I know that a long-term tenant owns a condo in San Francisco. Is she permitted to keep this rent-controlled unit despite owning a condo in the same city? I feel like I’m subsidizing her condo mortgage.
Yes, she is permitted to own a condo here. In fact, she could own several condos, three homes, and a dozen apartment buildings and still maintain her rent-controlled status in your apartment! Indeed, many tenants are also landlords and homeowners, and owning property in San Francisco does not act as a disqualifier for rent control protection. While this may seem unfair, remember that our industry actively encourages tenants to purchase properties with the hope that increased homeownership may, over time, quell draconian rent control ballot measures and promote more moderate housing policies. Conceivably, in your situation, the resident may ultimately leave this rental and move into the condo; moreover, her voting habits are likely to align with yours notwithstanding her purported living situation. Regardless, the low rent could very well be subsidizing her mortgage, but do not despair.
The law grants you a few remedies if your resident is not using the apartment as a permanent or principal place of residence, or if she is profiting from this arrangement through rent collected from roommates. The first potential recourse, discussed in this magazine and at industry meetings on a regular basis, applies if she is residing elsewhere but continues to keep this rental as a second home. Under a state law known as the Costa-Hawkins Rental Housing Act, you may impose a market rate rent adjustment if your tenant no longer “permanently” resides in the apartment and instead has it occupied with subtenants that are not parties to your rental agreement and have not paid rent directly to you. Similarly, if your apartment is essentially unused by anyone, you may bring a Rent Board petition under Rent Board Rules and Regulations Section 1.21, asserting that the apartment is not occupied as a “principal place of residence” and there are no lawful subtenants living there. If the Rent Board grants your Section 1.21 petition, you may impose a market rate rent increase. Under Both Costa-Hawkins and Section 1.21, you will likely need proof that your tenant is primarily living elsewhere and seldom if ever uses the unit as a permanent or principal place of residence.
Yet suppose she is living there but shares the place with roommates. Our rent law prohibits subtenants from being rent gouged, meaning they can only be charged a total sub-rent that properly reflects the portion of housing services they receive compared to the total housing services that exist for a particular rental. Specifically:
“The allowable proportional share of total [sub-]rent may be calculated based upon the square footage shared with and/or occupied exclusively by the subtenant; or an amount substantially proportional to the space occupied by and/or shared with the subtenant (e.g. three persons splitting the entire rent in thirds) or any other method that allocates the rent such that the subtenant pays no more to the Master Tenant than the Master Tenant pays to the landlord for the housing and housing services to which the subtenant is entitled under the sublease. … Any methodology that shifts the rental burden such that the subtenant(s) pays substantially more than their square footage portion, or substantially more than the proportional share of the total rent paid to the landlord, shall be rebuttably presumed to be in excess of the lawful limitation.”
If the subtenants are paying more than their proper proportionate share, they may petition the Rent Board to obtain a refund from your tenant. Also, the rent law prohibits “lease profiting,” meaning your tenant should not be extracting more rent from the subtenants than what is paid to you each month:
“A tenant who subleases his or her rental unit may charge no more rent upon initial occupancy of the subtenant or subtenants than that rent which the tenant is currently paying to the landlord.”
It remains unclear what recourse you may have if she is unlawfully lease profiting. However, as noted above, the subtenants can certainly claw back excessive sub-rent payments directly from your tenant.
In sum, keep your eyes open. While owning a condo in the same city does not preclude reaping the benefits of rent control, not using the housing as a primary residence or charging subtenants more rent than what is legally allowed may give you some leverage to encourage the resident to reconsider her housing situation.