week there were reports about rats and bedbugs in the Dawnay Day properties; East Palo Alto’s Page Mill Properties’ buildings were beginning to be auctioned after their $50 million default last year; and both Tishman Speyer and BlackRock  missed a scheduled repayment to senior lenders on a bond used to finance debt from the joint purchase of Stuyvesant Town and Peter Cooper Village apartments.

It’s only going to get worse for commercial property owners. Remember that residential apartment building are also considered to be commercial properties. In 24/7 Wall Street’s, Commercial Real Estate Begins To Mirror Residential Market, Douglas A. McIntyre muses, “Most analysts believe that the commercial real estate loan market is about to reach the place that the residential part of the market was a year ago. ‘Losses from commercial real estate will be quite high by historic standards,’ the former Comptroller of the Currency, Eugene Ludwig, told Bloomberg. Some experts think it will be even worse than that. Many community and regional banks could be ruined by defaults on the commercial mortgages that they hold.”  I also think it’s important to heed the words of Paul Krugman in his column, Disaster and Denial:  “[C]onservatives simply ignore the catastrophe in commercial real estate: in their universe the only bad loans were those made to poor people and members of minority groups, because bad loans to developers of shopping malls and office towers don’t fit the narrative.”

What does this mean for tenants living in buildings owed by predatory mega-landlords? Probably more of the same.

Meanwhile, on the home front, last week Dean Preston of Tenants Together wrote that Judicial Bias Out of Control in SF Superior Court, “I’ve thought long and hard about why San Francisco judges are so hostile to tenants. I’ve concluded that most simply do not believe in tenants’ rights, particularly rent control and its eviction protections, and view their job in housing cases as protecting a landlord’s ‘right’ to do what he or she wants with his/her property.” Does that ring a bell?

I did my stint at the San Francisco Tenants Union this week, and guess what? Yes, allegations of over $3,000.00 of security deposits stolen by landlords. And video-taped illegal entries, showing once again that landlords think they can do whatever they want…

So this year tenants can settle into the New Year with the lucid understanding that we really get what our ancestors were feeling and thinking a thousand years ago. Let’s party like it’s 1010!

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060

Read Your Lease!

Read Your Lease!

Read Your Lease!

If you are living in an apartment with more people than provided for on the lease, but the landlord knowingly accepts rent checks from the extra parties, does this constitute a sort of “oral agreement” in which the landlord must abide the same laws governing his relationship with the other tenants? More simply, if he accepts my rent check as one of the “extra parties,” can he still “evict me” because I’m not on the lease?

Ah, leases…scintillating, page tuning reading, NOT! Imagine a Broadway musical called, “Lease!” No amount of nudity could keep it from flopping.* Unfortunately you need to understand your lease to answer many questions about your tenancy. So my general advice to tenants is: “Read your lease.”

Most leases have a clause governing assignment and subletting. Interestingly, many tenants think that subletting only occurs when one vacates an entire unit and turns it over to somebody else. When you add or replace roommates you are subletting part of the unit, so the subletting cause in your lease applies.

Typical leases provide that tenants may not sublet without the written consent of the landlord.

Assuming your lease is typical; your case is relatively straightforward. Your landlord accepted and presumably cashed your check. It’s likely that he signed the back of it when he deposited it into the bank. By accepting rent directly from you he has waived (given up) his right to evict you and your roommates for breach of the covenant against subletting.

We lawyers also argue that by his conduct of directly accepting your check, the landlord is estopped (prohibited) from claiming that he did not accept your tenancy.

The landlord may attempt to serve you and your roommates a 3-day notice to perform covenant or quit for breaching the lease. If you don’t move out after 3-days, theoretically he can serve an unlawful detainer (eviction) lawsuit to evict everybody. A landlord cannot legally evict one tenant in the premises; he must sue to get possession of the entire unit.

Given what you’ve told me, if the landlord tries to accuse you of breaching the lease, you have a good defense. You should contact your bank and get copies of all of your checks indorsed by the landlord to use as evidence that he accepted your tenancy.

Mind you, more lies per square foot are told in court than anywhere else but church. And landlords suffer more amnesia than soap opera starlets. Just because you have a good defense to an eviction doesn’t mean the landlord won’t try to boot you out.

I’d like to take my husband off our rental agreement because he left and refuses to pay rent. How can I do that without having hassles from my landlord that I can afford to live in my apartment on one earning? Do I have to enter into a new lease, with a new rent? I’m on the lease now, and the building is protected under rent control, (if that matters.)

It does matter that your tenancy is rent controlled. The just cause eviction provisions of the Rent Ordinance allow your lease to continue on a month to month basis because you can only be evicted for one of the 16 just causes. The Rent Ordinance also provides that your rent can only be increases by the allowable annual increase.

If you are named on the lease you probably don’t have to do anything. You certainly do not have to sign a new lease with a new rent. Rent Board Rules and Regulations §12.20 specifically prohibits a landlord from endeavoring to evict a tenant based on a breach of a term in a lease that “was unilaterally imposed by the landlord and not agreed to by the tenant and either was not included, or is not materially the same as an obligation or covenant in the rental agreement mutually agreed to by the parties.” A new rent amount, unless it is lower, will qualify as such a term. How many times has your landlord tried to lower your rent?

Read your lease. If there is a term requiring you to notify the landlord that your husband moved, do so. Other than that, you should be fine.

Call the Tenant Lawyers now for a free consultation.
(415) 552-9060