SF Condo Conversion Law Puts Landlords in a Squeeze

SAN FRANCISCO (CN) — Two landlords are stuck with a lifetime tenant and no home to retire to, thanks to a city ordinance designed to address a crushing backlog of tenancy-in-common to condominium conversion applications and preserve San Francisco’s scant housing stock, attorneys for the Ohio couple told a federal judge Monday.

“This is not a normal kind of case,” attorney Paul Utrecht told U.S. District Judge Richard Seeborg. “What the city doesn’t understand is that this is a constitutional problem and not an agreement problem.”

Converting a property from tenancy-in-common — where several people buy a building and live in separate units — to a condominium, where each person owns his or her own piece of the building, is a notoriously lengthy and expensive process in San Francisco, due to a lottery process that allows only 200 units to be converted each year.

Peyman Pakdel and Sima Chegini, of Ohio, own a tenancy-in-common interest in a six-unit building in San Francisco’s Russian Hill neighborhood. They’ve had a tenant since 2010, and planned to move in themselves after they retire.

But a 2013 city law threw a wrench into their plans.

Ordinance 0117-13, which put a 10-year halt on the city’s unpopular condo conversion lottery, allowed about 2,200 tenancy-in-common owners to convert their interests into condos for a $20,000 fee that goes toward affordable housing.
It also gives tenants the right to take a lifetime lease for the unit they rent, a deal Pakdel’s and Chegini’s tenant took after their condo conversion went through.

Utrecht said the city created a very unusual procedural box for the couple. They couldn’t sue until the tenant took the deal, as the city would have argued that the lawsuit was premature.

He said the city did this purposefully. “They set up the structure for the lifetime lease to make it impossible to challenge it prior to the acceptance by the tenant,” he said. “There was no taking until the tenant said, ‘Yes, I’m taking your offer.’”

Utrecht said what’s particularly unusual about this case is not that the city is forcing TIC owners to give their tenants a lifetime lease, but to offer them one.

“The unconstitutional condition did not impose a lifetime lease; it imposed a requirement of an offer of a lifetime lease, which is a different animal, designed to put people in the box my client is now in,” he said.

Not so, said Deputy City Attorney Kristen Jensen. Every contract the couple entered into was voluntary, from the TIC to the application they made to the city to expedite their condo conversion.

“It’s hard to imagine a U.S. claim where the issue they’re complaining about was voluntary,” she said.

The ordinance’s condo conversion program was meant to be temporary, Jensen said, “so there is nothing that required these property owners to jump into the program. They could have waited until the temporary fix had passed and go back into the lottery.”

Jensen said the couple “sat on their rights for two years” by not challenging the ordinance with the Board of Supervisors.

Judge Seeborg, who joked that he was glad he wasn’t a member of the board — “My job is much better,” he said — added that he will focus his ruling on whether the couple has exhausted their legal avenues before bringing the case to federal court.

“Whether or not this ordinance is a good or bad thing or is a harebrained notion is not for me to decide. I have to focus on whether or not it is a ripe claim,” he said.

But the situation does not look good for Pakdel and Chegini. It appears likely that Seeborg will find the case more appropriate for state court, where they will have to prove that their claims are not time-barred.

Seeborg took the case under submission.

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