Heirs often plan to run a newly-inherited property as a rental. Not knowing the pitfalls to SF’s rent ordinances and the impact of Prop 19 on property taxes could create complications.
There are a multitude of San Francisco Rental Laws in place designed to protect renters’ rights, negatively impacting an heir’s plans with regards to an inherited estate. It is imperative for an heir to understand the obstacles around evicting tenants of a San Francisco property.
In most cases, landlords can only evict tenants under a limited number of “just cause” events. These events include neglectful renter behaviors such as continually paying late rent or breaking the terms of a rental agreement. Otherwise, the landlord may only be able to evict if they plan to move into the property themselves, or plan to implement improvements to the building that render it unlivable during the construction period.
The bottom line is this: once a tenant is in place, it will be difficult for an heir to legally remove the tenant from an inherited property. This becomes particularly evident in situations when heirs decide, or have to sell. I’ve had a few cases where the owner rented out the garden apartment to a friend of a family member below market. Years later Mom passes away, and the decision was made to sell the property. Unfortunately, the value of the property is significantly impacted, approximately $125,000 to $200,000 less, due to the presence of a tenant.
Often, in an attempt to handle a situation like this, the family will make a modest offer, $20,000 to $25,000, as a gesture of goodwill, and assuming the friendly relationship, the tenant will move. However, the responses they get are often nightmare; the tenant hires an attorney, and the next think you know the tenant demands $125,000 to vacate the premises. Stunned by the turn of events, families make a counteroffer of $45,000. Yet, tenants with good representation remain steadfast and demand $115,000. In another one case that I was associated with, the cousin, occupying the lower unit and garage, demanded $375,000 after their aunt passed. Welcome to San Francisco.
Scenarios like this illustrate the complexities and challenges inheritors face in San Francisco’s rental market.
In addition to these eviction provisions, heirs must consider rent control measures if they decide to keep a tenant in place. Under the California Tenant Protection Act, tenants have a multitude of rights.
In most San Francisco properties, landlords are only permitted to raise the rent by a limited percentage each year, limiting rental property income. While there are some ways around these rent-increase parameters, the tenant will often respond to an heir’s efforts to increase rent by filing a Tenant Petition to dispute the rent increase.
Need a good landlord attorney? I’ve worked with several and would be happy to share references.
If you are inheriting a San Francisco property, visit SF.gov to discover how San Francisco Rental Laws may apply to you as an heir.
by: Pat Rock, Probate Realtor