A new ordinance that passed at the SF Board of Supervisors is becoming law on June 2. It will affect all sales of buildings of three units and up. The legislation is known as the Community Opportunity to Purchase Act, or COPA for short.

This was sponsored by Richmond District Supervisor Sandra Lee Fewer in an effort to reduce speculation in the purchase and sale of multi-unit buildings and to keep tenants in properties by allowing certain non-profit organizations to purchase these buildings and to keep them permanently as rent-restricted affordable housing units.

This legislation also applies to any vacant land or construction sites that could be developed into three or more residential units. The process is supposed to work in this way. Before a seller lists a three or more unit building on the market for sale, they must notify every qualified nonprofit and give them an opportunity to bid on the building. This list is to be provided by the Mayor’s Office of Housing and Community Development (MOHCD).

The nonprofits have to meet certain criteria, such as a prior commitment to community engagement, and have demonstrated that they have had the capacity to acquire and manage residential properties in the past. As of the writing of this article, this list is not available and the thought is that sellers cannot comply with this legislation until there is a published list.

The nonprofits shall have a first right of refusal to purchase the building and have five calendar days to indicate if they would like to make an offer on the building. They then have another 25 days to submit an offer to the seller. If no non-profits have notified the seller, then the seller may proceed to list the building on the open market. The seller is free to accept or reject any offer by a qualified nonprofit. If none of the offers are acceptable, then the seller may also proceed to list the property on the market.

When the seller receives an offer on the open market that is agreeable to them, they must notify any nonprofit that previously made an offer to purchase and offer to sell the building to them under the same price, terms and conditions. The non-profit will have five days to accept or reject the seller’s offer.

This legislation is confusing and makes the sale of multi-units more complicated in the City. If these steps are not followed, a qualified non-profit may file civil legal actions against the seller. 

How will this legislation affect the sales of multi-units? For sure it will delay the sales process because sellers have to follow these rules and conform to a longer timeline. There is more cumbersome paperwork involved. 

The sale price might be lowered because traditional buyers do not like to bid on properties that have a first right of refusal on it. In effect, they have to outbid every nonprofit in order to buy a rental property. 

There currently is some talk that this legislation is illegal and unconstitutional and that there will be a lawsuit against the City to settle this before it can be implemented. We are waiting to see if this will happen.

COPA also raises some very significant questions that have not been answered yet. For example, what constitutes an offer and what does the same price, terms and conditions mean? Real estate purchases are complex and each situation and building is different with so many unknown variables along the way.

How this plays out will be interesting. But what we do know at this point is that this legislation becomes effective on June 2. If you are contemplating selling a multi-unit building, consult with a real estate broker or an attorney on the latest developments before proceeding. 

John M. Lee is a broker at Compass specializing in the Richmond and Sunset districts. For real estate questions, call him at (415) 465-0505 or email johnlee@isellsf.com.