All Forum Posts by: Lawrence Leung

Yes, we do live in a very litigious society and even more so in a place like San Francisco that favors the Tenant over the Landlord. It's very difficult to win a case as a Landlord when your jury of peers is made up mostly of Tenants. With that being said, I still don't understand why so many people feel that @Annie T. is going to be sued.  What did she do wrong? Nothing! She was in her right to issue a rental increase. And given she owns a condo (purchased post condo conversion), it is not subject to the SF Rental Ordinance nor is it subject to the TPA (AB 1482).

I agree that cash for keys is a good strategy, but only in certain cases, as it "depends" on the situation.  More considerations should be made. Cash for keys is a good strategy when you as a landlord want to take re-possession of a property mostly because the market rent is deflated and subject to rent control and you have no other options, neither of which is the case here.  Some of you would argue that taking back possession would at least allow you to re-rent the property. Seriously, In this environment?

Let's take a look at some numbers because numbers don't lie...

Cash for Keys

To make it easy with the math, let's say you had a cheap buyout of the Tenant for $21k + $3k ($24k total) in lawyer costs for both preparing the agreement and negotiation with the Tenant's attorney.  And let's say you were able to rent the 1BR condo immediately (difficult to do during SIP) for an incredible $4k/month. Your most optimistic break even point is 6 months. But you likely lost out on your security deposit and any rent during the negotiation, very commonplace with buyouts in San Francisco.

Out of Pocket = $24k
Lost Rent =  1/3 of April rent + 1 month of rent during buyout negotiation
Security Deposit = Lost due to negotiation

Holding Steadfast, Tenant Pays

You choose not to do a buyout because you didn't do anything wrong and your rental increase was valid. Tenant after consulting a lawyer, Tenant's Union or the Rent Board realizes that they do own the rent and begins to pay rent.

Out of Pocket = $0
Lost Rent = $0
Security Deposit = Not lost 

Holding Steadfast, Tenant Doesn't Pay and Breaks Lease

Tenant realize the rental increase is valid, but chooses to break the lease because the rent is too high.

Out of Pocket = $0
Lost Rent = 1/3 of April rent and possible 30 day notification period to vacate +
Security Deposit = Can be used to replace April and pro-rated May rent

Holding Steadfast, Tenant Doesn't Pay and Doesn't Move Out until after Moratorium and Payment Period

Tenant realizes the rental increase is valid, but chooses not to pay any more rent either because of impact to Covid-19 or because they know there's an eviction moratorium and can get away with not paying rent for not only 30 days after the emergency declaration has ended but also the 6 month deferred payment period.

Out of Pocket = $0
Lost Rent = 1/3 of April rent + possibly up to 7 months** + time to re-rent
Security Deposit = Can be used to replace any unpaid rent
**You can take Tenant to small claims and get a judgement for any unpaid rent, but may not be able to recover immediately if Tenant has no money. But there still a chance to get money once Tenant has money in the future.

Holding Steadfast, Tenant Doesn't Pay and Doesn't Move Out until Evicted

Tenant realizes the rental increase is valid, but chooses not to pay any more rent either because of impact to Covid-19 or because they know there's an eviction moratorium and can get away with not paying rent for not only 30 days after the emergency declaration has ended but also the 6 month deferred payment period.

Out of Pocket = cost for eviction $12k to $24k
Lost Rent = 1/3 of April rent + possibly up to 7 months + time for eviction** + time to re-rent
Security Deposit = Can be used to replace any unpaid rent
**You can take Tenant to small claims and get a judgement for any unpaid rent, but may not be able to recover immediately if Tenant has no money. But there still a chance to get money once Tenant has money in the future.

@Annie T. The rent board is a moot point now that you shared its a condo. Because you purchased the condo it is not subject to rent control, not the case if you condo converted. As long as you did your due diligence with respect to documenting and evidencing comparable condos of similar size and amenities, then your rental increase "should" be justified (there are other nuances so just generalizing here).

@Account Closed has said there's no reason to jump to the conclusion that she's going to get sued and it will cost her $25k. It is premature and speculative and is not helping the conversation. The tenant hasn't paid rent because they are challenging the rental increase. This sadly comes up all the time in San Francisco, but it does not mean the tenant is correct.  A petition with the SFRB and a mediation meeting with the ALJ that reviews the validity of the rental increase would resolve this with the only out of pocket cost being your time wasted.

The real potential cost is what was discussed earlier around the eviction moratorium, court closures and anticipated backlog of filings and cases. If the tenant continue to choose not to pay rent, you have no way to take possession back because evictions won't be processed for many months.

@Account Closed, In case you referring to me as the professional, I think you misinterpret what I'm trying to share. Any good landlord or property manager not only 1) understands the clear distinction between a "notice to pay/cure" and an "eviction", but also 2) understands that using a notice is a critical tool to help maintain successful tenancies. IMHO, every good landlord and property manager would prefer tenants adhere to the terms and conditions of a lease agreement, but when they do not, an eviction is a necessary tool.

But don't mistake, while a notice is a something every landlord should be comfortable doing at the drop of a dime, an eviction, especially in a place like San Francisco, should only be performed with the assistance of a qualified and experienced landlord attorney.

With all that said, there are many things that a landlord can do on their own and communicating with good faith and without the help of an attorney will help you become a more experienced and successful landlord and investor. The problem with involving an attorney in minor things in San Francisco is that it almost automatically invites the Tenant to seek legal counsel, which for those of you that are unfamiliar with San Francisco is easily accessible as most of it is free. Tenants not only have access to the regular free resources like the Rent Board, the San Francisco Tenants Union, the Housing Rights Committee, but with the passage of Prop F from a couple years back they now have free representation for evictions paid for by tax dollars.

@Diane G. Correction... Daniel "Bornstein". Great landlord attorney that also owns a property management company.  We've used him a number of times in the past. Unfortunately, no longer does Ellis Acts because of all the bad publicity. 

@Annie T. There are many good landlord attorneys out there, but @Account Closed is right.  You don't need one yet. But when you do, we will be here to provide the recommendations!!

@Annie T. I'm very sorry for your situation especially given this was your first foray into Real Estate Investing. With that said you couldn't have picked a better place surrounded by like minded individuals and ample resources to guide you to success in REI.

@Account Closed is absolutely right. Paying under protest is meaningless in a court of law. The lease is a contract as Sue pointed. The tenant agrees to pay in exchange for you providing a safe and habitable property to live. Please do not doubt yourself. You are being more than accommodating and patient trying to communicate. At this point, the right thing to do, as Sue suggested earlier is to serve a 3 day notice to pay or quit. Please understand that serving a notice (be it a pay or quit or a cure or quit) is not an eviction, rather it is the BEST tool you have in your landlord toolbox to establish 1) that you are the "landlord" and they are the "tenant" and you mean business and 2) that there are terms and conditions per the lease agreement that they are legally obligated to abide, such that if they choose not to abide they can move out ("quit"). 

You do NOT need to wait for the emergency declaration or SIP to end in order to serve a notice. But with the eviction moratorium in place and court closures, no complaints can be filed and no summons are being issued both of which is what you need in order to make any progress on a UD complaint (eviction). Serving a notice must be done correctly otherwise it is void and meaningless, so please be sure you are doing it properly OR have a professional do it on your behalf (Lawyer or Property Manager).

I respectfully disagree with the earlier explanation on partial payments. In this environment, you take what you can get. There's nothing wrong with accepting partial payments as long as you know when to accept and when not to. For example, you should NOT accept a partial payment after issuing a 3 day notice to pay or quit. When issuing a notice to pay or quit, you need to itemize out exactly what is owed (don't include late fees). The tenant needs to pay the full amount of what is itemized out and nothing less.  If you accept less (i.e. a partial payment), you then make your notice meaningless and have to start over again with a new notice and revised amounts. IMHO, partial payments can and should be accepted when there are no past due balances or payment notices issued.

I don't think you need to think about legal counsel just yet. I'm hopeful **fingers crossed** that the notice to pay or quit will open up a dialogue with your "quiet" tenant.

@Amit M., @Diane G. and @Mabel L., I've seen similar.  The properties where the owners agreed to lower a couple hundred have seen good steady interest, conversely those properties where the owners want to hold steadfast and wait out the SIP have seen little to no inquiries.

@Diane, Selling off as TIC is a solid strategy that can get you a good return, whether you sell it vacant or with tenants in place. The downside is that waiting for a tenant to vacate can be a very long proposition eroding your ROI over time. The strategy we are exploring is more immediate as it hones in on the properties that have challenging tenancy situations and convincing the tenants to become co-owners with the prospect of not only home ownership, but also the upside of increased equity post condo conversion. We use the former TIC sell off as more of a backup plan as our ultimate goal is separate APNs :)

@Amit M. and @Mabel L., I know both of you are trying to unravel from a lifetime lease, but for you and any other future investors that are looking at a condo conversion value play, we are developing a house hack strategy (not yet proven) to find properties to condo convert where you sell TICs to long term tenants (likely protected or disabled) to get the owner occupancy percentage up high enough to qualify for a condo conversion. The narrative for the tenant is appealing because they are likely living there for such a long time that they love the building, unit and neighborhood and ownership would be a life long dream. The added possibility of a bump up in equity over night is icing on the cake.

@Amit M. you're absolutely right as always! ;) DBI is a pain with the Abandoned Storefront Ordinance. More than anything, it is a hassle and inconvenience that sucks up your valuable time registering, not to mention the annual $711 fee. Should you decide to fight it as I did, you end up begin forced to go to 1660 Mission Street to attend the Director's abatement meeting while you sit and wait for your property address to be called.

@Diane G. Is this the Hyde Street property?  If so, are you familiar with San Francisco because this is in the heart of the Tenderloin and what they say about Real Estate, Location, Location, Location rings true here. I assume you have an Investment strategy that is dependent on commercial. The reason I say this is because a ~5k sqft four unit residential property in say very popular Richmond District is running for less at $2.5M