Sell or Move Out Before or During Condo Conversion?

By Andy Sirkin (3/17/14)

Introduction

Although the law explaining how one qualifies a building for condominium conversion in San Francisco clearly describes the requirements for owner-occupancy, San Francisco’s Department of Public Work’s (“DPW”) and the City Attorney’s Office’s interpretation of these requirements has been inconsistent and confusing.

There are currently three methods that can be used to qualify a building for conversion to condominiums: the two-unit condominium lottery bypass program; the recently-enacted “Expedited Conversion Program”; and the annual conversion lottery (currently suspended but slated to return in 2024 or 2025).

Early Sale or Move-Out in Two-Unit Lottery Bypass Conversions

The law on the duplex lottery bypass has the following requirements relating to owner-occupancy: “both units are owner-occupied for one year prior to the application for Conversion”. A natural reading of this language would be that once the conversion application is submitted, the owner-occupancy requirement has been satisfied and either or both owner can move out or sell. But DPW has never agreed to this interpretation.

In an email written in 2005, the then-supervisor of conversion processing, after consultation with the City Attorney’s Office, interpreted the requirement as follows: “It has been our position that the owners sign an affidavit that they intend to treat this as their personal residence. When an owner of a 2-unit building wants to sell early, we ask that they send us a letter specifying the reason for the early sale. We have allowed early sales on a case-by-case basis but we cannot remember allowing sale pre-tentative map approval for anyone. Again, we treat each situation on a case by case basis.” There have been no further policy statements of DPW on this matter.

Our experience with two-unit condominium lottery bypass conversions in recent years is that one or both owners can move out after applying for conversion, but cannot sell. This may be because there is no way for DPW to know when an owner moves out post-application, but the title report that DPW receives at several points during conversion application processing reveals when an owner has sold. We are not aware of any “hardship” situation where DPW has allowed owners to sell during conversion (although DPW has allowed conversion to continue after the death of an owner-occupant).

Early Sale or Move-Out Under the New Condo Conversion Law

The law on the owner-occupancy requirements for the Expedited Conversion Process is broken into two parts. For the first year of the program, that law states that the building must have “been occupied continuously by . . . the applicant owners of record for no less than five years prior to April 15, 2013”, and, similarly, for the second year of the program, that the building must have “been occupied continuously by . . . the applicant owners of record for no less than three years prior to April 15, 2014”. A plain English reading of this language would be that if the required number of owner-occupants (one for a 2-4 unit building, and three for a 5-6 unit building) were living in the building for the required number of years in April, they could move out or sell in May and the building would still be eligible (even if no application for conversion has been submitted). But DPW is requiring that owner-occupancy continue through the date the conversion application is submitted. Moreover, DPW is requiring that the owner-occupant(s) be the same as the individual(s) who qualified the building for the 2012 and/or 2013 lottery. Both of these unwritten requirements are likely to be challenged in the coming months by owners who suddenly found themselves disqualified after they moved out of their buildings based on the written law.

The second part of the law on the owner-occupancy requirements for the Expedited Conversion Process applies to years 3-7 of the program. The law for those years states requires that the building have “been occupied continuously . . . for no less than six years as of April 15, 2015” for year three of the program, 2016 for year four of the program, 2017 for year five of the program, etc. The law goes on to say: “a unit that is ‘occupied continuously’ shall be defined as a unit occupied continuously by an owner of record for the six year period without an interruption of occupancy and so long as the applicant owner(s) occupies the subject unit as his/her principal place of residence for no less than one year prior to the time of application.” This provision, which allows one owner-occupant to replace another so long as the last one has been occupying for a year when the application is submitted, clearly requires occupancyuntilthe date of application (rather than merely until April 15 of the appropriate year). But, if DPW sticks with its tentative approval occupancy requirement, a qualifying owner-occupant would not be able to sell or move until 30-90 days after application.

Early Sale or Move-Out Under the Conversion Lotto System

The third method for qualifying a building for owner-occupancy is winning the conversion lottery. Although the lottery has been suspended during the Expedited Conversion Program, it is scheduled to return 2013, 2014 or 2015. The owner-occupancy requirement for the lottery system is that all-but-one of the units “have been occupied continuously by the applicant owners of record as their principal place of residence for three years prior to the date of registration for the lottery”. A natural reading of this law would be that the owner-occupants could move out or sell before the lottery drawing, between the drawing and submitting an application, or any time after applying. This interpretation was confirmed in an email written by the then-supervisor of conversion processing in 2005, which stated: “Lottery winning buildings could be sold even before an application was submitted, so long as the buyer could show, when he/she applied, that the building qualified for conversion as of the lottery registration date.” In the experience of our office, this rule was followed by DPW through the 2013 lottery; however, in recent telephone communication with the current head of conversion processing, this policy was denied, and it is unclear what rule will be followed when the lottery system resumes.

Our Advice For Early Move Out or Sale

Our advice for buildings wishing to convert under any of these systems is to delay selling or moving out until tentative approval if possible. If personal needs make continued occupancy impossible or impractical, contact us for advice.


About the Author

SirkinLaw APC has been guiding clients through San Francisco condominium conversions and subdivisions for almost 20 years, and have completed more SF conversions than any other firm. Over the years, we have been involved in drafting many of the laws that govern SF condominium conversions, and have helped develop many of the procedures used by the San Francisco Department of Public Works (“DPW”) Bureau of Street Use and Mapping (“BSM”). Our breadth of experience makes it likely that if a glitch appears in the condominium conversion process, we will have seen something similar before and know exactly what to do. And for those rare occasions when a completely new issue arises, we are the recognized masters at developing creative solutions that save our clients time and money.

Experience has taught us that the most important things to our clients are the immediate availability of staff to answer client questions and diligence in following the process of governmental approval. To ensure we achieve these goals, we have a full-time attorney, Rosemarie MacGuiness, devoted to client contact, preparation of subdivision applications, and monitoring subdivision approvals. Rosemarie maintains a direct-access telephone line and can be reached easily any weekday to discuss the status of a conversion or subdivision process. Andy Sirkin is also committed to being available to you when you call or within the next 24 hours. Andy is known for his diligence in calling clients back quickly, and is more committed than ever to being easily reached.

But while processing the condominium conversion or subdivision quickly and efficiently may be our client’s most immediate priority, the governing documents (the Declaration of Covenants, Conditions and Restrictions, or “CC&Rs” supplemented in some cases by Bylaws and/or Articles) will have much greater long-term impact. The quality of the governing documents will directly affect the quality of life of the owners, as well as their ability to refinance and sell. Andy Sirkin has been co-author of the past 10 editions of The Condominium Bluebook, and his expertise in preparing condominium governing documents is recognized throughout California. SirkinLaw APC governing documents continue to be the ones other firms emulate, and Realtors, lenders and buyers strongly prefer. This leadership results from constant improvement and innovation that makes our documents easier to read and understand, as well as more efficient and less expensive to enforce.

Before you choose a lawyer to handle you condo conversion or new construction subdivision, take a moment to speak with Andy or Rosemarie at SirkinLaw APC. Our practice includes all required City and State applications and filings, as well as preparation of any governing documents you may need. We offer these services on a flat-fee basis, and our rates are generally lower than those of other firms. Contact us via our contact form.