Attorney Steven Adair MacDonald Examines Why Tenancy Buyouts are Booming

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Steven Adair MacDonald, of Steven Adair MacDonald & Partners, P.C., in light of a Newsweek article about buyouts of San Francisco’s rent-controlled units, sheds light on the proliferation of tenancy buyouts.

Steven Adair MacDonald & Partners, P.C.

When skyscraper construction is held up due to one residential tenant obstructing the demolition of the pre-existing building, such huge payments, like we’re seeing in New York, might be expected.

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In recent months, multi-million-dollar tenancy buyouts, particularly in Manhattan, have become commonplace. Although not approaching the levels seen in New York City, San Francisco attorney Steven Adair MacDonald, founder of Steven Adair MacDonald & Partners, P.C., predicts seeing the first million-dollar San Francisco tenancy buyout before the end of the decade.

Currently, according to a March 25, 2016, Newsweek article, the average buyout price in San Francisco is around $43,000. The article further reports that since March 2015, buyouts have jumped significantly, with the average number of evictions climbing from 151 per month to more than 200.

“When skyscraper construction is held up due to one residential tenant obstructing the demolition of the pre-existing building, such huge payments, like we’re seeing in New York, might be expected,” said MacDonald. “However, San Francisco has very serious height limitations on construction, particularly in the traditional residential neighborhoods.”

Even so, MacDonald, who represents landlords as well as tenants, reports that six-figure buyout agreements are now becoming common in San Francisco. In fact, he just negotiated one for a tenant in the city’s desirable Russian Hill neighborhood whose huge flat was renting for somewhere between $4,000 and $5,000 per month below market, due to strict rent control. That deal garnered a gross settlement of almost a quarter-million dollars for his client.

“I view a buyout as a scenario where a landlord lacks ‘just cause’ for termination of a tenancy under San Francisco’s eviction control law, yet wishes to do so nonetheless,” said MacDonald. “As a last resort an owner may decide to invoke the Ellis Act (a state law trumping local eviction protections), but proceeding with an Ellis Act eviction is invariably complicated with negative consequences, prompting many landlords to offer a tenant a sum of money in exchange for the tenant’s agreement to vacate the property voluntarily.”

However, the financial benefit a landlord could gain from putting a rent-controlled unit back on the market at current rental rates is substantial. Many tenancies under rent control date back thirty years or more, which results in artificially deflated rent that is disadvantageous to the owner. A buyout allows for a new tenant paying market rent or a new owner using the unit as he or she chooses. Under certain circumstances “protected” tenants cannot be otherwise evicted, even in the case of a good faith owner move-in.

“When a landlord is considering invoking the Ellis Act, and has stated their intention to proceed, a tenant needs to evaluate the financial possibilities under that process versus what they might gain through voluntary negotiations,” said MacDonald. “In any event, an owner should gladly pay more than the legally required minimum relocation money to obtain the vacancy free and clear of the potential constraints required under the Ellis Act.”

About Steven Adair MacDonald & Partners, P.C.
The MacDonald firm represents both landlords and tenants in all forms of litigation in San Francisco and throughout the Bay Area, and employs a team of aggressive landlord-tenant experts. The firm handles cases involving evictions, rent-control disputes, habitability issues, commercial landlord-tenant disputes, short-term-rental issues and more. For more information or a free consultation, please call (415) 956-6488, or visit http://www.samlaw.net. The law office is located at 870 Market Street, Suite 500, San Francisco, CA 94102.

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