How New COPA Law Will Affect San Francisco Multi-Unit Property Sales

With San Francisco’s housing crisis spiraling out of control, the City of San Francisco recently enacted a new ordinance significantly impacting owners of multiunit buildings. More specifically, it will affect landlords of multiunit buildings with 3 or more residential units (including TIC units) who wish to sell their property. This new law called the Community Opportunity to Purchase Act “COPA” gives qualified non-profit organizations the right to purchase the units.

San Francisco Supervisor Sandra Lee Fewer proposed this new legislation in December 2018 as a means of stabilizing communities by combating tenant displacement and preserving affordable housing. Supervisor Fewer’s new legislation may be new to the Bay Area but not to other cities such as Washington DC, Boston, Chicago, and Seattle which have had similar ordinances for many years.

The impact of COPA will be significant. The specific guidelines give qualified nonprofit organization buyers 25 days to work with tenants and exercise their first right of first refusal offer and, if accepted by the seller, enter into a Purchase-Sale Agreement. Although sellers do not have to accept the non-profit offer, the non-profit would be granted a right of first refusal to match an existing offer.

If a non-profit succeeds in purchasing the building then deed restrictions would be placed on the building, restricting the building to affordable housing “for the life of the building.”

What will be the COPA impacts have on owners of multi-unit buildings here in San Francisco?

It may affect prices and values. Time will tell if certain buyers wish to enter the San Francisco market with these added restrictions. One issue for sellers looms in that they may not be able to work a 1031 exchange as efficiently.

The new COPA law will definitely slow down the selling process. Even if a non-profit decides not to purchase a building, the right of first refusal time will hamper any seller idea of a quick sale.

A final note - those building owners who willfully bypass the COPA option may find themselves in legal hot water. If an owner sells a multi-family residential building in violation of COPA, Qualified Nonprofits may bring legal action against the seller. Potential remedies include damages, attorneys' fees and, if the violation is knowing or willful, civil monetary penalties presumptively tied to the value of the property. These remedies are imposed only against the seller or a party that has willfully colluded with the seller to violate COPA.

Sellers seeking advice or having questions regarding COPA should engage a qualified San Francisco real estate attorney.