Yikes, My Building is Selling: Part 1

You come home one evening and see a sign on your building. It’s for sale.

Or you hear a rumor from another tenant. You google your building’s address, and up it comes on some real estate company’s website.

As a tenant, are you in trouble?

Take a deep breath. The first thing I tell my clients when they are nervous about their rent-controlled building selling is that they can’t be evicted because the sale.

There might be some changes, but knowing your tenant’s rights will arm you against a landlord’s attempts to take advantage of you.

This is a big topic, so I’ll be writing about more about it in future blogs.

What might happen?

First, there’s a possibility that nothing might happen. You get a new landlord and things continue more or less as they did before the sale.

But what if the new landlord has plans for the building? What happens next could depend on the number of units in your building.

If you live in a small building, your home might be converted into a tenants-in-common building or condominiums. However, right now in San Francisco the real estate market is down for these types of units, making them less desirable at least in the short term.

If you live in a small building, you also might see a notice of an owner move-in.

If you live in a big building, it’s likely that a professional investor group is buying your home. The management will change, and so might some of the policies.

These are just possibilities, and again, one possibility is that nothing really important might change. Remember, you can’t be evicted from your rent-controlled apartment just because your building sold.

Wanting you out before the sale

There’s a possibility your old landlord wants you out of your rent-controlled building before the sale, especially if you are a long-term tenant paying below market rent.

Apartment buildings, particularly large ones, sell based on the income and profit they generate. If the old landlord can get you to move out of your apartment before the sale, it can be re-rented at market rate. The new rate could be substantially above what you’re paying now.

Just by getting rid of tenants living in low-paying, rent-controlled units, the building could sell for much more. The old landlord has incentive to get rid of you.

Think carefully before you leave your rent-controlled home. Your vacant apartment has value. The landlord might be willing to give you a substantial amount of money to get you to move.

Buyouts, as they are called, are tricky, and I suggest you speak to someone knowledgeable before you decide to go it alone.

Remember the two tenants I wrote about in my blog post “The Case of the Tenant Who Changed His Mind?” The landlord casually talked to both tenants about moving out. One asked for and received $5,000. The other one asked for and received $25,000.

Your rental rate could rise

A new landlord could increase your rent in your rent-controlled apartment.

Remember the years you were happy your old landlord did not increase the rent, even though he was allowed by the Rent Board?

If your previous landlord did not increase your rent up to the amount of the Rent Board’s allowable percentage, then you could be hit with a substantial increase all at once. The foregone rent increases are considered “banked,” and if your old landlord didn’t feel like increasing them, it’s likely your new landlord will not feel as kindly.

If there’s a rent overpayment

A new landlord also will inherit any obligations of rent overpayments.

Have you been overcharged? Just because a new landlord owns the building doesn’t mean that your opportunity to get your overcharged rent back is gone.

What about your security deposit?

Getting a new landlord is a good time to send a letter inquiring about the interest accumulating on your security deposit.

As I’ve written many times in this blog, you should always keep a record of your letters with your landlord. You should also keep good financial records, which will have the amount of your security deposit, and the date you gave the security deposit to the old landlord, and the interest you received.

The interest rate varies from year to year. The Rent Board publishes the new rate in early January for each year, which begins on March 1st.

The interest rate on security deposits from March 1, 2017 through February 28, 2018 is 0.6%. The interest rate from March 1, 2016 through February 28, 2017 was 0.2%. For a complete list of rates over the years, go to the Rent Board’s Security Deposit Interest Rates page.

Sure, the interest rate is not a lot these past few years. Some years it has been better. But it’s your money.

Another possible increase

Your new landlord could ask for an Operating and Maintenance (O&M) increase. This amount could be up to 7% of your rent.

An O&M increase can’t happen automatically. The landlord must petition the Rent Board. All expenses are considered, including property taxes, repairs, maintenance, insurance, pest control, garbage, water. (Electric and gas costs are not included in the calculation since an increase in utility costs may be passed through to the tenant by a separate petition.)

A special concern for tenants in buildings that recently sold is that the O&M increases also include debt service or mortgage. In other words, if the cost of financing the new building is high, the new landlord might apply for an O&M increase.

The landlord has to demonstrate that his expenses increased from one twelve-month period to the next by more than the amount of the annual allowable increase. The total O&M increase is calculated and then divided by 12 months, and then divided by the number of units in the building.

If an O&M increase is approved by the Rent Board, it becomes part of the tenant’s base rent.  However, I have rarely seen a tenant get stuck with this kind of bill.

For more information

I’ll cover more topics about what happens if your building sells in future blogs.

Questions about the sale of your rent-controlled home? Is your landlord asking you to move? You should consider talking to an experienced tenant attorney who can help you with your specific issues.

Know your rights. Protect yourself.

 

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Mary Catherine Wiederhold

Tenant Attorney
1458 Sutter Street
San Francisco, CA 94109

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