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My New Landlord Wants To Jack Up My Rent For “O & M” Expenses Passthrough

My New Landlord Wants To Jack Up My Rent For “O & M” Expenses Passthrough

My New Landlord Wants To Jack Up My Rent For “O & M” Expenses Passthrough

I’m a 26-year-old living alone in a studio apartment on Russian Hill. I’ve lived here for just over a year (~13.5 months), and like clockwork, as soon as my 1-year lease was up my rent was raised 0.5% from $1,600/month to $1,608/month. Fine, big deal. A month and a half into this new rent increase I received a letter from the city notifying me that my landlord has petitioned to raise my rent by the maximum 7% allowed as an operating and maintenance expenses passthrough. Obviously I’m not too happy about this and the prospect of paying $1,720/month for a studio apartment is stretching my definition of sanity. 

A little bit about the building- it’s a 17 unit apartment building built in 1928. During my initial lease period the building changed ownership and management companies. The letters I received from both the old and new management companies specify a changeover date of 1/1/2011 while the petition application lists the current owners as owning since 12/31/2010- I’m not sure if this is relevant or not. The petition claims a total increase of O&M costs of roughly $127,000 from year 1 to year 2. The bulk of these costs are from a $9,000 increase in water/sewer, $25,000 in property taxes, and $88,000 in debt service (the previous owner apparently had no mortgage). 

My main gripes are these: 1) how can this new owner claim increased operating costs year over year when they haven’t even owned it for a year? Do they get a credit for what the previous owners paid? The Years are one 6/1/09-5/31/10 and two 6/1/10-5/31/11, giving this owner only 5 months of ownership in this two year period.  2) Can the owner really expect to pass the bulk of his mortgage and property taxes on to the tenants? It just doesn’t feel right. 

This whole thing seems to violate the spirit and intent of every rental protection law that San Francisco has on its books. If there were a genuine increase in O&M expenditures- increased garbage and water costs, maybe new carpet in the hallways, new windows, etc.- then I would be more open to this. I know the laws are there to protect landlords in addition to tenants, and I understand the reasoning for taking into account debt service in these passthroughs, but can it really apply to a new owner? The whole thing just reeks, especially coming on the heels of my first “regular” annual increase. 

 I know I can protest the increase at the hearing which is TBD. But do I have any legal arguments here or will the rent board just happily listen to my protest at the hearing and then just as happily approve the owner’s petition? 

I don’t see anything in my lease about operating and maintenance expenditure passthroughs. I also haven’t heard anything from the landlord about their intent to increase the rent and am wondering if I should get in touch with the management company and just talk to them. I’m willing to work with them and am open to a small increase to offset their costs. I also have not heard anything from my neighbors. The petition applies to 13 of the 17 units in the building (the rest of which I assume are under a new lease or vacant). Should I talk to the tenants of the other units facing an increase? Will a protest be more effective at a hearing with more of the tenants present? 

Thanks for your help with this. Its a new world for me…

It ain’t a new world. It’s the real world.

In the real world,  in Bakersfield or any other jurisdiction without rent control, a landlord would not have to justify your rent increase at all. In Redwood City you would not have the opportunity to ponder the financial machinations of the landlord business that allow them to do what few business people can–arbitrarily increase the price of their “service” based upon expenditures that they will eventually write off on their taxes. It’s the ol’ double dip.

Free market capitalists will point out that all businesses can choose to raise their prices anytime they want. That’s true, but in a truly competitive marketplace, a business that arbitrarily increases its prices risks losing business to others who are more competitive.

As I said last week, “free market” thinking cannot apply to land, especially land in San Francisco.  Land is ultimately a finite commodity. San Francisco is an instructive microcosm to understand the effects the “free market” on a commodity that is finite. Housing costs are always pegged to the price of land. As demand increases, the value of the land and the housing situated upon it increases.

Imagine a world in the future in which population has increased so dramatically that human beings live on every habitable plot of land on earth. Of course the land will be owned by a very small percentage of landlords. Those landlords will literally have a captive market. Nobody will be able to move to Oakland where the rents are cheaper. Obviously that scenario is a long way off, but cities like San Francisco are the canaries in the coal mine. When a natural resource like land is treated like a commodity, the future is ominous for tenants first and then the landlords upon whom tenants vent their anger.

The direct answer to your question can be found in the “Operating and Maintenance Expense Petitions” information provided by the San Francisco Rent Board:

“Tenants who lived in the building during any part of Year 1, the first comparison year, may be given an O&M increase. Tenants who moved into the building during Year 2, the second comparison year, may not be given an O&M increase unless ownership changed during Year 2 after the tenant moved in. Only one O&M increase based on costs related to the transfer of ownership of a property is allowed. Tenants may object to imposition of an O&M increase if the landlord has failed to perform requested repair and maintenance that is required by law.

First, the comparison of expenses from old landlord to new is allowable, notwithstanding that all of the increases in expenses were calculated and considered by the buyers and factored into final sales price of the building. In other words, the purchaser knew what he was buying, may have received a reduced sales price and now gets to charge a part of the theoretical cost to you.

It chaps my hide when I see debt service costs charged to rent controlled tenants. Again, a speculator who knows he’s paying far too much for a building will still buy it, banking mostly on upside created by more speculators like him, but still understands he can charge part of the cost of debt to the tenant.

All of this is legal and, indeed necessary, to avoid constitutional challenges to rent control ordinances. Courts have, time and again, decided that landlords must be able to get a fair return on their investments. As I said last week, the United States Constitution made property rights sacrosanct.

I read last week’s comment from cedichou with interest last week. Addressing the the problem of finite supply and infinite demand, cedichou said,  “[W]ill ensure that rents go up. Rent control cannot stop this. The perverse incentive of rent control is to artificially hike the rents of open units so as to anticipate as much as possible upfront the later impossible rent increases.” That’s absolutely true.

So what can tenants do, short of advocating to amend the United States Constitution to add a right to housing? (Not a bad idea in itself.) In California, tenants should be demanding that their legislators, with an email every second of every day, repeal the Costa Hawkins Rental Housing Act (Civil Code section 1954.50 to 1954.535), a law passed by so-called conservatives, which among other things,  prevents local communities from establishing price controls on rental housing. To prevent the disparity cited by cedichou, local communities should be able to control prices on every single rental unit if they so desire.

On another note, there are absolutely no studies, of which I am aware, that break down the demographics of landlords. From my own anecdotal evidence Mom and Pop landlords are a thing of the past. Sure, there are landlords who own a single building, but in many cases kindly old Mom and Pop died and the greedy kids either sell the building to a speculator or mercilessly harass the rent-controlled tenants to get out.

The debate over rent control, essentially a debate over private vs public control of natural resources, will be a defining issue of our time. I firmly believe that no one can call themselves a progressive if he or she is also a landlord. Let the Democrats have them.

As I said last week, you should check out the OCCUPY related activities sponsored by the San Francisco Tenants Union. And don’t forget to join the worldwide general strike on May 1.

Call the Tenant Lawyers now for a free consultation.
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When I Break The Lease, Is My Roommate Screwed?

When I Break The Lease, Is My Roommate Screwed?

When I Break The Lease, Is My Roommate Screwed?

Break the lease.

I’ve read your columns on the SF Appeal and tried to find a direct answer to my question in a few of them, but haven’t really hit the nail on the head. Here’s my situation:

I live in a building (not a house) in the USF/Pandhandle area in San Francisco that was built in 1917. It is 6 units. I am 25 years old, and have lived in the unit since May 1, 2011. The rent is $2050 per month.

In May when I moved, I found a roommate off Craigslist, Alison. She and I both planned on being there for at least a year, and so we both signed the lease. There were zero issues, and the move went smoothly.

My landlord seems like a good guy. When Alison told me in September that she would be leaving the city for work, my landlord agreed to let her sublet her room to a new tenant. I found a replacement roommate,  Bijou. Bijou signed a 6.14 notice. I didn’t realize the implications of this notice at signing – he sent it to her and she sent it back to him — I didn’t even look it over. My mistake.

Fast forward to today. My boyfriend and I decided to move-in together, and due to high rent and low availability, we ended up snapping up an apartment now instead of waiting until my lease ended in May. My new lease starts Feb 1, and I plan on moving at the end of this month.

I wrote an exhaustingly long email to my landlord about this, asking if I can sublet my room for the remainder of my lease. Bijou said she would even sign a new year lease if need be with her friend who is interested in moving in. My landlord said that it was “okay” for me to move out (aka I didn’t have to pay a fee for breaking my lease?) but that since I was the “original occupant” on the lease, that the lease would be null and void. That didn’t make sense to me, since he let Alison (old roommate) do it easily – I figured I’d be in the same boat.

My landlord then went on to say that he “might” raise the rent (no word yet on how much – my emails and calls have gone unanswered) and that he wasn’t sure if he wanted Bijou and new tenant to sign a lease but that he wouldn’t evict them, either. Huh? What are his rights in this sense, and what are Bijou’s rights? I feel responsible since I’m the one leaving early and complicating matters, but the landlord hasn’t told me I’m doing anything illegal or wrong — yet.

I made it very clear that I wanted to do a walk-through to get my security deposit back, and have been pressing him for information regarding the lease ending early, Bijou signing a new lease, and the rental cost. What else do I need to do to cover myself? What are his rights and what are Bijou’s rights in this situation?

What does being an “original tenant” mean, and why was Alison (old roommate) allowed to leave and sublet easily, but he won’t let me do the same?

Welcome to the world of Rent Board Topic No. 153:  “Rent Increases Under Section 6.14 And Costa-Hawkins.” San Francisco Rent Board Rules & Regulations § 6.14 and California’s Costa-Hawkins Rental Housing Act (Civil Code § 1954.50 to 1954.535) were designed to deal with “revolving door” tenancies–tenancies that pass from roommate to roommate over the years until everyone on the original lease is gone.

San Francisco’s ordinance has always provided that a landlord can increase the rent as he sees fit after all of the tenants vacate a unit. Rule 6.14 was designed to determine when a tenancy ended for purposes of increasing the rent.

On the other hand, California rent control ordinances were stripped of “vacancy control” by Costa Hawkins in 1996. For example, in Berkeley a landlord had to register his units price and all. Rents were only allowed to increase by allowable limits even after all the tenants vacated a given unit. Before Costa Hawkins it wasn’t as important to determine when a tenancy ended because the rental rate was controlled unit by unit.

Flash forward to now. In order to determine if a tenant is an “original occupant” a “subsequent occupant” or a “co-occupant” one must understand the interplay between 6.14 and Costa Hawkins. As you might guess, it can get very complicated. This is an issue that is often adjudicated at the Rent Board because it is misunderstood by landlords and tenants alike.

You have correctly kept the landlord and your new roommate in the loop and your tenancy is new compared to those who operated for years, adding roommates with or without the landlord’s consent.

In a nutshell, you are the last “original tenant” on the lease–the last named tenant, the last signatory. Your landlord consented to adding your roommate, Bijou, because likely he could not have unreasonably withheld that consent. Check your lease and Rules and Regulations §6.15A or §6.15B. He had no reason to deny consent anyway because you still had a one-year lease and he had ample remedies if you breached the lease, i.e. left without paying the rent.

In your case, however, one cannot readily apply the rules of either of the relevant statutes. Why? Because both Costa Hawkins and Rules & Regulations § 6.14 assume that a tenancy is a month-to-month tenancy. You have a term lease that does not expire until April 30, 2012.

You and your landlord can agree to terminate the lease now. Any agreement to do so, should be in writing. At that point Bijou would assume the status of a holdover subtenant–a subsequent occupant for purposes of Rules & Regulations § 6.14.

After you leave, the landlord cannot evict Bijou because he consented to her subtenancy. He can, however, increase the rent because you, the last original occupant, vacated. That she signed a 6.14 notice is irrelevant.

This alternative is advantageous to you because terminating the entire lease would entitle you to a refund of your security deposit upon move-out. It is advantageous to the landlord because he can increase the rent, using the rationale of Costa Hawkins that allows a rent increase:

“Where the original occupant or occupants who took possession of the dwelling or unit pursuant to the rental agreement with the owner no longer permanently reside there, an owner may increase the rent by any amount allowed by this section to a lawful sublessee or assignee who did not reside at the dwelling or unit prior to January 1, 1996.” (Civil Code § 1954.53(d)(2).)

Yet as you scramble to get out of the lease and your greedy landlord tries to increase the rent you forgot about the person who will be hurt under this scenario–Bijou. One of the factors upon which she based her decision to move in was the amount of rent. At the very least she relied upon the fact that the rent could not be increased at all until April 30, 2012. She may also have relied upon the fact that the rent-controlled tenancy would only be subject to annual allowable increases. What is she supposed to do?

If the landlord increased the rent, I might advise her to sue you for the difference between the original rent and the increased rent because she relied on your representation that you had a valid lease and that she was a lawful subtenant.

The best way to deal with this is to execute a “novation,” a new agreement in which all parties consent to replace Bijou as the original tenant on the lease. That way Bijou can get a new roommate. Bijou can collect half of the security deposit which she can refund to you. The landlord will continue to collect rent based upon his original deal (and financial expectation) with you.

If the landlord balks, you should point out that he will not be damaged at all. He signed the lease with you and agreed upon a rent amount that he knew was controlled. You may have lived in the unit for years. He agreed to the deal and understood its ramifications. There is absolutely no difference between his deal with you and his new deal with Bijou.

If you just leave, I would argue that the lease is still valid until at least April 30 regardless of Bijou’s presence. It’s an argument I might lose. You would still be responsible if Bijou breached the lease and you would not be entitled to refund of the security deposit until everyone moved out.

Bottom line: this is going to be a mess, no matter how you play it. And it’s your fault.

Call the Tenant Lawyers now for a free consultation.
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