On June 2, 2019, the City of San Francisco enacted a new ordinance significantly impacting sellers listing or privately selling buildings with 3 or more residential units (including TIC units), whether or not mixed use and lots zoned for such units. This new law is called the Community Opportunity to Purchase Act “COPA”.
SF Supervisor Sandra Lee Fewer proposed this legislation in December 2018 as a means of stabilizing communities by preventing tenant displacement and preserving affordable housing. Supervisor Fewer’s bill was based on successful precedents in other cities, most notably in Washington DC, which has had a first-right of refusal ordinance for over 30 years. There are also other similar policies in force in various forms in Boston, Chicago, and Seattle.
Rent-controlled apartments have become a prime target for speculation. Until recent years, when long-term landlords sold their buildings, their primary market was to other investors seeking ongoing rental income. Now, however, speculators and cash buyers have been swooping in to buy these rent-controlled buildings, evict tenants through Ellis Acts, Owner Move-Ins (OMIs), harassment tactics, or simple “buyouts,” and flip the units for extraordinary profits renting them at market rates or converting them to TICs, condos, or “tech dorms”.
Prior to the COPA initiative, a clear pathway didn’t exist to allow nonprofits to buy such buildings, even if they had the means to match the seller’s price. A speculator or cash buyer until now had been able to get in and position quickly to out-maneuver a community entity wishing to buy the building in the tenants’ interest. The COPA law addresses the need to balance the playing field so the non-profit community can adequately compete, without disadvantage, on the open market in acquiring rental buildings when they are put up for sale.
This legislation now requires sellers to notify the qualified pool of nonprofit organizations of their intent to sell. Potential nonprofit buyers would have a limited time of 25 days to work with tenants and exercise their first right of offer and, if accepted by the seller, enter into a Purchase-Sale Agreement. While a seller is not required to accept the offer, the qualified nonprofit would also be given a right of first refusal to match a competing offer. A sale would be defined to also include partial transfers within LLCs. Applicants would have to be prequalified by the City as bonafide nonprofits with a mission to create permanently affordable housing for low and moderate income residents and demonstrate the capacity to effectively acquire and manage residential property at multiple locations in San Francisco.
At closing, deed restrictions would be placed on the building, restricting the building to affordable housing “for the life of the building,” with a mean value of all rents paid in the building not to exceed 80% of area median Income.
As of now, COPA appears to be unenforceable as the City has yet to publish a required list of qualified nonprofit organizations. Without this list sellers can’t comply with COPA as it would be impossible for them to provide such nonprofits with the “right of first offer” and “right of first refusal” notices required by this law.
Sellers seeking advice or having questions regarding COPA should engage a qualified San Francisco real estate attorney. The Mayor’s Office of Housing and Community Development “MOHCD” can also be contacted with questions, including when “The List” will be available, at 415.701.5500 or at firstname.lastname@example.org.