San Francisco is making it nearly impossible to remove unwarranted units without first trying to legalize them.

No one can come up with a hard and fast number of how many dwelling units have been added to San Francisco’s existing housing stock without the benefit of a permit but it’s estimated to be in the thousands.

With so many unauthorized dwelling units (UDU’s) in the shadows, the city has used carrots and sticks in an attempt to legalize these units.

Amending various sections of the San Francisco Planning Code, the Board of Supervisors imposed new rules on single-family homeowners seeking to remove a UDU. Namely,

• The owner resides in the primary dwelling unit at the time they apply for removal of the UDU;
• The UDU has not been rented in the last 10 years, except to a close relative;
• The owner intends to reside in the principal single-family home for three years after the approval of the UDU removal;
• The owner acquiesces to a new regulatory regime where the single-family home is subject to the San Francisco Rent Ordinance.

UDU’s are a thorn in the side of San Francisco property owners and this begins with relocation payments. 

It can take a lot of money to bring unwarranted units into compliance, but owners seeking to legalize a UDU will have to reach deeper into their pockets if the site becomes a construction zone and the dwelling is not in a habitable condition, because why?

If the tenant has to be displaced for the work to be performed, they must be compensated.

For the time and trouble of being uprooted, the persons renting the unwarranted unit are entitled to relocation payments dictated by San Francisco’s Rent Ordinance. These relocation fees can be expensive and break the bank, so we’ll need to put a finger on that before owners contemplate a massive project to legalize a unit.

It’s not only the construction costs that should be penciled in the budget to legalize a UDU but also the relocation payments required to give the outgoing renter a soft place to land until the unit is code-compliant.

You’ve pulled the requisite permits and did the work. The unit is now legal. What’s next?

The previous tenant must be offered the opportunity to move back in, at the same rent. That’s right – after spending a ton of money on upgrading the villainized unit and getting into good graces with the city, you have to now welcome back the displaced tenant in their new surroundings at the previous rent level.

When things are going well, they are great. When things are going bad, they are awful.

Another problem we often deal with at Bornstein Law is disputes between landlords and tenants in unwarranted units. When there is acrimony in a rental relationship, it is always a stressful situation, but the stakes are higher when the tenant resides in an unwarranted unit.

Many property owners have rented out these rogue units, only to have tenants gripe to the point when the Department of Building Inspections (DBI) gets involved, and then the ball game begins. The DBI then issues a Notice of Violation to begin the legalization process.

All of a sudden, the landlord taking rent from a disgruntled tenant in an unwarranted unit may find that all of that money is disgorged.

Fortunately, owners with unwarranted units can rely on proper counsel to navigate a maddening regulatory regime, cauterize risk, and optimize their real estate investment even if the building is not in good graces with San Francisco.

Written by Daniel Bornstein, Esq., Bornstein Law

More than a practitioner in landlord-tenant law, Daniel Bornstein is the Broker of Record for Bay Property Group, a property management company that protects and optimizes the investments of landlords. He is also renowned for his educational seminars and is called upon as an expert witness in complex real estate litigation matters. To avoid or resolve friction within rental units and cauterize risk, Daniel is happy to dispense informed advice to owners, property managers, and other real estate professionals looking to survive and thrive in today’s challenging and litigious rental housing market. Call 415-409-7611 or email daniel@bornstein.law.