Home Buying in San Francisco>Question Details

Escee, Home Buyer in Daly City, CA

What are your thoughts about buying a tenant occupied condo?

Asked by Escee, Daly City, CA Mon Apr 6, 2009

I recently viewed a short sale unit (as my primary residence and not as an investment) which is currently occupied by a tenant that is renting month to month. My wonderful realtor does not recommend buying a tenant occupied home due to rent control laws in SF. I am very apprehensive about putting in an offer because it's my understanding the tenant will be my full obligation and there will be no guarantee that the tenant will move out by the close of escrow.
I've heard of horror stories of tenants taking months to move out. I would really like to submit an offer but I'm very anxious to do so if there are no guarantees. Since this is a short sale my realtor doubts we could include this as a contingency.
I would like to get some insight from others who have dealt with a situation like this.

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Answers

20
The issue with buyng tenant occupied property is whether (1) you have a grounds to evict the tenant after you purchase the property; (2) if you do have a lawful grounds, will the restriction that it creates work for you; and (3) if you are willing to deal with the eviction and the restriction that the eviciton will cause, how should you price your offer.

In your case, the only grounds for eviciton you would have is Owner Move-in (OMI). There remains some small debate among certain tenant lawyers as to whether an OMI can lawfully be done on a condo unit, but my experience has been that the courts will allow such eviction.

In order to qualify to do an OMI eviction, you need to intend on living in the unit for 3 years as your principal place of residence. That means that if you own other property that you current live in, you will need to convince a jury why you want to move and what you will be doing with your current residence once you move into the condo. You will also have to pay relocation expenses of a bit less than $5,000 per person, up to three persons. If the unit has any children, the tenants get an additional $4,000. If there are any "protected" or disabled tenants, such tenants also get an additional $4,000.

The primary restriction created by doing an OMI is that you MUST live there for 3 years, or be subject to a wrongful eviction law suit. In addition, once the tenant moves out, you must move in within 90 days unless you get an extension from the Rent Board.

So why would any buyer go through all this? Price. Generally, tenant occupied condos are much less attractive than vacant condos, so there will be a much smaller population of competing buyers. You can expect in this market a substantial discount over a similar vacant condo.

As for getting the tenant out before the close of escrow, this is not going to happen. If the seller could have gotten the tenant out, he would have done so to make the property more marketable. Also, as a condo, the seller really has no lawful grounds to force the tenant out. Furthermore, as a short sale, a seller is not going ot invest into buying a tenant out when the seller is not going to see any money out of the proceeds of the sale.

If you go to my website and click the "publications" button, there are number of articles I think you may find helpful in further understanding the issues involved with tenant occupied properties.

Jeff Woo, Esq.
Sedgwick, Detert, Moran & Arnold LLP
Complex Rental Property Group
415-627-3607
jeff.woo@sdma.com
@jefferywoo
1 vote Thank Flag Link Thu Apr 9, 2009
Hi Escee,

If you are even a smidge uncomfortable moving forward on deal because of the tenant profile, listen to your hesitation. San Francisco is a unique marketplace. Even though you buy a home with the purpose of residing in it, don't count on the tenants simply leaving because escrow closes. You may eventually reside in the property, but more than likely it will require dollars spent, plenty of sweat and maybe a few tears. I would consult with a lawyer to familiarize yourself with the process before you submit an offer. I hope this information helps.

Best,
Laila Salma
0 votes Thank Flag Link Mon Jul 20, 2009
Jerati,

Few things in law are as black and white as the fact that if a tenant has a lease and is not in default, you will not be able in involuntarily evict him during the term of that lease. Friend or no, you need to challenge this attorney's advice and ask him or her to support it with citation. The question is: where in the Los Angeles rent ordinance does it say that the existence of a just cause grounds for eviction terminate the lease rights of a tenant? It can't be found and more to the point, the rent ordinance was designed to protect tenants; why would they create a law (even if it were constitutional) to allow a landlord to terminate an otherwise enforceable lease.

Jeff Woo, Esq.
Complex Rental Property Group
Sedgwick, Detert, Moran & Arnold, LLP
415-627-3607
jeff.woo@sdma.com
0 votes Thank Flag Link Sun Jul 12, 2009
Jerati,

How frustrating for you getting conflicting advice from attorneys! Jeff Woo is located here in San Francisco and his advice to you was to contact the rent control board in L.A. and speak with them. Have you or your agent done that yet? As far as your friend from college you didn't mention where he/she practices law? They might not be knowledgeable about the laws specific to L.A.? Also, with a lease in place I would assume that raises other issues. I am in San Francisco and I really can't speak to tenant issues in your area.

I would contact the rent board and take it from there. Good Luck!

Lorraine Meier
Zephyr Real Estate-SOMA
415.596.9362
cityrealtorsf@gmail.com
0 votes Thank Flag Link Sun Jul 12, 2009
Estopples. Have them provide you tenant estopples. Are you saying you will deny a tenant housing for investment purposes? Then Jack up the rent? Whooooooa Nelly!
0 votes Thank Flag Link Sat Jul 11, 2009
Lorraine and Escee,

Thank you for your input. I'm getting mixed results from attorneys re whether I take the home subject to the lease and if I can evict the tenants. Two say I take subject to the lease and have to buy the tenants out or wait until the lease expires, as the listing agent suggested. My agent placed a call to the Assn of Realtors where an attorney also said the same. A friend from college who is now an attorney who does real estate law says the opposite, that I can simply evict and move in after giving the tenants notice without having to pay relocation expenses to the tenants. Is the owner move in law not applicable where it's a short sale and a one year lease exists? I do plan to live in the house for 3 years. Also, can anyone recommend a good real estate attorney in LA?

Thanks again!
0 votes Thank Flag Link Fri Jul 10, 2009
Take a look at it. See how they are taking care of it. Check your rent prices and check out the last years payment records.
0 votes Thank Flag Link Thu Jul 9, 2009
Jerati,

Both Santa Monica & the City of Los Angeles have forms of eviction control; however, both do allow you to evict tenants in order to move in. Santa Monica's ordinance is much tougher, but Los Angeles also requires that you live in the premise for three years.

Both Santa Monica and Los Angeles have some sort of Rent Board. I recommend that you check it out. It should be able to tell you their relocation expense policy.

Jeff Woo, Esq.
Complex Rental Property Group
Sedgwick , Detert, Moran & Arnold LLP
415-627-3607
jeff.woo@sdma.com
twitter = @jefferywoo
0 votes Thank Flag Link Thu Jul 9, 2009
jerati,

Santa Monica has very strong local rent control. Be sure to speak with an attorney before you purchase. Real estate agents and Realtors are not attorneys and can't give legal advice such as whether it would be better to evict or have the seller do it. Your agent should be able to recommend a local attorney that can advise you.
A little background on why these laws vary. The state of California strongly favors local land use law. That is why Santa Monica and West Hollywood can have rent control laws and eviction control laws that are stronger than the state laws. We face the same situation here in San Francisco where the rights of property owners are transferred to renter’s way beyond their right of possession and quiet enjoyment - which is all they should get for their rent.
0 votes Thank Flag Link Thu Jul 9, 2009
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Hello Escee,

I realize this question is old and I hope that you have successfully found your new home and it has all worked out for you. Many realtors advise against buying tenant occupied because of the complex laws in San Francisco, but it can be a great way to buy at a price well below market value. I always tell my clients to consult with an attorney before they make any decisions and proceed accordingly. If there is an offer date, it can be part of your contingency period. I notice Jeff woo commented here and another great attorney to advise you would be Daniel Bornstein. http://www.bornsteinandbornstein.com. It is really property specific in San Francisco and unfortunately the answers aren't all black and white.

Hi Jerati,

I don't know anything about L.A. tenant laws and would advise you to 1) make sure you have a great realtor that understands the benefits of buying with tenants 2) make sure you consult an attorney that specializes in tenant occupied properties. Good Luck!

I noticed there are a few replies from out-of-the-area agents. To the realtor that answered from Ohio: do you have a license to sell real estate in California? And for the other agents out -of- area: Why would you advise someone or comment on what may or may not be a good investment in an area that you don't really understand?

Lorraine Meier
Zephyr Real Estate-SOMA
cityrealtorsf@gmail.com
415.596.9362
dre #01439005
0 votes Thank Flag Link Thu Jul 9, 2009
i am contemplating a similar situation, though purchasing a home that is a SFR in LA, a short-sale, and tenant occupied. i plan to occupy for 3 years as my principal residence. could I possibly evict under the OMI in LA and would i have to pay moving expenses? if i use OMI, would i evict after close of escrow or would the seller need to do so prior to close of escrow?
0 votes Thank Flag Link Tue Jul 7, 2009
Thank you all very much for your answers.
0 votes Thank Flag Link Tue Apr 14, 2009
If you are going to move in to the condo yourself, you will have to jump through a few hoops but nothing too difficult. Get the property then get the tenant out.
0 votes Thank Flag Link Tue Apr 14, 2009
Those rent control laws sound quite oppressive--especially for buyers/sellers. Do those laws only apply for certain properties in SF proper, or do they apply univerally throughout the bay area? If they apply universally, then that would be my #1 reason to continue to avoid investing in that market.

I had heard that some of the rent control laws there were draconian, but I didn't expect them to be THAT bad.
0 votes Thank Flag Link Mon Apr 6, 2009
Escee,

San Francisco's laws are extremely pro tenant, very complicated, and in many cases counterintuitive. Know what you're dealing with before proceeding with a deal like this.

First, do NOT make eviction part of the contract.

Second, you need to consult an attorney experienced in these matters so you know what you are up against. Many well-meaning landlords have cost themselves lots of stress and money by doing something that would seem to make sense from a logical standpoint. Additionally, because of the complexity of the situation there should definitely be a discount on the price with a tenant in place.

We have done transactions with tenant buyouts both for our own investment properties as well as clients', and are happy to recommend some attorneys if you like.



Best Regards,

Lance King/Managing Broker
415.722.5549
lance@fixedrateproperties.com
0 votes Thank Flag Link Mon Apr 6, 2009
One thing to be sure not to do is make eviction of the tenant a contingency of the contract. When you do get the advice of an attorney be sure to cover that question.

When you look a the SF rent board's 14 just causes for eviction know that if you evict for any reason beyond the 14 allowed you will end up paying money to the tenant to compensate them and you will want an attorney to negotiate that for you.

Do not do this on your own because the tenant can get advised from the tenants union and there are pro bono attorneys ready to represent them against you for wrongfull eviction.

Jeff Woo who sometimes answers questions here is an attorney to speak with.
0 votes Thank Flag Link Mon Apr 6, 2009
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
Contact
Escee,

This definitely can be a sticky situation and depending on the tenant’s cooperativeness, will determine how difficult or easy the process will be. Has your Realtor been able to make contact with the listing agent to get an idea of the tenant’s situation? It would probably help to know if they are willing to move. It would be a good idea to consult with an attorney to determine what the best path would be for you. In addition you may want to contact the San Francisco Rent Control Board. It is a great resource for information: http://www.sfgov.org/site/rentboard_index.asp

Good luck!

Lisa Cartolano
Alain Pinel Realtors
0 votes Thank Flag Link Mon Apr 6, 2009
Escee,

An excellent question, but one for an attorney versed in the situation. Your realtor is right on to advise you to be wary. I wouldn't be surprised if he/she also advised you to seek counsel too! Most people are unaware since 1979 San Francisco's Residential Rent Control laws have transferred property rights from owners to tenants, by supervisor's legislative power and by voter ballot in almost every election since then...

Ask your agent for a list of attornies they would refer you to. Speak to them or check out their websites to better understand your risk. You may want to do a google search if you want to learn more and read up on it. but again, only an attorney who *practices* everyday in San Francisco Residential Rent Control can truly advise you on this one.

All my best,

Mike Ackerman
Zephyr Real Estate
415-695-2715
ABZ@ZephyrSF.com
Web Reference: http://www.ZephyrSF.com
0 votes Thank Flag Link Mon Apr 6, 2009
Maybe I'm wrong, but it's is my understanding that if you plan on making this your primary residence, the tenant must leave. Pretty straight forward.

Hope this helps,

Tony
0 votes Thank Flag Link Mon Apr 6, 2009
Escee why not write into the contract that the property is to be delivered vacant. At final walk through you can make sure that everything is alrigh and ready for you to move in. If the tenants are still there you can make a decision an what to do at that time.
Web Reference: http://www.Find1Home.com
0 votes Thank Flag Link Mon Apr 6, 2009
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