SF: Understanding the TIC, part 3

I posted before about what TIC’s are, and about how converting to a condo increases the value of a TIC. And of course, many first time buyers rush head first into a TIC, driven by the promise of condo conversion; unfortunately, this can lead the buyer to quite a concussion when he or she discovers: a) SF requires TIC buildings over 2 units enter a lottery to convert; b) even 2 unit buildings must in some cases enter the lottery; and /or c) the unit is not eligible to convert at all.

To help would-be TIC-condo-converting buyers navigate the conversion laws in San Francisco, I will again turn to Andy Sirkin, the city’s most recognized legal expert on all things TIC. This time I will focus on the lottery to convert, while in part 4 I will cover eviction laws and restrictions on conversion.The information below has been culled from Mr. Sirkin’s excellent webpage (www.andysirkin.com).

What properties qualify for conversion?
Only 2-6 unit properties may convert. They qualify only when they (i) meet occupancy requirements, (ii) win or bypass the conversion lottery, and (iii) for lottery conversions, satisfy “tenant rights” rules.

How does the condo conversion lottery work?
The condominium lottery is held annually during the first quarter of the calendar year. Tickets cost $150 and are available for a two-month period ending about two weeks before the drawing. (In 2007, the lottery date is February 7 and the entry deadline is January 26). Up to 200 units may be converted through the lottery each year. Note that the lottery selects 200 units, not 200 buildings. The actual number of buildings which convert to condominiums annually through the lottery system is only about 55.

The lottery system is designed to favor buildings that have previously lost. The idea is that your chances of winning will increase each time you enter (see chart). But this goal had been undermined in recent years by the rapid increase in the number of buildings entering the lottery. The reality of the last several condominium conversion lotteries (up to 2006) was that even though you accumulated a higher lottery priority in each of the first five years you entered, your chances of winning diminished (except in the fourth year) because there were so many more participants in the drawing. Fortunately, a new system was adopted for the 2006 condo lottery which attempts to guarantee that those who continued to enter the conversion lottery would eventually win. This new system has been renewed for 2007 and 2008, but may not be in place for subsequent years.

What are the condo lottery owner-occupancy requirements?
For 2-4 unit lottery winners, one unit must be owner-occupied for three years; for 5-6 unit lottery winners, three units must be owner-occupied for three years. The term “owner-occupied” is actually a misnomer as applied in the lottery system; the occupant can be a tenant for three years so long as he/she is an owner at the time of application. Occupancy is proven by electric and telephone service. The three-year period is measured backwards from the lottery entry deadline. So to qualify in 2005, the required number of owners must have occupied continuously since January 2002.