Ways To Sell A Building Under the S.F. Community Opportunity to Purchase Act (COPA)
(San Francisco Administrative Code, Chapter 41B)
COPA compliant sales will be one of these three types, or some combination:
1. Sell Directly to a Qualified Nonprofit (QNP)
2. Traditional Marketing with a broker, or,
3. Conditional Sale, subject to a Right of First Refusal.
1. Sell Directly to a Qualified Nonprofit (QNP). Many apartment owners prefer selling to a COPA QNP. Here's why:
IMPACT specializes in sales to COPA Qualified Nonprofit organizations.
2. Traditional Marketing, pay a commercial broker to market the building in compliance with COPA.
(a) Notice of Intent to Sell. Before the seller may offer the building for sale to any purchaser other than a QNP, or otherwise solicit any offer from any purchaser other than a QNP, the seller must first provide Notice of Intent to Sell to all the QNPs by email, on the same day at the same time. The notice must include: the number of rental units in the building, the address or location of each unit, and the rate of rent due for each unit. Some sellers elect to provide additional information. [§41B.6(c)]
The QNPs then have five calendar days to “express interest,” to notify the seller if it wishes to further consider whether to make an offer to purchase the building. If none of the QNPs express interest within five calendar days, the Seller is free to advertise the building for sale, show the building, and solicit offers from the public. [§41B.6(d)]
For the vast majority of sales, COPA essentially stops here. If all QNPs are notified and no QNP expresses interest within five days, the marketing and sale may go forward, and all COPA requires is a seller certification of compliance, filed with the Mayor’s Office of Housing & Community Development within 15 days of the sale. [§41B.10]
Exceptions: (i) if the property is still on the market a year later, at which time the seller must re-notify the QNPs of Intent to Sell [§41B.6(b)] and, (ii) subject to the Right of Refusal set forth in §41B.7, which would apply if for whatever reason a QNP was not provided an opportunity to exercise its Right of First Offer.
(b) Right of First Offer. If a QNP does express interest in the building, the seller must then disclose to the interested QNP certain information pertaining to the value of the building and the suitability for conversion to affordable housing. The required further disclosures are: (1) the name or names of any tenant or tenants in each rental unit of the Building, as well as any available contact information for each tenant, (2) the number of bedrooms and bathrooms in each rental unit, (3) each tenant’s move-in date, (4) base rent for each rental unit, (5) Building costs passed through to each tenant, if any, (6) whether each tenant has a written lease or rental agreement, and (7) the annual expenses for the Building, including, but not limited to, management, insurance, utilities, and maintenance.
This information is confidential and the QNP must protect the privacy interests of the seller and the tenants.
Upon receipt of the additional disclosures, the interested QNP then has 25 additional days to submit a First Offer to the Seller. The seller is free to accept, reject, or make a counter-offer in response. If the QNP and seller agree on terms, the contract goes into effect and the QNP buys the building.
If the QNP and the seller don’t agree on terms, the seller may proceed to market and sell the building, subject to QNP Rights of First Refusal [§§ 41B.6(g), §41B.7(b)]
(c) Right of First Refusal. If and when the seller agrees on terms with a non QNP buyer, the seller must, before any offer of purchase or sale may be accepted, offer to sell the building to: (i) any QNP that previously made a First Offer to purchase the building, and, (ii) any QNP that was not previously given the opportunity to make a First Offer.
The seller’s offer to the QNPs must be in writing. It must be emailed to the appropriate QNPs on the same day and to the extent possible at the same time.
The offer must contain all the same terms and conditions (including, but not limited to, price, time frame to close the Sale, and commission to the Purchaser’s broker) as the intended sale to the non QNP purchaser.
The seller must also provide the QNPs with all disclosures provided to the non QNP purchaser.
The time each QNP has to accept the offer (to invoke the Right of First Refusal) depends on the seller’s prior compliance with COPA. QNPs that previously submitted a First Offer have five calendar days to invoke the Right of First Refusal. QNPs that, for whatever reason, were not previously provided an opportunity to exercise the Right of First Offer have 30 calendar days to invoke the Right of First Refusal.
The first QNP to notify the seller of its decision to accept the seller’s offer (to invoke the Right of First Refusal) gets to purchase the building and no other QNP may accept the seller’s offer.
If no QNP invokes the Right of First Refusal, the seller may proceed with the sale to the non QNP purchaser according to the terms of the contract.
However, if the seller does not sell to the non QNP in accordance with the terms offered to the QNPs, and instead agrees with a non QNP to materially different terms, this is a “new offer” which the QNPs have the right to accept, and must be appropriately conveyed to the QNPs. [§41B.7(f)]
3. Conditional Sale, subject to the Right of First Refusal.
COPA does allow sale agreements subject to an express written contingency that no QNP exercises the Right of First Refusal. The Seller and the Purchaser must each expressly acknowledge, in writing, that the Purchase will not occur if a QNP exercises its Right of First Refusal.
If no QNP invokes the Right of First Refusal, the seller may proceed with the sale to the non QNP Purchaser, according to the terms of the contract.
All the §41B.7 Right of First Refusal provisions apply to conditional sales, including the 30 calendar days to invoke the right for QNPs that didn’t previously have an opportunity to make a First Offer, and the affirmative seller duty to notify the appropriate QNPs if the terms of the agreement materially change, thus giving rise to a new Right of First Refusal. [§41B.7(g)]
(San Francisco Administrative Code, Chapter 41B)
COPA compliant sales will be one of these three types, or some combination:
1. Sell Directly to a Qualified Nonprofit (QNP)
2. Traditional Marketing with a broker, or,
3. Conditional Sale, subject to a Right of First Refusal.
1. Sell Directly to a Qualified Nonprofit (QNP). Many apartment owners prefer selling to a COPA QNP. Here's why:
- Sellers can save on real estate commissions by selling to to a QNP.
- COPA QNPs will cooperate with sellers' section 1031 exchange.
- Reduced transfer tax for medium sized buildings (over $5 million), and substantial reduction for larger buildings (over $10 million).
- Do right by the tenants, promote stable affordable housing and prevent tenant displacement.
- Leave a legacy. Have the building named after the seller's family.
- QNPs expect to pay market value for the buildings.
IMPACT specializes in sales to COPA Qualified Nonprofit organizations.
2. Traditional Marketing, pay a commercial broker to market the building in compliance with COPA.
(a) Notice of Intent to Sell. Before the seller may offer the building for sale to any purchaser other than a QNP, or otherwise solicit any offer from any purchaser other than a QNP, the seller must first provide Notice of Intent to Sell to all the QNPs by email, on the same day at the same time. The notice must include: the number of rental units in the building, the address or location of each unit, and the rate of rent due for each unit. Some sellers elect to provide additional information. [§41B.6(c)]
The QNPs then have five calendar days to “express interest,” to notify the seller if it wishes to further consider whether to make an offer to purchase the building. If none of the QNPs express interest within five calendar days, the Seller is free to advertise the building for sale, show the building, and solicit offers from the public. [§41B.6(d)]
For the vast majority of sales, COPA essentially stops here. If all QNPs are notified and no QNP expresses interest within five days, the marketing and sale may go forward, and all COPA requires is a seller certification of compliance, filed with the Mayor’s Office of Housing & Community Development within 15 days of the sale. [§41B.10]
Exceptions: (i) if the property is still on the market a year later, at which time the seller must re-notify the QNPs of Intent to Sell [§41B.6(b)] and, (ii) subject to the Right of Refusal set forth in §41B.7, which would apply if for whatever reason a QNP was not provided an opportunity to exercise its Right of First Offer.
(b) Right of First Offer. If a QNP does express interest in the building, the seller must then disclose to the interested QNP certain information pertaining to the value of the building and the suitability for conversion to affordable housing. The required further disclosures are: (1) the name or names of any tenant or tenants in each rental unit of the Building, as well as any available contact information for each tenant, (2) the number of bedrooms and bathrooms in each rental unit, (3) each tenant’s move-in date, (4) base rent for each rental unit, (5) Building costs passed through to each tenant, if any, (6) whether each tenant has a written lease or rental agreement, and (7) the annual expenses for the Building, including, but not limited to, management, insurance, utilities, and maintenance.
This information is confidential and the QNP must protect the privacy interests of the seller and the tenants.
Upon receipt of the additional disclosures, the interested QNP then has 25 additional days to submit a First Offer to the Seller. The seller is free to accept, reject, or make a counter-offer in response. If the QNP and seller agree on terms, the contract goes into effect and the QNP buys the building.
If the QNP and the seller don’t agree on terms, the seller may proceed to market and sell the building, subject to QNP Rights of First Refusal [§§ 41B.6(g), §41B.7(b)]
(c) Right of First Refusal. If and when the seller agrees on terms with a non QNP buyer, the seller must, before any offer of purchase or sale may be accepted, offer to sell the building to: (i) any QNP that previously made a First Offer to purchase the building, and, (ii) any QNP that was not previously given the opportunity to make a First Offer.
The seller’s offer to the QNPs must be in writing. It must be emailed to the appropriate QNPs on the same day and to the extent possible at the same time.
The offer must contain all the same terms and conditions (including, but not limited to, price, time frame to close the Sale, and commission to the Purchaser’s broker) as the intended sale to the non QNP purchaser.
The seller must also provide the QNPs with all disclosures provided to the non QNP purchaser.
The time each QNP has to accept the offer (to invoke the Right of First Refusal) depends on the seller’s prior compliance with COPA. QNPs that previously submitted a First Offer have five calendar days to invoke the Right of First Refusal. QNPs that, for whatever reason, were not previously provided an opportunity to exercise the Right of First Offer have 30 calendar days to invoke the Right of First Refusal.
The first QNP to notify the seller of its decision to accept the seller’s offer (to invoke the Right of First Refusal) gets to purchase the building and no other QNP may accept the seller’s offer.
If no QNP invokes the Right of First Refusal, the seller may proceed with the sale to the non QNP purchaser according to the terms of the contract.
However, if the seller does not sell to the non QNP in accordance with the terms offered to the QNPs, and instead agrees with a non QNP to materially different terms, this is a “new offer” which the QNPs have the right to accept, and must be appropriately conveyed to the QNPs. [§41B.7(f)]
3. Conditional Sale, subject to the Right of First Refusal.
COPA does allow sale agreements subject to an express written contingency that no QNP exercises the Right of First Refusal. The Seller and the Purchaser must each expressly acknowledge, in writing, that the Purchase will not occur if a QNP exercises its Right of First Refusal.
If no QNP invokes the Right of First Refusal, the seller may proceed with the sale to the non QNP Purchaser, according to the terms of the contract.
All the §41B.7 Right of First Refusal provisions apply to conditional sales, including the 30 calendar days to invoke the right for QNPs that didn’t previously have an opportunity to make a First Offer, and the affirmative seller duty to notify the appropriate QNPs if the terms of the agreement materially change, thus giving rise to a new Right of First Refusal. [§41B.7(g)]