37.9E Tenant Buyout Agreements
(a) Findings and Purpose. San Francisco is in the midst of a housing crisis. As the disparity between rent-controlled and market rate rents continues to grow, landlords have greater incentives to induce tenants in rent-controlled units to move out. Similarly, with the real estate market skyrocketing, many landlords are selling their property with the knowledge that an unoccupied unit can command a significantly higher sale price than an occupied one.
Instead of evicting tenants, some landlords offer cash buyouts to tenants in exchange for the tenants vacating rental units. These are sometimes called buyout agreements. Even buyouts worth tens of thousands of dollars can be recouped by a landlord retaining ownership and re-renting at market rates or selling the unit. Unlike no-fault evictions, these buyouts are unregulated, and can enable landlords to circumvent many of the restrictions that apply when a landlord executes a no-fault eviction. For example, a landlord who executes some types of no-fault evictions must give tenants a certain amount of time to move out, provide funds to tenants to cover relocation costs, and allow tenants to move back into the unit under specified circumstances. Two types of these no fault evictions – the Ellis Act and owner move-in evictions – contain restrictions on how much rent a landlord can charge if the units are re-rented following eviction. Analogous regulations do not exist for tenant buyouts.
Anecdotal evidence indicates that many buyout negotiations are not conducted at arms-length, and landlords sometimes employ high-pressure tactics and intimidation to induce tenants to sign the agreements. Some landlords threaten tenants with eviction if they do not accept the terms of the buyout. The frequency of these buyout offers increased significantly following passage of a San Francisco law in 1996 which restricted, and in many cases prohibited, condominium conversions following no fault evictions. By threatening a specific no fault eviction and then convincing a tenant to vacate rather than receiving the eviction notice, a landlord will avoid restrictions on condominium conversion as well as restrictions on renovations, mergers, or demolitions.
These tactics sometimes result in tenants entering into buyout agreements without a full understanding of their rights and without consulting a tenants’ rights counselor. These buyouts vary widely in amounts and, in some cases, are even below minimum relocation benefits which are required to be paid for all no fault evictions. Disabled, senior, and catastrophically ill tenants can be particularly vulnerable, and can face greater hurdles in securing new housing.
The main purpose of this Section 37.9E is to increase the fairness of buyout negotiations and agreements by requiring landlords to provide tenants with a statement of their rights and allowing tenants to rescind a buyout agreement for up to 45 days after signing the agreement, thus reducing the likelihood of landlords pressuring tenants into signing buyout agreements without allowing the tenants sufficient time to consult with a tenants’ rights specialist. Another goal of this ordinance is to help the City collect data about buyout agreements. The City lacks comprehensive information about the number, location, and terms of buyout agreements. This dearth of information precludes the City from understanding the true level of tenant displacement in San Francisco.
(b) Applicability of Section. Notwithstanding Section 37.3 or any other provision in City law, this Section 37.9E shall apply to all landlords and tenants of rental units as defined in Section 37.2(r).
(c) Definitions. For purposes of this Section 37.9E, the following definitions shall apply:
“Buyout Agreement” means an agreement wherein the landlord pays the tenant money or other consideration to vacate the rental unit. An agreement to settle a pending unlawful detainer action shall not be a “Buyout Agreement.”
“Buyout Negotiations” means any discussion or bargaining, whether oral or written, between a landlord and tenant regarding the possibility of entering into a Buyout Agreement.
(d) Disclosure required prior to Buyout Negotiations. Prior to commencing Buyout Negotiations for a rental unit, the landlord shall provide each tenant in that rental unit a written disclosure, on a form developed and authorized by the Rent Board, that shall include the following:
(1) A statement that the tenant has a right not to enter into a Buyout Agreement or Buyout Negotiations;
(2) A statement that the tenant may choose to consult with an attorney before entering into a Buyout Agreement or Buyout Negotiations;
(3) A statement that the tenant may rescind the Buyout Agreement for up to 45 days after the Buyout Agreement is fully executed;
(4) A statement that the tenant may visit the Rent Board for information about other Buyout Agreements in the tenant’s neighborhood;
(5) A list of tenants’ rights organizations and their contact information;
(6) A statement that information about tenants’ rights is available at the Rent Board’s office, through its counseling telephone number, and on its website;
(7) A statement explaining the legal implications under Section 1396(e)(4) of the Subdivision Code for a landlord who enters into one or more Buyout Agreements;
(8) If the landlord is an entity, the names of all people within that entity who will be conducting the Buyout Negotiations, as well as the names of all people within that entity who will have decision-making authority over the terms of the Buyout Agreement;
(9) Any other information required by the Rent Board consistent with the purposes and provisions of this Section 37.9E; and
(10) A space for each tenant to sign and write the date the landlord provided the tenant with the disclosure.
The landlord shall retain a copy of each signed disclosure form for five years, along with a record of the date the landlord provided the disclosure to each tenant.
(e) Notification of the Rent Board. Prior to commencing Buyout Negotiations, the landlord shall provide the following information to the Rent Board, on a form developed and authorized by the Rent Board:
(1) The landlord’s name, business address, business email address, and business telephone number;
(2) The name of each tenant with whom the landlord intends to enter into Buyout Negotiations;
(3) The address of the rental unit that may be the subject of Buyout Negotiations; and
(4) A statement signed under penalty of perjury that the landlord provided each tenant with the disclosure required by subsection (d) prior to commencing Buyout Negotiations.
The Rent Board shall make the information included on this form publically available, except that the Rent Board shall redact all information regarding the identity of the tenants.
(f) Requirements for Buyout Agreements. Every Buyout Agreement shall:
(1) Be in writing. The landlord shall give each tenant a copy of the Buyout Agreement at the time the tenant executes the Agreement.
(2) Include the following statement in bold letters in a size equal to at least 14-point type in close proximity to the space reserved for the signature of the tenant(s). “You, the tenant, may cancel this agreement at any time before the 45th day after all parties have signed this agreement. To cancel this agreement, mail or deliver a signed and dated notice stating that you, the tenant, are cancelling this agreement, or words of similar effect. The notice shall be sent to: (Name of landlord) at (Address of landlord).” Immediately after this statement, there shall be a line for each tenant to affix his or her initials.
(3) Include the following statements in a size equal to at least 14-point type: “You, the tenant, have a right not to enter into a buyout agreement”; You, the tenant, may choose to consult with an attorney and/or a tenants’ rights organization before signing this agreement. You can find a list of tenants’ rights organizations on the Rent Board’s website – www.sfrb.org”; and “The Rent Board has created a publically available, searchable database that may include information about other buyout agreements in your neighborhood. You can search this database at the Rent Board’s office at 25 Van Ness Avenue, Suite 320.” Immediately after each statement, there shall be a line for each tenant to affix his or her initials.
(4) Include the following statements in a size equal to at least 14-point type: “Under Section 1396(e)(4) of San Francisco’s Subdivision Code, a property owner may not convert a building into a condominium where: (A) a senior, disabled, or catastrophically ill tenant has vacated a unit under a buyout agreement after October 31, 2014, or (B) two or more tenants who are not senior, disabled, or catastrophically ill have vacated units under buyout agreements, if the agreements were entered after October 31, 2014 and within the ten years prior to the condominium conversion application. A ‘senior’ is a person who is 60 years or older and has been residing in the unit for ten years or more at the time of Buyout Agreement; a ‘disabled’ tenant is a person who is disabled under the Americans with Disabilities Act (Title 42 United States Code Section 12102) and has been residing in the unit for ten years or more at the time of Buyout Agreement; and a ‘catastrophically ill’ tenant is a person who is disabled under the Americans with Disabilities Act (Title 42 United States Code Section 12102) and who is suffering from a life threatening illness and has been residing in the unit for five years or more at the time of Buyout Agreement. Do you believe that you are senior, disabled, or catastrophically ill as those terms are defined above? Yes No I don’t know I prefer not to say .” The question listed in this subsection (f)(4) shall appear in the Buyout Agreement once for each tenant who is a party to the Buyout Agreement. Next to each question shall be a line for the tenant to affix his or her initials.
A Buyout Agreement that does not satisfy all the requirements of this subsection (f) shall not be effective and may be rescinded by the tenant at any time. A Buyout Agreement that does not include the initials of each tenant next to each of the statements described in subsection (f)(2) and (f)(3) shall not be effective and may be rescinded by the tenant at any time. A Buyout Agreement that does not contain an answer from each tenant to the question listed in subsection (f)(4), as well as the initials of each tenant next to his or her answer to the question listed in subsection (f)(4), shall not be effective and may be rescinded by the tenant at any time.
(g) Rescission of Buyout Agreements. A tenant shall have the right to rescind a Buyout Agreement for up to and including 45 days after its execution by all parties. In order to rescind a Buyout Agreement, the tenant must, on or before the 45th day following the execution of the Buyout Agreement by all parties, hand deliver, email, or place in the mail a statement to the landlord indicating that the tenant has rescinded the Buyout Agreement.
(h) Filing of Buyout Agreements. The landlord shall file a copy of the Buyout Agreement with the Rent Board no sooner than the 46th day after the Buyout Agreement is executed by all parties, and no more than 59 days after the agreement is executed by all parties. Buyout agreements rescinded under subsection (g) need not be filed with the Rent Board.
(i) Posting of Buyout Agreements. The Rent Board shall create a searchable database with information received from filings under subsection (h). The database shall be accessible to the public at the Rent Board’s office and shall include a copy of all filings received under subsection (h). Before posting a copy of any filing received under subsection (h) on its database, the Rent Board shall redact all information regarding the identity of the tenants.
(j) Annual report. The Rent Board shall provide an annual report to the Board of Supervisors regarding the implementation of this Section 37.9E. The first report shall be completed by January 31, 2016, and subsequent reports shall be completed by January 31 in subsequent years. The report shall include, but not be limited to, a list of all units that have been the subject of Buyout Agreements that have been reported to the Rent Board under subsection (h). The Rent Board shall post each of these annual reports on its website.
(k) Penalties and Enforcement.
(1) A tenant who has vacated a unit based on a Buyout Agreement may bring a civil action against the landlord in San Francisco Superior Court for failure to comply with the requirements set forth in subsections (d) and (f). The landlord shall be liable for the tenant’s damages. In addition, the penalty for violation of subsection (d) shall be up to $500. The penalty for a violation of subsection (f) shall be up to 50% of the tenant’s damages. The court shall award reasonable attorneys’ fees to any tenant who is the prevailing party in a civil action brought under this subsection (k)(1).
(2) The City Attorney or any organization with tax exempt status under 26 United States Code Section 501(c)(3) or 501(c)(4) and with a primary mission of protecting the rights of tenants in San Francisco may bring a civil action against a landlord in San Francisco Superior Court for failure to comply with subsection (h). A landlord who has violated subsection (h) shall pay to the City an administrative penalty of up to $100 per day for each document the landlord failed to file, but in no event shall the landlord’s total administrative penalty in a single civil action exceed $20,000. Any administrative penalties collected under this subsection (k)(2) shall be deposited in the General Fund of the City and County of San Francisco. The court shall award reasonable attorney’s fees and costs to the City Attorney or a nonprofit organization that is the prevailing party in a civil action brought under this subsection (k)(2).
(3) A tenant may not bring a civil action under subsection (k)(1) and the City Attorney or a nonprofit organization may not bring a civil action under subsection (k)(2) more than four years after the date of the alleged violation.