Re: What would you do with a lifetime leased unit?

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Re: What would you do with a lifetime leased unit?

Mabel L.
Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes

I need some input for a SF specific situation that no one but those who knows the tenants laws in SF could possibly understand:

I purchased a 1 bdrm TIC to live in, moved back home temporarily (so I thought) when my mother was sick, rented it to someone who knows & maxes tenant's rights laws and was grandfathered in with a lifetime lease when we went through the expanded condo conversion. It's been 8 years, I really do want out of this but not quite sure what is the best financial option. Do I...

Option A: Sell like 50% under-market value with tenant (who will surely let buyers know she is a lifetime tenant).  If I do a buy-out, I am working on an informed assumption based on her past history that she will ask for so much that it's like selling it for 50% under market.

Option B: Sell to tenant like 70% under market value knowing well she will turn around and sell the unit for market value making a better profit than I? (The 70% guess comes from 2 different realtors who thinks she would probably agree to that price point)

Option C: Keep hanging on hoping she will want a bigger place, get married, have kids and move.

Option D: You tell me!

About the tenant:

-Single, early 30's.

-Pays on time, takes care of the place but I have had to relocate her twice and she demanded max payment and faked disability to get more money.

Thank you in advance for anyone willing to chime in!

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Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
8y

I’m familiar with the expedited condo Pgrm. The “lifetime lease” is iron clad- no evictions allowed. Basically you’re screwed. (Sorry.)  

One thing you don’t tell us is how much under market is her rent now, and how big is the unit?

Based on that, your best 2 choices are:

1- wait her out, pray she moves out eventually 

2- attempt a buy out agreement. May not be worth it, as you need to weigh the rent differential vs buy out payment total (could easily be a 10-20 year payback schedule, which is not worth it IMO.)

At any rate, if you get serious about a potential buy out, definitely get a qualified lawyer before you begin any negotiations with her. Buy outs are now registered in SF, so you need to follow the process. 

Lastly, DO NOT make any cosmetic improvements to her unit! Just do the most minimal maintenance required by law. And don’t be intimidated by her “lawyer friend.” You’d be surprised that only safety, heat, hot water, basic functioning appliances and keeping the place dry are the main things you must upkeep. You have no requirements to paint, recarpet, nicer counters, cabinets, etc!  Don’t make the place any nicer than it need be. And DO NOT allow here to make ANY improvements on her own, like painting, etc.  She will eventually get tired of living in a typical run down RC unit. 

Let us know about the rent she pays and the unit size, bedroom count. 

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  • Alok Jain
    Investor · San Francisco, CA · Member since 2016 · 30 posts · 9 votes
    8y

    I have investments in SF and not sure what a long term lease means?  do you mean subject to rent control? 

    So did you convert the TIC to a condo? IF so, condos are not subject to rent control.

    1Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    8y

    @Alok Jain I did convert from TIC to condo but because my tenant was under rent-control prior to the conversion, I had to offer her a lifetime lease which means the unit is still under rent control for her as long as she remains in the unit. If she leaves, then my unit will no longer be under rent-control (in accordance with condos).

    1Reply
  • Alok Jain
    Investor · San Francisco, CA · Member since 2016 · 30 posts · 9 votes
    8y

    ok.  so you have no desire to move in to the unit?  I know you mentioned your mom got sick (sorry to hear) but you don't want to move into the unit and do an owner move in? 

    0Reply
  • Michelle Harris
    Investor · San Francisco, CA · Member since 2017 · 7 posts · 3 votes
    8y

    Hi Mabel, I have to ask, was there a reason you didn't use one of the property mgt companies in SF to rent your place?  Because in SF, I think professional property mgmt is a must-have, because they know how to check into new tenants and make sure these "tenant law abusers" are identified before you rent to them.  

    Is this person basically a protected tenant class (ie elderly, school age etc)?  If they are 30yr old, must be some sort of disability?  The odd thing is she rented from you recently- protected tenants are almost always long term renters to begin with - 10 years etc.  SO please clarify what kind of protected tenant this is.

    My vote would be for option C, assuming you are close to cash flow neutral.  You own an appreciating asset whether she lives there or not.  You are likely benefitting from prop 13 so relatively protected yourself from large increases in expenses.

    I know a few people in similar circumstances in SF.   One particularly aggressive landlord actually chose to evict one of these "faux disabled" lifetime tenants with one of the legal firms that specializes in evictions.  This would have been an illegal eviction, btw.  The tenant made a bunch of noise that they were going to counter-sue, but at the end of the day they didn't have the resources to fight it and left.

    This sounds like a case for the Costa Hawkins declaration that you need to move back into your place, but it sounds like you have already tried that and she asked for too much?

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    8y

    @Michelle Harris To answer your 1st ? about why I didn't get property mgmt before renting it out is probably as simple as I was dumb, naive and ignorant of rent control laws.  I was in a hurry to leave but I had expected to return to SF.  This was not an investment purchase, I had intended to live there.

    She has been there for nearly 8 years now so not over 10 but she is protected because of the deal the city made with tenant-rights groups for the recent expanded condo conversion program.  Any tenant that was under rent-control before conversion must be offered a life-time lease. Furthermore, Owner-move in evictions are not allowed on these lifetime leases.

    Her disability claim happened during the relocation and apparently claiming disabled is as easy as going to a licensed therapist/psychologist and having them write you a note saying you are having tremendous stress and anxiety from the relocation.  She got an additional $4,000 + the already $6,000 one must pay for relocating tenants.  It sucked.

    I have contacted RE attorneys, SFRB and learned that all the above is accurate.  There were 2 cases of property owners like myself suing the city for unconstitutional taking of their property but those cases lost.

    I wouldn't dare try any illegal eviction, she has either a really good friend or someone in the family that is a Tenant's attorney.  I know this because after her endless request to fix things (often times for aesthetic reasons) during her 1st year tenancy, I told her that her lease is over and if she was so unhappy with the place, she could leave.  A week later, I received in the mail from an attorney that I cannot evict her because of rent-control laws.  That was when my learning began =(

    0Reply
  • Michelle Harris
    Investor · San Francisco, CA · Member since 2017 · 7 posts · 3 votes
    8y

    Wow thank you so much for posting this situation.  I have heard lots of abstract stories about landlords suffering in SF but always in the abstract, this is a concrete case of an abusive sitation that is so screwed against landlords it makes you wonder how this is even legal!  Especially the owner move in for the lifetime lease, I would have thought that violated Costa Hawkins!

    Unfortunately I think you are going to be forced to monitor the situation, hoping for a violation of the lease, the usual suspects being Pets, Marijuana (not even sure that will work anymore since it is legal), and "use of property as a business" when she is working from home and the lease is residential only.    I wasn't familiar with the lifetime lease for condo conversions - now reading about it, it looks like some experienced landlords chose to evict in advance of the conversion- and take their chances then.

    0Reply
  • Michael Kovac
    Rental Property Investor · San Diego, CA · Member since 2015 · 107 posts · 37 votes
    8y

    @Mabel L. I read through your entire thread and would really love to contribute but ultimately your situation is so sensitive and unique that advice from anyone other than a landlord attorney shouldn't be considered. If you are interested please PM me and I would be more than happy to provide you with a list of local and trusted SF landlord attorneys. 

    0Reply
  • Dan Redmond
    Member since 2018 · 5 posts · 3 votes
    8y

    Mabel,  I agree with the just before me poster, Michael Kovac, you need to get actual legal advise. You have a messed up situation on your hands. We just sold 4 units and had some issues with tenants in the past regarding attempting to do capital improvements. It got completely out of hand and we were so happy to have solid legal representation, not sure we would have survived without it.  The attorney who represented us was Andrew Zacks. He is a well known landlord attorney. It may cost you, but he will give you a solid headups going in as to his thoughts for a resolution.  Good luck.

    1Reply
  • Grace Simpson
    Oakland, CA · Member since 2017 · 14 posts · 2 votes
    8y

    Ouch! This hurts to hear. The law is unlikely to change in your favor. To get back to your question, I would figure out exactly how much she is entitled to in order to move out and then weigh your options with real numbers. I do not think she will ever move without compensation so waiting her out will not do you any good. 

    You mentioned selling it to her for 70% under market — is that what you really meant? If so, why is that even an option?  I assume you would have a nice gain on a market rate sale. Perhaps you can negotiate a deal with her and give her part of the profit if she moves out first. 

    Sorry you had to become an accidental landlord in this city. 

    0Reply
  • Ethan Cooke
    Rental Property Investor · San Francisco, CA · Member since 2016 · 227 posts · 365 votes
    8y

    @Mabel L. -

    What an awful situation. I also own rental property in San Francisco. I agree with @Michael Kovacs and @Dan Redmond—a good lawyer is key. IF you are unable to evict the tenant and IF you are not in a “fire sale” situation, I think Option C is a good one since time is on your side

    - The condo conversion added a ton of value to the property. 

    - Most 30-somethings in SF eventually move (to start a family, get more space, etc.)

    Good luck!

    Ethan

    1Reply
  • Michael Kovac
    Rental Property Investor · San Diego, CA · Member since 2015 · 107 posts · 37 votes
    8y

    @Dan Redmond recommendation is excellent. Andrew Zacks is a well respected and well known landlord attorney in SF. 

    We all wish you the best of luck!

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    8y

    I’m familiar with the expedited condo Pgrm. The “lifetime lease” is iron clad- no evictions allowed. Basically you’re screwed. (Sorry.)  

    One thing you don’t tell us is how much under market is her rent now, and how big is the unit?

    Based on that, your best 2 choices are:

    1- wait her out, pray she moves out eventually 

    2- attempt a buy out agreement. May not be worth it, as you need to weigh the rent differential vs buy out payment total (could easily be a 10-20 year payback schedule, which is not worth it IMO.)

    At any rate, if you get serious about a potential buy out, definitely get a qualified lawyer before you begin any negotiations with her. Buy outs are now registered in SF, so you need to follow the process. 

    Lastly, DO NOT make any cosmetic improvements to her unit! Just do the most minimal maintenance required by law. And don’t be intimidated by her “lawyer friend.” You’d be surprised that only safety, heat, hot water, basic functioning appliances and keeping the place dry are the main things you must upkeep. You have no requirements to paint, recarpet, nicer counters, cabinets, etc!  Don’t make the place any nicer than it need be. And DO NOT allow here to make ANY improvements on her own, like painting, etc.  She will eventually get tired of living in a typical run down RC unit. 

    Let us know about the rent she pays and the unit size, bedroom count. 

    2Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    8y

    @Amit M. You called it "her unit" which seems so sadly true! I wish I would have heeded your last comment about not making cosmetic or just non-non-habitable improvements cause I'm sure that is how I landed myself in this absurdly unbalanced power dynamic.  That first year, I was fixing/changing all sorts of things cause I am nice.  These subsequent years, I have been cause I don't want to get myself in legal trouble because I am honestly, intimated by her lawyer connection.  It's like I have to check with her when I can go in her unit or she will have a fit.  It is silly to get a property manager at this point (8 years later) to deal with her and be stickler with the laws?

    It is a 1 bedroom unit and she pays somewhere between 20%-40% under market but I am going to guess closer to the 40% range not because my place is higher-end but because I allowed a pet and she has a BIG dog.  *I know you all are shaking your head!*.  So it is safe to say she will definitely not be leaving until her dog (who is quite old actually) dies or someone (poor guy or gal) marries her and they buy their own place together.

    Thank you to everyone's cautionary advice of lawyering up when dealing with her.  I did consult with a landlord's attorney during the last relocation.  And I did get a chance to speak with a few and the general consensus from the attorney's are basically..."you're screwed" and "so sorry you're in this situation".

    Sometimes I get the energy to dream up some attack plan on all fronts:

    -Raise her rent every year (I do do this)

    -Refuse to fix things (not good at this)

    -Get my neighbors to bang on her walls randomly throughout nights (they have offered)

    -Mail her bridal and parenting magazines to remind her of her biological clock (my friend's ideas)

    -List the unit for sale and show it during her work hours (I would feel bad wasting the seller's agent time)

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    8y

    @Dan Redmond Just for clarification purposes, your tenants were trying to make capital improvements or they wouldn't let you make capital improvements?

    0Reply
  • Dan Redmond
    Member since 2018 · 5 posts · 3 votes
    8y

    Mabel,  We, the owners, wanted to correct a recently discovered a faulty floor framing sitituation, hidden by carpet by the prior owner. Just to let you know how off the rails a situation may go. When we gave the tenant notice that he was going to need to temporary  relocate during the capital improvements by us, he decided this was his get rich moment, he got hooked up with an outfit named the Tenderloin Housing Clinic and within 7 business days sued us for $ 500,000 for wrongful eviction.  Luckily, all our then current and prior insurance compamies stepped up in our defense, and the suit went away for 5K from each insurance co., and 5K from us (total 20K). We were so p.o.ed by then we had to get him out and that cost us another 40K for the buyout. Also incurred major legal fees but would have been lost without legal reps. This was sometime ago, during the downturn. Have no idea what a problem tenant would need to be satisfied today. Again, good luck, but do not go it alone. In conclusion, we recently sold our 4 unit property, and are heading for the hills. San Francisco can be a tough rental market for landlords despite all the stories of riches.

    0Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2014 · 115 posts · 75 votes
    8y

    I'm in SF and familiar with the condo conversion law including the lifetime lease to tenants. So sorry you are in this situation. And sorry to add a bit more headache, but you'd want to double check your lease agreement with her, to make sure it doesn't allow any sublease. My worry is that she'd move out one day, but would airbnb her place. Again, didn't mean to add more problem to the current situation...

    0Reply
  • Account Closed
    Investor · Milwaukee, WI · Member since 2014 · 115 posts · 75 votes
    8y

    Hi Mabel,

    I was curious about your situation and was wondering about the following:

    1. What realtors (multiple?) told you the 50% & 70% value? 

    2. What made you condo convert during this time which resulted in the Life Time Lease for the current tenants? I guess I was wondering why you didn't stay as TIC until tenants leave, and only then convert?

    A friend of mine is having similar situations (long term tenants but no condo conversion just yet), so she's trying to gauge the situation.

    Would love to hear your feedback and thanks in advance!

    0Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    8y

    @Account Closed Luckily, I had brains enough to know I didn't want any subleasing going on when I created the lease!  And to answer your questions:

    1.  I did speak with 2 realtors, very experienced realtors in the city.  If you want to know more info, please PM me.

    2. When you are in a TIC, you don't have a choice as to when you want to convert, at least written in the language of the TIC contract (which was written by Andy Sirkins office - who takes almost all the TIC business, no?...at least back in the days). As soon as it becomes available to convert, the TIC can convert unless EVERYBODY decides to stay TIC which I can't imagine in any scenario. So naturally when our time came, I was the only tenant-occupied unit, all the other owners wanted to convert (understandably).


    As for your friend, who knows what the political climate will be like when she is offered to convert.  As I understand it, there is a 10 year moratorium on conversions (with some exclusions - 2-units, I think?  Not sure) as part of the deal that I was in (the Expedited Conversion Program).  And again, part of the deal of that program was that existing tenants must be offered lifetime leases.  Maybe by the time your friend is allowed to convert, that won't be the case.  Like if they go back to the lottery system (which wasn't working and that's why the Expedited Program deal was struck) then she hopefully won't have to contend with the lifetime lease issue.

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Mabel L.

    merry christmas...

    Any update on your situation?

    0Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    I have a general update: there is a pending lawsuit (understandably) against the lifetime lease. Not sure if @Mabel L. is part of it or not. Of course the suit lost in SF, but I believe it’s in CA Superior Court on appeal (don’t quote me on that, but it is in some appeal process.) The city has also frozen all condo conversions with tenants for now too (their a**hole attorneys anticipated this, so basically said if any owner sues, we will freeze all condo conversions involving tenants.) Good going SF gov, keep making housing a blood sport, and you wonder why prices are so high and housing is so limited. Of course this bodes well financially for landlords that manage to maneuver around these land mines. 

    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Amit M.    I think below is what you are refering to.....

    https://pacificlegal.org/case/pakdel-v-city-and-county-of-san-francisco/

    1Reply
  • Mabel L.
    OP
    Investor · Los Angeles, CA · Member since 2016 · 32 posts · 13 votes
    6y

    Sorry for my delayed response but I have amazing news! This lifetime lease tenant of mine actually submitted an intent to vacate about 3 weeks ago!!!! I am free of this lease now!!! Up until 3 weeks ago, I was just playing the waiting and hoping game.  I had been following these cases but they were not promising.  I can't express how relieved/happy/excited I am.  I do wish all owners with these ridiculous lifetime leases a win soon!  Thanks for following up!

    2Reply
  • Amit M.
    Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Mabel L. you are lucky that she is not trying to corral you into a buyout. few suggestions:

    1- minimize discussions with her. Be cordial, answer questions, but don’t initiate anything. Last thing you want is for her to change her mind!

    2- I think the city has a process where you can remove the deed recorded restriction of the lifetime lease.  CHeck with Dpw, it may be on their web site. She will need to sign/acknowledge that she moved out, which you will need with other docs to give back to Dpw. It’s worth cleaning up the property title. But don’t mention or bring this up until after she is completely out. Again, don’t complicate anything! Moving out is emotional, and you don’t want to awaken any hidden feelings. 

    Keep cool, bide you’re time....then only afterwards....party! 🎉🍿😎

    1Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Mabel L. - Big congrats...

    Dont say anything, dont do anything.. Let her move out first.....

    I just got approved for condo conversion, and I totally understand that sense of relief ...


    Best luck....

    1Reply
  • Brian Garlington
    Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
    6y

    @Mabel L.    Very happy for you!   Now let her move out............then start popping the champagne corks! Keep us posted on this.

    0Reply
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