Buyouts by the Numbers (SF)
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 a buyout 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 data that is available and comes to some conclusions. You will learn the “going rate” for a buyout in just a moment. But before we get to that, let’s discuss the TBA and the buyout process.
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. Disclosures Required PRIOR to Engaging in Buyout Negotiations A landlord must give each tenant written notice before negotiating a buyout that:
Tenant has the right not to enter into an agreement or negotiations
Tenant may consult with counsel
Tenant may rescind Buyout Agreement for up to 45 days
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
Names of all individuals who will be negotiating on landlord’s behalf (if landlord is an entity)
The Rent Board has created a form that contains all the necessary disclosures to the tenant and the landlord must use that form. The landlord must retain a copy of each signed disclosure form for 5 years with a proof of service of the disclosure on each tenant. Notification to Rent Board PRIOR to Engaging in Buyout Negotiations A landlord must provide the Rent Board with certain information before negotiating, including the following:
Name, address, email, and phone of landlord
Name of each tenant with whom the landlord will be negotiating
Address of rental unit
Statement signed under penalty of perjury that the landlord provided each tenant with the necessary disclosures.
The Rent Board has also created a form that contains all the necessary information to be included in the tenant notification and the landlord must use that form. Requirements for Buyout Agreements Each Buyout Agreement shall:
Be in writing
Notify tenant that tenant may rescind the agreement within 45 days
Notify tenant of right not to enter into an agreement and right to consult with attorney and tenants’ rights organizations
Explain the implications on condo conversions and request whether tenant is elderly or disabled
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 buy out 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 So, now back 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 $38,500/per unit. However, you may have better luck (or not) depending on where your property is located. For example, Figure 3 below shows the average amount paid for a buyout by zip codes. Within the graph you will see that the average cost of a buyout ranges from approximately $16,000 (zip code 94127) - $51,500 (zip code 94110). Figure 4 shows the average cost of a buyout based on the number of tenants living in a unit. While the average between 1 and 2 tenants only differs by approximately $3,000, the jump from 2 to 3 tenants is much more alarming. The increase in average payoff is around $12,000. This information could be helpful when deciding whether or not to start the buyout process. Keep in mind that the San Francisco Rent Stabilization and Arbitration program does not disclose information regarding the length of tenancies. This 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 their age, the urgency of a landlord for the tenant to move out, and more. You should consult with an attorney before engaging in buyout negotiations in San Francisco. Hopefully, this article and the data represented in the charts below help landlords, property owners, and property managers, have a better understanding of San Francisco’s Buyout Ordinance. We are optimistic you can and will refuse outrageous demands for six figure buyouts. Not all buyout amounts are disclosed. The charts below are based on 768 disclosed buyout amounts from March 2015 – October 2017. These numbers were obtained via the Residential Rent Stabilization & Arbitration Board of the City and County of San Francisco as well as from SF Open Data.
Copyright © 2017 by Fried & Williams LLP. All Rights Reserved. The information in this article is general in nature and should not be considered legal advice. For any specific matter, please consult with an attorney.