It should be noted that the presence of protected tenants in a two unit building is particularly negative to a two unit building because if such tenants are evicted for the Ellis Act, owner move-in, renovation, demolition or relative move-in, the condo conversation rights would be destroyed forever. Ordinarily, a two unit building, if owner occupied by two owners for one year, can bypass the condo lottery and move directly toward conversion.
For that reason, if you can't buyout your tenants, this will like cause a great devaluation of your property.
If you are able to voluntarily buyout your tenants, there is a method of creating an enforceable agreement which would force them to move if they later refused. You will need a lawyer to assist you. You can find an article I published on the subject at the link below.
Jeffery Woo, Esq.
Sedgwick, Detert, Moran & Arnold LLP
Complex Rental Property Group
Your best bet is to buy them out first, if you can. No one wants to buy a unit, home or income property with protected tenants. You might have some luck if they are paying market rate rents.
If your tenants are willing to be bought out and you are willing to pay what they want, it is absolutely best to pay the money if you can and deliver the property vacant. The reason for that is that even if you have a buyout agreement, if the tenants are still there after close of escrow the new buyers could potentially have to take the tenants to court if they refuse to live up to their agreement. This will definitely make the property less attractive. My guess is you could even get a short term loan for the buyouts with a pending purchase if you have good credit and equity.
Also, it is imperative that you have an attorney experienced in these matters assist you with the buyout process or you could end up in a lot of trouble. We have been through this a lot with our own properties as well as clients, and would be happy to answer questions or provide attorney referrals with no obligation.
Lance King/Managing Broker
Top 2%, TRI/Coldwell Banker, SF's #1 Office