The new legislation enacted July 27, 2013 by the Board of Supervisors allows buildings meeting certain occupancy requirements to submit applications for condominium conversion through January 24, 2020. The requirements to participate in this program include:
A tenancy in common agreement being in place as of April 15, 2013;
For 3-4 unit buildings at least one unit must be continuously owner occupied for a six year period (determined as of April 15th each year);
For 5-6 unit buildings at least three units must be owner occupied for a six year period (determined as of April 15th each year); and
A per unit fee of $22,500.81.
NOTE: AS OF AUGUST 15, 2017 NO APPLICATIONS FOR PROPERTIES WITH TENANTS ARE ELIGIBLE FOR SUBMITTAL UNDER THE ECP PROGRAM. LITIGATION PENDING HAS PARTIALLY SUSPENDED THE PROGRAM. ONLY WHOLLY OWNER OCCUPIED PROPERTIES (I.E. NO TENANTS, VACANT UNITS MAY BE ACCEPTABLE) ARE ELIGIBLE.
One significant aspect of the new legislation that differs from the lottery system is the ability to tack occupancy. Qualifying for occupancy can be accomplished by tacking parties occupancy periods. For example, if a 4 unit building to qualify for Year 6 it needs one owner occupant who has occupied the property as of April 15, 2018 for six years, however if Unit 1 was owner occupied for three years by Owner 1 who subsequently sold to Owner 2 who occupied the property the next three years so collectively Unit 1 was owner occupied for six years as of April 15, 2018 (i.e. 3+3) the building qualifies. NOTE: each circumstance should be individually reviewed with an attorney to ensure compliance with the legislation the foregoing is for example purposes only.
If a successor owner occupies his/her unit for a minimum period of one year prior to submittal of an application, provided his occupancy period coupled with that of his predecessor equals six continuous years of occupancy the party qualifies for purposes of the legislation. Many buildings meet this criteria and can potentially increase the value of the interest being sold. What is necessary is to 1) review the title and occupancy history in detail, and 2) understand that changes in occupancy could impact the qualifications of the building in question. In addition, it is important to ensure there are no amendments or agreements by the cotenants with regard to proceeding with conversion.
Buying/Selling During the Conversion Process
The significance of the occupancy requirement is particularly important for sellers or buyers of qualified buildings. As reflected above, provided the application is submitted and accepted by the Department of Public Works for conversion, thereafter a qualified owner occupant could sell his/her interest and a buyer would succeed in the seller's interests as a participant in the conversion process. Timing of compiling and submitting an application will need to be considered for parties wishing to sell their interests as the process could take weeks.
In addition, the conversion process is frontloaded in terms of expenses. Listed below is a summary of approximate costs as of 05/01/19:
All of the foregoing are due prior to or at time of submittal of the application. NOTE: the bypass fee is invoiced and due within three business days of submittal and acceptance of the application. Therefore a seller will have to incur his/her portion of these costs prior to selling, however these can be recouped either contractually or in the inherent value increase due to the pending conversion. One potentially significant cost not included in the above is any work required as part of the inspection. Work cited in inspections for condominium conversions generally is unpermitted work and health and safety violations, however it is difficult to predict what will be cited or the exact cost of such work. If the inspection has not occurred prior to the sale this will be an issue the parties will need to contend with. The buyers’ inspection may provide some idea of the extent of the work, but it is not dispositive.
Once the application has been accepted anytime thereafter a transaction could close and the application/map would be updated by providing the surveyor and the attorney updated preliminary title reports. NOTE: financing of a sale will come into play. If the seller had a fractional loan the buyer can obtain his/her fractional loan in replacement. However, if there is a group loan in effect for the building it will become a more complex process and the parties will need to consult an attorney to determine available options.
As with any legislation every fact scenario has not been contemplated and as more applications are processed it is likely further interpretations will result. Parties should consult with an attorney prior to making any decisions regarding qualification or impact on qualification of a building.
The information provided herein shall not be construed as legal advice and is dependent upon the facts of each owner, property and the City and County of San Francisco's implementation of the legislation.