Converting an existing property into condominiums is a hot topic in San Francisco. Here is a quick guide to the benefits and legalities of converting your property to condominiums. However, the information is by no means a complete “how-to” on condo conversions. Also, this does not delve into San Francisco TIC’s (Tenancies-in-Common), which are seen by many as an alternative to condominiums.
Converting your property into condominiums can greatly improve its value. An apartment building in San Francisco that contains three 2-bedroom units is worth about $1.2 to $1.5 million, depending on how nice the units are and what area it’s in. But how much could you sell three 2-bedroom condominiums for in San Francisco? Probably $650,000 to $800,000 each, again depending upon how nice the condos are and where they’re located.
Converting your property to condominiums can give the individual co-owners more freedom. For example, three brothers (A, B, and C) co-own a 3-unit apartment building they inherited from their parents, each with a third interest. A wants to sell it, B wants to live in it, and C wants to rent it out. This situation could get very complicated, antagonistic and costly, because even at a mere three, there are too many owners and too many conflicting interests:
- A cannot sell the entire building unless he forces a partition sale, which is costly and antagonistic. He might be able to sell his third to an outside party (D), assuming it complies with any partnership agreement in place, but B and C may not like D, and might resent A for selling to him.
- B can live in one of the units, but A (who perhaps is now replaced by D) and C will probably want to collect a monthly fee from B that resembles rent. This may lead to disagreements over whether B’s monthly fees are too much or too little, whether maintenance or improvements to B’s unit should be paid for by B himself or by all owners, and other issues.
These problems would be eliminated if the building was converted to three independently-owned condominiums, each brother owning one. A could sell his, B could live in his, and C could rent his out. Piece of cake.
What Properties Can Be Converted
Properties that have six units or less may be converted into condominiums. However, there are many restrictions. First, the building’s eviction history may taint the property, disqualifying or delaying its conversion. Second, the property has to meet minimum owner occupancy requirements. Furthermore, unless the property is a two unit “fast track” (see below) or is new construction, the owners need to play and win the condo conversion lottery. There have been owners who have waited years to win the lottery without success.
Fast Track Condominium Conversion for 2-Unit Owner-Occupied Properties
The easiest property to convert to condominiums is the 2-unit building that has been occupied by co-owners for at least a year. These properties are on the perfect “fast track” route to condominium conversion because they can bypass the lottery system. It’s generally a good idea for the owners to fill out a condominium conversion application during their first year occupying the property, and submit it on exactly their 366th day of occupancy.
The Conversion Process
After winning the lottery or legitimately bypassing it, the owner needs to submit a condominium conversion application to the Department of Public Works. Once submitted, the application makes its way to several government agencies, and may take anywhere from five months to over a year to be approved. The process involves at least one inspection from the Department of Building Inspection, a licensed surveyor to create a map, and the drafting and recording of CC&Rs (Declaration of Covenants, Conditions, and Restrictions).
Tenant Issues with Condominium Conversion
Condominium conversions can be difficult enough with an empty building. The presence of tenants add a layer of difficulty to your conversion. For example, under San Francisco Administrative Code section 1381, some tenants have a right of first refusal to purchase their units, the right to attend and be heard at the public hearing, the right to receive relocation assistance and benefits. All tenants have the right to extend occupancy for a period of from one to three years depending upon length of prior occupancy. Elderly and disabled tenants have the right to a lifetime lease. Because of laws such as this, as well as others, it is important to consult an experienced attorney.
The Attorney’s Role
Attorneys are usually involved in submitting the application and drafting the CC&Rs, but sometimes they oversee the entire process. Whatever you decide, you can expedite the process of condo conversion by hiring an attorney experienced in San Francisco condominium conversions. Chan Legal Group has successfully converted apartment buildings and single family residences into condominiums for many of its clients.
The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult a San Francisco real estate attorney for advice regarding your own situation.