In the event you had not heard (which is likely and by design), on April 23, the Board of Supervisors unanimously approved the Community Opportunity to Purchase Act (COPA) legislation which the Mayor signed on May 3rd. The legislation is expected to go into effect June 2nd. After the effective date of June 2, the Mayor’s Office of Housing and Community Development (MOHCD) will have 90 days to finalize the rules to implement COPA.
What is this new legislation and why should I care?
In short, owners of multifamily residential properties in San Francisco that plan to sell (after the effective date) will have to extend purchase offers to certain City-approved nonprofit organizations before making or soliciting offers to sell those properties to anyone else – and will have to give those nonprofits the right to match any offer received from a potential buyer.
What types of properties qualify for COPA?
This applies to buildings (existing or under construction) of three or more units, as well as privately owned vacant lots where three or more units could be constructed.
What are some of the key provisions of the legislation?
- Sellers subject to the new law would be required to notify all Qualified Nonprofits of the intent to sell before putting a qualifying property on the market. Qualified Nonprofits would have five days to respond, triggering an obligation for the seller to provide information about building tenants (standard disclosures’). Qualified Nonprofits would then have an additional 25 days to make an offer to purchase the building. The seller could reject an offer made, and if no Qualified Nonprofit makes an offer, or if the seller rejects any Qualified Nonprofit offers, the seller could offer the building to the general public.
- If a seller is prepared to accept an offer from a buyer other than a Qualified Nonprofit, then it would be required to give all of the Qualified Nonprofits the right of first refusal on the same terms and conditions and Qualified Nonprofits would have five days to accept or reject that offer (or 30 days if the seller is responding to an unsolicited offer).
- Qualified Nonprofits would have the right to institute a civil action against any non-compliant sellers, with the potential for damages as specified in the legislation.
- The legislation includes protection for existing tenants. It also requires that a property purchased by a Qualified Nonprofit remain rent restricted, meaning that the value of all rents paid in the building could not exceed 80 percent of Area Median Income (AMI) and the gross household income of new tenants could not exceed 120 percent of AMI.
- Certain sales would be excluded, including but not limited to transfers made under a mortgage, deed of trust, or deed in lieu of foreclosure and transfers between certain family members.
Barring voter referendum or judicial intervention, COPA will raise significant legal and practical questions about buyers’ and sellers’ rights and obligations concerning multifamily properties in San Francisco.
I see a lot of gray area; what exactly is an “offer,” what is the standard for expressing a “desire to accept an offer,” and in the context of a third-party offer, how to interpret whether it is on “materially different” terms than were offered to Qualified Nonprofits (i.e. price, financing, length of escrow, repairs, credits, etc.). One of my big “red flags” is Nonprofits right to institute a civil action against sellers. What if I accept an offer (and its not matched by a Qualified Nonprofit) but during escrow the buyer finds significant damage and requests a credit for repairs (lowering the purchase price). Can a Qualified Nonprofit sue me?
What if I am currently in contract to sell one of my qualified buildings?
For multifamily properties that are already in contract to be sold as of COPA’s effective date, the legislation “shall not be construed to impair” any such contract, or to affect property interests held by anyone other than the seller (including existing security interests, options to purchase, or rights of first offer or refusal). However, for buyers and sellers that have engaged in preliminary negotiations but have not entered a formal purchase and sale agreement as of the effective date, these protections may not apply.
Sample Process & Timelines