Condominium Conversion - The Process in San Francisco

How to qualify:
Applicants can qualify to convert their residential or mixed use buildings into condominiums in one of two ways:

• Lottery:  Owners of 2-6 unit residential buildings may compete in the City condominium lottery.  The lottery is held once a year, with results released in February.  The odds of winning increase with each subsequent year you enter.  The owner must still meet the owner-occupancy requirements.
  
  
• Non-Lottery:  2 unit residential buildings where both owners meet the owner-occupancy requirement can bypass the lottery.

Mixed use buildings qualify for condo conversion based on the number of residential units that they contain.  If the building qualifies based on its residential units, the commercial unit(s) are automatically converted as well. 

There is no limit on how many units a commercial building can convert.  Nor is there currently a limit for the new construction of condominiums.

Owner-occupancy requirements for residential buildings:
2 Unit buildings (non-lottery):  Both owner-occupants are required to have resided in the building for a period of one year.

2-4 Unit buildings (lottery):  One owner-occupant is required to have resided in the building for three years.

5-6 Unit buildings  (lottery):  Three owner-occupants are required to have resided in the building for three years. 

6+ Unit buildings:  Residential properties containing more than 6 units are not eligible for condominium conversion in San Francisco unless they are eligible to apply as new construction.

**The residency period is measured backwards from the day of the lottery entry deadline.

Evictions of Elderly, Disabled, or Catastrophically ill Tenants:
Where there has been an eviction as defined in San Francisco Administrative Code Section 37.9(a)(8)-(14) of a senior, disable, or catastrophically ill tenant since November 16, 2004, the building is ineligible to bypass the lottery if it is a 2 unit owner-occupied building.   Where such evictions have occurred, regardless of whether a building is normally lottery or non-lottery, the building is then entered into a lottery pool with reduced odds of winning.  If the eviction had taken place under Administrative Code Section 37.9(a)(11) or (14), and the original tenant reoccupied the unit after a temporary eviction, the building units are likely still eligible to apply under the normal application rules.

A “senior” tenant refers to a person who is 60 years or older and has been residing in the unit for 10 years or more at the time of the lottery.

A “disabled” tenant refers to a person who is disabled within the meaning of Title 42 U.S.C. Section 12101(2)(A)

A “catastrophically ill” tenant refers to a person who is disabled as defined above, and who is suffering from a life threatening illness as certified by his or her primary care physician.

In Spring of 2006, new legislation passed further limiting the ability of buildings where evictions have occurred to condo convert.  To find out more information please click on the information tab entitled “Recently Ratified Condo Legislation and How It Will Affect You”.

Tenant rights rules:
The City gives the tenants of buildings undergoing the condominium conversion process certain rights.  Subdividers are required to give all of the tenants notice of the proposed conversion as well as a statement of their rights.  Tenants may purchase their unit at a price set by the owner.  Tenants who decline to purchase are entitled to remain at their current rent (with allowed increased based on the Consumer Price Index, and/or Rent Control Ordinance) for one year after completion of conversion.  Tenants who elect to move within the first 120 days after conversion are entitled to up to $1,000.00 in moving expenses.  In addition, if any tenant is 62 years of age or older, he or she shall be offered a life time lease.

Building Inspection:
The building inspection aspect of the application is often the most time-consuming part of the whole process.  Once the City has received the application for building inspection, it can take up to eleven months for the inspector to come view the property.  We recommend that the subdivider does not hire a private inspector beforehand.  Once the inspector views the property it is likely that code compliance work will be necessary to perform.  Once the code compliance work is complete, the building inspector must visit again to ensure that all of the required work was completed.  A Certificate of Final Completion and Occupancy will then be granted. 

In addition to the building inspection receipt, a 3R report must be obtained prior to submitting the condominium application package.  The 3R report should obtained fairly soon into the application process in case there is a problem with the 3R report that needs to be cleared, such as having an “unknown” or the wrong number of units listed under present authorized occupancy or use.

Map Surveys:
The subdivider must hire a licensed map surveyor to survey the property and draw parcel maps.  Costs for the map surveyors range from $4,000.00-$7,000.00.  We recommend that you hire a map surveyor with experience in the condominium conversion process and knowledge of the City’s specific requirements. 

Length of the Process:
It is hard to approximate the exact time the City will take to process an application because of the bureaucracy involved.  We estimate it will take between 8-13 months for tentative approval and between 13-18 months before the application will be processed.  5-6 Unit building will often take an additional few months because the state must also approve the application.

Refinancing:
Refinancing is not a necessary part of the condominium conversion process.  However, your lender’s signature and consent will be needed for final approval.  Most lenders will agree to sign for a fee.  If your lender will not sign you will need to refinance before final approval.  After final approval has occurred, often subdividers will wish to refinance in order to obtain separate mortgages, which decreases the risk of default and in case of future sale increases the marketability of the units as well as the ease of transfer.

Property Tax:
Converting a building in to condominiums will not trigger reassessment of the property tax.  The owners will have the opportunity to change the allocation of the property tax amongst themselves, although commonly owners stay with the allocation provided for by their Tenancy in Common agreement.  It is a good idea to consult with your attorney when determining the allocation of property taxes.

Selling the Unit During Application Process:
The units of lottery winning buildings can be sold before or after the application is submitted.  If the unit is sold before the application is submitted, the preliminary title report and parcel maps should reflect the new owner, and all forms must be signed by the new owner as well.

The units of a two unit owner occupied building can sometimes be sold after tentative approval, the City reviews such requests on a case-by-case basis.

The Benefits of Hiring an Attorney:
Subdividers are not required to hire an attorney in order to convert their building units into condominiums.  Subdividers may choose to pursue the process on their own by obtaining an application packet from the Department of Public Works – Bureau of Street Use & Mapping.

Many subdividers make the choice to hire an attorney to handle the process for more than just convenience reasons.  The Department of Public Works is constantly updating and changing their requirements.  An attorney trained in handling and submitting the applications knows the City’s latest requirements and likely has a City contact to keep them informed of any recent changes that have yet to be posted. 

When it comes to the map survey materials, an attorney can advise the subdivider which map surveyors have the right amount of experience, as well as advise the client where and how to obtain a preliminary title report.  Likewise, the attorney can often spot and may be able to help fix problems that arise in relation to the documents such as the 3R report.  A subdivider without any experience may not learn that their application is deficient until after they are notified by DPW.  Often a problem that could have been easily fixed beforehand, will hold up the process after the application has been submitted. 

An attorney can also make suggestions regarding property tax allocation and can also familiarize the subdivider on the necessary tenant notification requirements.  In addition, the attorney will be able to draft a list of Proposition M Findings showing that the conversion complies with the City’s Master Plan.  Many subdividers need advice on when to submit certain items and need help with the steps after tentative City approval has been granted, such drafting the CC&Rs.  Zacks, Utrecht & Leadbetter, PC provides these services for a flat fee.