Imagine saving your whole life to buy that investment property, hoping it will help you in your retirement – only to realize that San Francisco laws only protect tenants, no matter how much harm they cause the owner and violate the intent of rent-control. So, this investment gem turns into a lifetime tenancy that protects the profiteering subtenant to continue such abuse with no fear of eviction even when they claim to be “travelling” and no longer residing in the unit. Where else would tenants sublet your building, make more money than landlord, and be protected from being evicted? Only in San Francisco says landlord Anne Kihagi.
The “master tenant” can make more money illegally subleasing their unit than the average San Franciscan landlord makes renting out two- and four-unit buildings. The master tenant is afforded more protections than any landlord in the city. Landlords understandably report these tenants and request their eviction, but the law does not allow it. In fact, sub-tenants – those living under the rule of a master tenant – who file complaints against their “master” are quickly evicted with only a 30-day notice from the “master,” not the landlord.
That’s right – the master tenant has unrestricted eviction power. Meanwhile, landlords dealing with toxic or illegal situations have to jump through hoops to get the offending tenant ousted. Master tenants even have attorneys given to them for free, while struggling landlords can barely afford the legal costs to bring their legitimate cases to court.
But how does a master become the “master”? Let’s assume two tenants rent a two-bedroom for $1,500, and one moves out; the remaining tenant becomes the “master tenant.” The tenant they find to replace the now-vacated “original” tenants becomes the “sub-tenant,” who often gets taken advantage of in the renting rework. Master tenants can (and do) charge the sub-tenant the entire $1,500, while the master pays nothing – and the law lets them do it.
And while tenants rake in their profits, landlords are struggling to keep up. The average two-bedroom unit in San Francisco goes for $4,000/month, but most landlords barely collect $1,250 each month for the same unit. That’s because, even if units are rent-controlled, the law has not punished master tenants who sublease their unit for market rent. Some masters are even renting out their bathrooms or couches – none of which is being received by the landlord. It’s both legally and morally reprehensible.
According to the San Francisco Rent Board, “a master tenant may not charge a subtenant more rent upon initial occupancy of the subtenant than that rent which the master tenant is currently paying to the landlord.” Even with this restriction, masters are still overcharging sub-tenants all the time. The Rent Board also requires each master “to provide each subtenant a written disclosure of the amount of rent the master tenant is obligated to pay the landlord, prior to commencement of the sub tenancy.” The Rent Board does not, however, require the master to present the actual lease; they can just supply their demands in writing and be covered.
There’s another part of Rule 154, wherein the master tenant is not allowed to charge more than a proportional share of rent. Well, a single sentence later completely wipes out this restriction and allows the master justifications for charging more than proportional square footage, such as furnishing, internet, cable, and cleaning. Like a hotel, they have the freedom to add subjective items that, little by little, can add up to a full month’s rent.
There are even master tenants who do not even reside in the property and are still renting out units for up to $4,000 while the landlord barely collects $1,500 for the unit – that translates to $30,000 profit per year!
Even when landlords try to expose the injustice, they still lose an average of 90% of the cases they bring to the Rent Board. In 2017, laws began to lean even more toward the master tenant. Now, the master can sublease the entire unit. That’s right – they can now make money on a unit they don’t live in. The typical reason might be something like travelling, but the law is intentionally silent on the limit of their absence. Does this mean that the landlord has an interminable tenancy on their hands, as the master can now collect rent without living there, indefinitely? Keep in mind that the master tenant has virtually unlimited eviction power – yet the landlord, the actual owner of the building, is subject to strict rules and endless roadblocks, including when they try to overturn the tyranny of a master tenant.
How much longer will master tenants reign over San Francisco? Who really has the power to stop them?
For more information on Anne Kihagi and West 18 Properties, visit http://annekihagisf.com/Wake up Right! Subscribe to our Morning Briefing and get the news delivered to your inbox before breakfast!