"Decontrol" the rent control in SF after ownership change?

Question

I am looking into a property in San Francisco.  I was built in 1960's, no HOA, zoning is RH2 but the tax record shown as SFR.  Currently there is tenant live in with rental control.  My questions if I purchase this property and become the owner:

1. How can I "decontrol" this rent control?  The property require a lot of TLC, if I put enough improvement and rent it out again, can I "decontrol" this rent control?

2. If #1 above doesn't work, can I move in to become owner occupancy?  If as an owner I live in the house for a few years then I rent it out again, does the old "rental control" rule come back to this same unit?

-John

Johnson H. · Answer

Hi John,

You mention that there is a tenant in the house. Does the tenant live in the entire house or was the house split between a second floor unit and an illegal in law? If there is an illegal in law, the SFH is considered a two unit in San Francisco and rent control applies.

If this is a SFH with in law, the tenant has the right to move back into the unit at the prior rent except for any normal increases after capital improvements and rehabilitation of the units have been completed.

You can possibly complete a owner move in eviction. However, please note that the elderly, disabled and children have some protection over a owner move in eviction. Also, I believe the landlord has to have the intentions of living in the unit for three years and can re-rent at market rate after five years.

http://sfrb.org/section-373-rent-limitations

Regards,

Johnson

Raimondo F. · Answer

@John Gouston

due to the housing crisis, there's a new law that became effective last March. Under this new law conditional use approval by the Planning Commission is now required for the removal of most housing units, even if the unit is illegal. The board of supervisor passed the law to avoid exactly what you have in mind. And you cannot do an owner move-in eviction targeted at a tenant unit when another one is available in the building. As @Johnson H. suggested better to talk to a real estate attorney before taking action.

Jonny C. · Answer

Johnson is right. They changed the OMI rules. So you're basically stuck there for 5 years now instead of three. Or you could live there for the required three years, and sublease it as a furnished rental on Air BnB for the remaining 2 years. That way you still have some money coming in if you decide you don't want to live there after 3 years.

If you do rent it out again after 3 years then it goes back to the same price it was at three years prior to you moving in. Then you're in the same situation you were 3 years ago with the same rental price but NO more OMI to use as it's only good once in that building's life.

Johnson H. · Answer

Hi John,

Yes it's possible for you to put it back as a SFH. Getting the tenant out via OMI is possible but it depends on the tenants situation like I mentioned above. However, if you don't have the intent to live there for 3 years then that could be the deal breaker.

Regards,

Johnson

Raimondo F. · Answer

Hi John,

SFR are not rent-controlled in San Francisco (and I believe in most if not all rent-controlled cities).

You can do an owner move in eviction but this does not change the rental control status of a unit. After 36 months you can put it back into the rental market at the going rate.

Chris Mason · Answer

The incentive structure currently in place in SF is only a good fit for landlords that want to be slumlords and sketchy. Slumlords and sketchy are what the tenant-voters want, as evidenced by the policies in place. If that's not your plan, you may want to look elsewhere.

(Note that I said "incentive structure," not "law of the universe." People ignore incentives all the time, which is the only reason there are any good traditional landlords of rent controlled properties in San Francisco.)

Account Closed · Answer

@Raimondo and @Johnson Thank you all for the advice.  It seems too much risk.  So I back off the deal.  Looking for another opportunity now

John

Account Closed · Answer

Hi, Johnson, Thanks for the advice.  "Yes it's possible for you to put it back as a SFH"   If I could put it back to be as SFH, does it mean rental control no longer exist anymore as SFH doesn't have rental control in SF?   What's the legal procedure I could do that?  I try to make the house as a rental w/o rental control.  I don't need to make them as two 1/1 units - I just need to rent it out as a whole.

-John

Account Closed · Answer

Hi, Guys, thanks for the insight.  Just like what Johnson said, the house split into two 1/1 units, upper and lower.  The tenant is renting upper unit with rental control.  Even though the tax record shows it as SFH, it facts in as illegal in-law.  If I purchased it, can I reconfigure it back to as SFH and remove the "rental control"?   I'm not really intended to live there for 3 years.  If noway to "decontrol" the rent control, I have to let this deal pass.

John

Johnson H. · Answer

Hi John,

The property is a SFH already so there shouldn't be anything from holding you back once vacant to rent the entire house and not be subject to rent control any longer. Remember that with an illegal in law that the stove is probably illegal. Also some of the work could be completed without permits. Do note that the SFH is still subject to just cause in San Francisco.

Finally, I want to stress that I am not a lawyer and I don't have all the facts in your situation so what I have said in this thread could be wrong so please check with a good real estate lawyer if you intend to purchase the property and go through with an OMI. It seems like every year there is something new to learn. The 5 year OMI rule was just changed in the fall of last year.

Regards,

Johnson

"Decontrol" the rent control in SF after ownership change?

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