Buying

In the 1960s and 1970s, like-minded people decided to purchase apartment buildings and live in the units as owners, as opposed to paying rent as tenants. They collectively agreed to split the property taxes and operating expenses, and agreed on how to share common spaces vs which areas were for the exclusive use of each owner. They had established processes for resolving disputes and making decisions. These collective agreements were codified into what is now known as the TIC Agreement.

The TIC Agreement is the governing document between owners and is similar to CC&Rs that a condo association would have, except that the TICA is a contract between owners. It is enforced with contract law. Condos in California have their own well-established legal structure under the Davis-Sterling Act. As TICs have become more common and accepted form of property ownership, the TIC Agreements have become highly standardized and have withheld legal scrutiny in courts. This is not to say they are bullet-proof, but any 10kTIC Agreement written within the past 10 years or so is pretty-darn solid (buyer to verify of course). Andy Sirkin and David Gellman are the gold star TIC Attorneys in SF and created the majority of the TICAs currently in place.

TICs have historically filled a housing gap that is much needed in SF: mid-priced housing. About 10% of our multi-family housing units are TICs. There are some large buildings, but we most commonly see 2-4 unit buildings on the market as TICs. When I first started tracking this in 2013 a TIC used to be around 20% less than an equivalent condo. But with the acceptance of TICs and the strength of the TICAs and more favorable loan terms, the gap has decreased to 3-5% as of 2020.

TICs can be a little slower to sell and although the price gap between TICs and Condos has tightened dramatically over the years, it’s unlikely that they will ever be worth more than a comparable condo. TICs, like all properties, have to be properly prepared, presented and priced in order to sell, but they are not any harder to sell.

The TIC market follows the Condo market fairly closely, but can be more volatile. TICs are often one of the first residential property types to suffer a price hit when the market shifts, and the last to recover. If there is a lot of competition for homes, TICs are less attractive because of their additional complexity. As the market recovers, TICs recover.

In 2013, San Francisco placed a moratorium on converting TICs into condos for any building other than 2-unit buildings. Duplexes can convert to condos provided both units are owner occupied and have lived in the units for at least a year. There are other requirements, which you can read here. It’s possible that this law will not be renewed when it expires in 2024, but knowing how much leverage SF tenant’s rights advocates have over our Supervisors, I wouldn’t count on it. We advise our clients to assume the unit will be a TIC forever and you can be pleasantly surprised if the opportunity to convert were to come up.

Yes, but there are some important considerations when considering renting your TIC. Since the property is legally a multi-family building (and not a condo with separate parcel numbers) tenants have enhanced protections from evictions or having their rents raised. TICs are rent controlled, meaning you can only raise the rent according to the city’s maximum amount. In 2019, that amount was 2.6%. In 2018 it was 1.8%. The max allowable increase info is here.

Tenants also have additional eviction protections. You can’t just ask a tenant to leave in SF anymore. Their eviction has to fall into one of 16 Just Causes. Things like negligence, breaking the lease, missing rent are examples of Just Causes. The fact that you want to sell the unit is not. Moving into your unit (called Owner Move In eviction or OMI) is a Just Cause for eviction, but that unit will be recorded on title forever as being the “owners unit”. Meaning another owner could not do an OMI for their unit later. Evictions in SF in general are mind numbingly complex - please consult with an attorney for specifics. I really like Isaac Jacobson with Jacobson Law PC.

TIC loans are called “Fractional Loans”, meaning the asset that the lender is securing as collateral is only a fraction of the parcel. This complexity has created a niche for a handful of lenders to operate within. Bank of San Francisco, Sterling, Bank of Marin, and NCB all have fractional loan programs. Typically they require at least 20% down payment, and I have yet to see a 30 year fixed product. The links direct you to our favorite people at these banks. The “big banks” like BofA, Citibank, Wells Fargo or Chase do not offer TIC loans.