Landlords may file a petition for exemption from the rent increase limitations of the Rent Ordinance because of substantial rehabilitation of a building. “Substantial rehabilitation” means the renovation, alteration or remodeling of a building containing essentially uninhabitable residential rental units of 50 or more years of age that require substantial renovation in order to conform to contemporary standards for decent, safe and sanitary housing. Substantial rehabilitation may vary in degree from gutting and extensive reconstruction to extensive improvements that cure substantial deferred maintenance. Cosmetic improvements alone such as painting, decorating and minor repairs, or other work which can be performed safely without having the units vacated, do not qualify as substantial rehabilitation.
Improvements will not be deemed substantial unless the cost of the work for which the landlord has not been compensated by insurance proceeds equals or exceeds 75% of the cost of newly constructed residential buildings of the same number of units and type of construction, excluding land costs and architectural/engineering fees. The determination of the cost of newly constructed residential buildings shall be based upon the cost schedule of the Department of Building Inspection required by Section 107A.2 of the San Francisco Building Code for purposes of determining permit fees. The schedule in effect on the date of the Notice of Completion of the improvements shall apply.
The landlord must provide specific evidence with the Substantial Rehabilitation Petition, including: tenant histories and copies of eviction notices to prior tenants; a detailed description of the work performed and itemization of costs; proof that the building is over 50 years old; a determination of condemnation and/or a determination by the Department of Building Inspection that the building was ineligible for a permit of occupancy and/or other evidence that the building was essentially uninhabitable; an abstract of title; a complete inspection report issued by the Department of Building Inspection prior to the commencement of the rehabilitation work; proof of purchase price; a final notice of completion from the Department of Building Inspection or other evidence of the date the Building Inspector gave final approval of the completed improvements; copies of invoices, bids and cancelled checks substantiating the costs for which the landlord has not been compensated by insurance proceeds; a copy of the current assessment; and a work log for any claims for uncompensated labor.
In general, a petition based on substantial rehabilitation can be filed at any time after the work has been completed. However, a landlord who recovers possession of a rental unit under Ordinance Section 37.9(a)(12) in order to carry out substantial rehabilitation must file the petition within the earlier of two years following recovery of possession of the rental unit or one year following completion of the work. A landlord who fails to file a petition within such time and thereafter obtain a determination from the Rent Board that the property has undergone a substantial rehabilitation shall be rebuttably presumed to have wrongfully recovered possession of the tenant’s rental unit in violation of the Ordinance.
Tenants may raise objections to the Substantial Rehabilitation Petition based upon any of the following: that the work was not done; that the work was necessitated by the current landlord’s deferred maintenance resulting in a code violation; that the costs are unreasonable; and/or that the work was not principally directed to code compliance.
Properties that have undergone a substantial rehabilitation were previously eligible for a complete exemption from the Rent Ordinance, meaning they were not covered by the rent increase limitations (rent control) or the laws regarding evictions contained in the Rent Ordinance. Effective January 20, 2020, the Rent Ordinance was amended to extend eviction controls and other tenant protections to these buildings, although they remain exempt from the rent increase limitations of the Rent Ordinance. Accordingly, where a substantial rehabilitation petition has been approved, the landlord must comply with the notice and procedural requirements of the Rent Ordinance and Rules and Regulations in order to evict a tenant. This includes the requirement that a landlord must have one of the allowable “just cause” reasons to terminate the tenancy. In addition, while units in buildings that have undergone a substantial rehabilitation are exempt from local rent controls, they may be covered by the California Tenant Protection Act of 2019 (AB 1482), which limits annual rent increases to no more than 5% plus the percentage increase in the local CPI.
Tags: Topic 326