Mid five-figure offers for tenants to vacate rent-controlled apartments are not uncommon in San Francisco.  And even six-figure offers have been made (and accepted).

A couple of questions from a reader with respect to said buyouts, questions which we’d be willing to bet are based on more than idle curiosity:

“Does anyone have information on how buyouts should be split among several roommates? Are there ordinances governing that? I’ve heard of Master Tenants keeping everything or splitting it according to how long each roommate has lived there. Should it be split evenly?”

With respect to any ordinances governing the distribution of buyouts, there are none (and in fact, San Francisco’s new law to regulate buyouts in general is being challenged in Superior Court).

We’ll let you debate whether or not it’s appropriate for a master tenant, as the one with the lease/option which is being acquired, to keep it all.  And if not, how you think a buyout should be shared.

Comments from Plugged-In Readers

  1. Posted by Amewsed

    Best way to do this is for the roommates to sue the master tenant and let the courts decide. Master tenant is a quasi-landlord in the eyes of the roommates/subtenants so the legal remedies should be the same.

  2. Posted by CH

    A buyout should be split evenly by the people on the lease. If you are not on the lease, you are not entitled to a share.

    Depending upon the size of the buyout and the number of roommates, the master tenants could offer to cover moving expenses as a kindness. Otherwise, the roommates should be happy that they’ve benefited from the lease for however long they have.

  3. Posted by R

    Depends on the legality of the roommates tenancy.

  4. Posted by R

    The only person with any “tenant equity” is someone on the lease. Anything to a subleasee not on the lease is a kindness.The better option is to not have rent control in the first place and eliminate this gross market distortions.

    • Posted by James McGill

      Rent control is an answer to gross market distortions more than a cause of them.

    • Posted by R

      Not true. You don’t need to be on the lease to be a legal tenant and subject to eviction controls.

      • Posted by R

        Costa Hawkins allows you to raise the rent to whatever you want if all the original tenants are out.

  5. Posted by rabbits

    If I am a subtenant in this situation I just dig my heels in. No way I’m moving out or foregoing my privileges without getting an equitable share of that money, regardless of what the law might say. You’d find that the landlord doing the buying out would quickly realize that they’ve got to deal with more than one entity, and they’d adjust their offer/strategy accordingly.

    • Posted by SFrentier

      That’s the answer IMO. Who gives a sh!t what the “master tenant” thinks. What matters is that the LL wants to make sure all tenants scatter. LL will make sure everyone living there agrees to move out (and their compensation) and signs on the dotted line. If not, no deal.

      • Posted by Absolut

        But as long as the master tenant leaves, the owner can jack up the rent and basically force the roommates to pay up or leave. So i don’t see how the subtenants would have any leverage in this situation at all.

        • Posted by SFrentier

          If I’m going to pay for a buy out, ALL the people have to be out. Period. Having to evict sub tenants after paying out is ridiculous. No seasoned SF landlord in their right mind would do that.

  6. Posted by EcceMorons

    There’s a sweet Karma if a tenant negotiates a buyout, thrilled with his windfall, only to discover that any subtenants are HIS tenants, and he is their landlord – and now he’s agreed to deliver a vacant unit, but maybe his subtenants refuse to leave, and he has to buy THEM out. HAHAHAHAHAHAHAHA

  7. Posted by moto mayhem

    frankly, no one should receive a buyout, master or subtenant. landlords should just be able to end your lease each year if they want.

    • Posted by RobBob

      Maybe the next big one takes care of that – presumably when older condos have to be rebuilt they won’t be pre-1970 rent controlled units anymore.

      • Posted by SFCitizen

        I hear references to this option, but I haven’t been able to find the city codes related to resetting the build date. I think it requires a new occupancy permit and one post I read said that if reconstruction costs exceed 70% of building value then this woulf trigger a new build date. I would like have more information.

  8. Posted by Mark F.

    “Not true. You don’t need to be on the lease to be a legal tenant and subject to eviction controls.”

    If the Master Tenant moves out, anyone not on the lease is generally not entitled to stay on at the rent controlled rates

    • Posted by Joel

      Nope, simply accepting payment or communicating with a subtenant could give them equal standing with the master tenant. Last month’s SFAA magazine had a Q&A about this (click my namelink, it’s the last question)

    • Posted by Brian S

      Mark is correct that once the last Master Tenant moves out the landlord can bring the rent up to market rate (subject to CA law), but I also believe that the remaining roommates are covered by just-cause eviction rules. So as long as the roommates can stomach a huge rent increase I believe they can stay.

      • Posted by bg

        if the landlord ever accepted a rent check from the subtenant or responded to a maintenance request, they are then elevated to the status of a leasee… and therefore have full rent protections

        • Posted by Brian S

          What you described certainly happens a lot, but it doesn’t mean that all subtenants have full rent protections. A savvy landlord knows the rules and will not accept rent checks or communicate with subtenants.

  9. Posted by missionite

    Buyouts I’ve heard of are in the range of 24 months rent for the unit at market rate. I heard someone rejecting a 6 figure buyout because the master tenant wanted to be fair to the subtenant.

    Most subtenants are grateful to have the rent control benefits of a legacy lease. It’s sweet while it lasts!

  10. Posted by

    As a master tenant there are several factors that entitle me over my subtenants: (1) my name is the only one on the rental agreement and I assume all responsibility for payment of rent in full each month, (2) my cash is collateralizing the entire security deposit and I assume all risk of property damage, and (3) my favorable credit history and salary were factors that secured initial tenancy over competing candidates. I put in the time and effort to secure the unit and I assume full responsibility for managing, maintaining, light repairing, and oversight of major repairing. For some of my subtenants with spotty credit history and low income, I am the only reason they are able to live where they do so you can bet I would not agree to equal disbursement of a proposed buyout.

    • Posted by Amewsed

      Hence a master tenant (a quasi-landlord) needs to do the same rigorous screening as landlords do. It is your butt on the line. Do you want to be a party to the whole eviction lawsuit if something goes wrong? The San Francisco Superior Court will withhold public disclosure of the eviction lawsuit for 60 days from the date of filing. Beyond that, your name will be linked to a Unlawful Detainer action and searchable by the public. And you will end up having to explain to situation numerous times to any future landlords. Is it really worth the few extra bucks of rent you get from subtenants/roommates when ultimately it isn’t your property anyway? Better hire a good landlord attorney (tell them you are a master tenant) to draft that strong master tenant/subtenant agreement with an explicit waiver of any buyout funds. Better yet, screen carefully.

    • Posted by NoeNeighbor

      Wow, you sound like a landlord.

      • Posted by Not Bashing

        I love that tenants have now decided they are taking on “risk” and deserve to be compensated. Ridiculous.

        • Posted by Pfffttt

          Renters and their entitlement mentality — sooo San Francisco.

        • Posted by

          Where did I say that I deserve compensation? But if compensation is mandated by law, it should go to me for the reasons outlined above.

        • Posted by Sherry

          They are taking on a risk because if rent isn’t paid on time, then they can be evicted with a 3 day notice and be flagged on their credit score.

  11. Posted by medalist

    if the roommates are subsequent occupants and not original lessees then they are subtenants of the master tenant, thus they should be treated as such. The master tenant should essentially act as a LL and presumably go through the same regulatory process LL’s are required to go through now when negotiating a buyout.

  12. Posted by SFR

    It depends on if the landlord provided the proper form to new tenants as they became aware of them. If the did they are not on the lease. If they did not they are entitled to the same rights a the tenants on the lease

    • Posted by EcceMorons

      Man, your legal understanding needs a refresher course. If you’re a landlord, get one, FAST.

  13. Posted by Mystery Realtor

    It should be treated the same way at a closing for a sale. The buyout goes to who ever is listed on the Lease, just a closing proceeds go to who ever is on title.

    If there are two or more on a lease, you make the check to all three and let them fight it out–same as a divorcing couple.

  14. Posted by sunsetsf

    As much as it “should” be some particular way, it’s pretty clear (as mud). First, there’s the City laws regarding master-, co-, and sub-tenants. Concisely spelled out here.

    Once you know each tenants legal standing, then it’s determined in the buyout agreement. Since there are no laws concerning buyouts, tenants and landlords better understand exactly what’s in the contract they are signing. A smart landlord will negotiate with each tenant directly.

  15. Posted by SFrentier

    Whoa editor….you said the buyout ordinance is being challenged in superior court?!? Music to my ears. Deets please 🙂

    • Posted by Pfffttt

      Good. It should should more accurately be labeled “extortion,” not “buyout.”

  16. Posted by Greg

    Legally, subtenants are entitled to nothing. If the master tenant wants to cut them in on the buy out, that’s totally voluntary. The process works as follows: the owner and master tenant(s) sign a buyout agreement but the owner isn’t going to cut the check to the master tenant until the property is delivered vacant and all locks are changed.

    • Posted by JR "Bob" Dobbs

      That’s the way to do it. But the landlord better have followed all the right processes and given the right notices to the subtentants (written notice they are not covered by RC), or the subtenants will be protected by rent control, and this will not work. Any savvy landlord knows this, but there are a lot of not-savvy (or lazy) landlords.

    • Posted by Sherry

      I wonder what the taxes are on the buyout. That would terrible if it was distributed equally, then the master tenant ended up losing money in order to pay for taxes.

  17. Posted by MarinaGoof

    Wouldn’t the “master” or original tenant just move out, which would give the landlord the opportunity to offer a market lease to the subtenants?

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