Can I Rent My Condo Out Without Being Under Rent Control?

I own a three-unit building which I converted to condominiums. I have never sold any of the units; but I live on the top floor and rent out the other two units. If I moved out of my top-floor flat, would it be subject to rent control?

The short answer is “yes,” both the rent limitations and eviction control provisions of the San Francisco rent law apply assuming that the condominium building was built before June 13, 1979. The Costa Hawkins Rental Housing Act, a state law passed in the mid-1990s, does, among other things, exempt single-family homes and condominiums from the rent restrictions of local rent laws for all tenancies that began on or after January 1, 1996. However, in 2001, Costa Hawkins was amended to state that, for condominiums even where the tenancy began on or after January 1, 1996, the rent shall still be subject to local rent control limitations if the condominium has not be sold by the subdivider (person or people who converted the building to condominiums) to a “bona fide purchaser for value.” In such instances, the rent limitation provision will still govern.

Yet there is an exception to this exception. If all of the units in the condominium project except one have been sold by the subdivider to bona fide purchasers, and the subdivider has lived in the unsold condominium as a principal place of residence for at least one year after the condominium conversion occurred, then there will be no rent restrictions on a subsequent rental. So in this case, both eviction and rent control limitations apply because you have not sold any of the units. Had you sold the other two units to bona fide purchasers, you would have been able to rent out your former home without rent limitations.

The Rent Board Commission has debated the topic of what constitutes a sale to a bona fide purchaser. Basically, a transfer to a friend or family member for no money or a reduced price does not constitute a bona fide sale. In addition, the sale of limited liability company membership interests or shares in a corporation or limited partnership likewise do not constitute a bona fide sale if the same entity continues to own the condominium and there has been no property tax re-assessment by the Assessor’s Office. Thus, in several cases heard by the Rent Board, although the prior owner had sold LLC membership interests to a purchaser for value, because the tax base remained unchanged the Rent Board decided that the rental of this condominium was subject to rent restrictions.

Rental restrictions will also continue to apply to condominiums in pre-1979 buildings where the prior tenancy was terminated pursuant to a notice to vacate for a no-fault reason, meaning the tenant did not do anything wrong. Typically, no-fault causes in San Francisco include owner or relative move-ins or temporary evictions for capital improvement work. Furthermore, if the tenant left because of a change-in-terms of tenancy, other than a rent increase, then rent restrictions will also apply to the next tenancy.

Finally, remember that eviction control will apply to all condominiums in pre-1979 buildings. This means that you need one of the sixteen approved “just cause” reasons to terminate the tenancy. Simply because the lease expires or the unit is being sold is not just cause.

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