2017 Rental Housing Legislative Changes

Written by Apartment Management Magazine on . Posted in Blog

By Becky Bower

legal-update

From new laws that will affect California’s tenant background check to Seattle, Washington’s “first come, first served” renter law, 2017 has brought an onslaught of new rental housing legislation. Here are some passed and pending bills you should look out for this year.

NATIONWIDE LEGISLATION

PENDING: HUD’s Smoke-Free Public Housing (view rule)

The department of Housing and Urban Development (HUD) has proposed a rule that requires each public housing authority (PHA) to implement a smoke-free policy. This smoke-free policy applies to all public housing living units, indoor common areas, PHA administrative buildings, and in outdoor areas extending up to 25 feet from both the public housing and office buildings. This rule is currently up for comment until January 19th, 2017. Once this rule is published with the Federal Register and the effective date is established, all PHAs must implement the smoke-free policy within 18 months.

The National Consumer Assistance Plan (read our full article)

Announced in September of 2016, the three major credit bureaus will be enacting the National Consumer Assistance Plan to new and existing public record data on July 1, 2017. Experian® anticipates that the new standards will likely affect about 96% of civil judgement data, making getting a tenant screening service that includes eviction data even more imperative.

CALIFORNIA

Landlord/Tenant Unlawful Detainer Proceedings (AB 2819)

There will be no public access to unlawful detainer (eviction) records, unless the plaintiff/landlord prevails within 60 days of filing. The previous law had the defendant/tenant required to prevail within 60 days to bar public access. This goes into effect, January 1, 2017.

Pesticide Application in Common Interest Developments (AB 2362)

Homeowner associations in common interest developments must now provide tenants advance written notice when over-the-counter pesticides are applied to separate interest dwellings or common areas. Notice must be provided at least 48 hours before application, however, if the pests pose a high and immediate threat, notification can be posted one hour before pesticides are applied.

Landlord/Tenant Bedbugs Disclosure (AB 551)

This amendment requires landlords to give information about bed bugs (as specified) to new tenants starting July 1, 2017 and for existing tenants starting January 1, 2018. Notice must also be given to tenants of units inspected by a pest control operator and provide the findings within 2 business days. This bill also prohibits landlords from showing, renting, or leasing a vacancy that the landlord knows has a bed bug infestation. By law, tenants must cooperate with bed bug inspections, permitting entry into the unit by the pest control operator.

Landlord/Tenant Commercial Leasing Disclosure (AB 2093)

Requires property owner(s) or lessor to state on every lease form on or after January 1, 2017 whether or not the premises have been inspected by a Certified Access Specialist (CASp). The landlord must provide tenants with a current disability access inspection certificate or report, or a copy of the CASp inspection report if the report indicates that they meet applicable disability standards. If the property does not have a disability access inspection certificate, then the lease form or rental agreement must state that, on the request of the tenant, a CASp inspection may be performed (as specified). Landlords are responsible for making repairs or modifications to correct violations of construction-related accessibility standards.

Amendments on Accessory (Second) Dwellings (AB 2299 and SB 1069)

Effective as of January 1, 2017, these two bills revise the zoning restrictions on second dwellings, allowing the creation of 2nd units in single-family and multifamily residential zones (with specified provisions regarding where the 2nd unit may be located, standards, etc.).  In addition to changing the term from “second unit” to “accessory dwelling units”, AB 2299, in particular, revises parking requirements for accessory dwellings. The previous law requires second units to not exceed one parking space per unit or bedroom, with additional authorization for more than one parking space. The amendment removes the need for additional authorization for accessory dwelling parking.

Junior Accessory Dwellings (AB 2406)

Local governments can now establish laws for the creation of junior accessory dwellings in single-family residential zones. Local governments are prohibited from requiring additional parking as a condition of granting a permit.

Removes Certain Disclosures for Transfer of Residential Property (AB 73)

This bill revises the requirements of certain disclosures that are to be made when transferring residential property. Now, the property owner, their agent, or the agent of the transferee of the property are no longer required to disclose the occurrence or manner of death of an occupant (as specified). The bill also no longer requires the disclosure that an occupant of the property was living with human immunodeficiency virus (HIV) or died from AIDS related complications.

Landscape Irrigation Equipment (AB 1928)

This bill requires new performance standards and labeling requirements for landscape irrigation equipment and would postpone the date by which the commission is to adopt the performance standards and labeling requirements to January 1, 2019, and would prohibit the sale or the offer for sale of that equipment manufactured on or after the effective date.

Water Conservation in Landscaping Act (AB 2515)

On or before January 1, 2020, and every 3 years thereafter, the Department of Water Resources are required to update the model water-efficient landscaping ordinance or find another means to improve water efficiency. This means landscaping requirements might change in the future, and continue to change every 3 years.

Becky 201509 Becky Bower is a writer for the ApplyConnect® Blog and the communications executive at ApplyConnect®, a consumer initiated tenant screening company.  She has also spent several years in compliance and auditing.  Becky holds a degree in English with a focus in creative writing from CSU Channel Islands and is a published writer.

What Are the Potential Benefits of Exchanging into a Delaware Statutory Trust Property?

Written by Apartment Management Magazine on . Posted in Blog

By Dwight Kay | www.kpi1031.com

dstproperty_1

There are a number of potential benefits of exchanging into a Delaware Statutory Trust (DST) 1031 property. It is important to note that these should be carefully weighed with the potential risks that we have outlined at the end of this article. You should also read the risk section of each DST 1031 property’s offering materials in detail prior to investing.

Eliminating the day-to-day headaches of property management
Many of our clients are at or near retirement, and they are tired of the hassles that real estate ownership and management often bring. They are tired of the tenants, toilets and trash and are wanting to move away from actively managing properties. The DST 1031 property provides a passive ownership structure, allowing them to enjoy retirement, grandkids, travel and leisure, as well as to focus on other things that they are more passionate about instead of property management headaches.

Tax deferral using the 1031 exchange
Many of our clients have wanted to sell their apartments, rentals and commercial properties for years but haven’t been able to find a property to exchange into and just can’t stomach the tax bill after adding up federal capital gains tax, state capital gains tax, depreciation recapture tax and the Medicare surtax. The DST 1031 property solution provides investors an ability to move from an active to a passive role of real estate ownership on a tax-deferred basis.

Increased cash flow potential
Many investors are receiving a lower amount of cash flow on their current properties than they could be, due to their properties having under-market rents, properties that have multiple vacancies and/or that are raw or vacant land sitting idle. DST 1031 exchange properties provide an opportunity for investors to potentially increase their cash flow on their real estate holdings via a tax deferred 1031 exchange.

Portfolio diversification by geography and property types
Often times, 1031 investors are selling a property that comprises a substantial amount of their net worth. They want to reduce their potential risk and instead of buying one property (such as another apartment building) or one NNN building (such as a Walgreens pharmacy or Taco Bell restaurant) they decide that investing into a diversified portfolio of DST 1031 properties with multiple locations, asset classes (property types) and tenants is a better fit for their goals and objectives.

This is similar to how investors tend to invest retirement funds in mutual funds and Exchange Traded Funds (ETFs), as opposed to placing their entire retirement savings into the stock of one particular company. However, it is important to note that there are no assurances that diversification will produce profits or guarantee against loss.

Long-term non-recourse financing locked and in place to satisfy debt replacement requirements of the 1031 exchange
One of the requirements for a 1031 exchange is to take on “equal or greater debt” in the replacement property to what you had in the relinquished property (the property you are selling). In today’s lending environment, it is often hard for investors to obtain non-recourse financing at an acceptable interest rate and terms. Due to the DST 1031 properties’ sponsors typically having strong lending relationships, they are able to secure non-recourse financing at some of the best terms available in the marketplace. The DST 1031 investors are the direct recipient of these financing terms that they would otherwise often not be able to obtain on their own.

Access to Institutional Grade Real Estate
DST 1031 properties provide access to large, institutional-grade real estate that is often otherwise outside of an individual investor’s price point. With the typical minimum investment of $100,000, investors are still able to purchase an ownership interest in large $20 million-plus apartment communities, $5 million-plus pharmacies or $15 million grocery stores, for example. This allows investors access to a level of real estate that they just would not have been able to exchange into before.

That being said, we also have had many clients with very large 1031 exchanges opt to invest in DST 1031 properties because they did not want to place “all their eggs into one basket” by purchasing one single, large investment property.

Unlocking trapped equity
For those investors that have a substantial amount of equity in raw or unimproved land (as well as investors with vacant properties that are not producing any cash flow), the DST 1031 property allows them the opportunity to sell, defer taxes via a 1031 exchange and unlock the trapped equity that they have in their properties. Now this trapped equity is free to produce for the investor potential cash flow on a monthly basis.

Ability to typically close on a DST 1031 property typically within three to five business days of completing and returning subscription documents
This is one of the main reasons why investors in their 45-day identification period “time crunch” often turn to DST properties. They are able to close quickly and complete their exchanges due to the properties being pre- packaged, as opposed to waiting 30, 60 or 90 days to purchase another outside property.

Increased tax efficiency due to depreciation deductions on replacement property
Investors that have owned their apartments and rental properties for longer than 27.5 years and commercial properties for longer than 39 years have fully depreciated the properties, with no more deductions to help shelter the rental income. By purchasing DST 1031 properties that have a greater amount of financing than their relinquished (sold) properties, those investors are creating for themselves a new basis to shelter rental income through. We encourage all investors to speak with their CPA and tax attorney regarding this prior to investing in DST 1031 properties for details regarding their particular situation.

Increased tax efficiency due to interest write-offs
For investors that have fully paid off their properties, the DST 1031 properties with financing in place provide for interest write-offs to help shelter potential cash flows. Many clients in today’s environment are looking for a way to increase tax efficiency due to the burdensome tax system in place in the United States. The DST 1031 can help to potentially solve some of these tax problems.

Dwight Kay

CEO and Founder

Dwight Kay is the Founder and CEO of Kay Properties and Investments, LLC (Kay Properties). Kay Properties is a provider of DST brokerage and advisory services headquartered in Los Angeles, CA with an office in New York, NY. Registered Representatives at Kay Properties and Investments specialize in helping 1031 exchange clients throughout the country purchase DST properties and are securities licensed in all 50 states, Washington D.C. and the U.S. Virgin Islands. Mr. Kay has personally been involved in over $200,000,000 of client purchases of DST properties and other securitized real estate products.

kpi-real-estate-investment-3d_smallDwight is a published author with multiple published white papers and articles on 1031 exchanges, Delaware Statutory Trust (DST) properties and real estate securities. He has been interviewed on local and nationally syndicated radio stations on the matters of 1031 exchanges and replacement properties. He also is the author of the published book “Delaware Statutory Trust (DST) Properties: An Introduction to DST Properties for 1031 Exchange Investors.”

Dwight began his career in commercial real estate working for a national commercial real estate brokerage firm focusing on multifamily and commercial real estate. Mr. Kay received his Bachelors in Business Administration from Point Loma Nazarene University in San Diego, California, and successfully obtained his Series 7, 22, and 63 securities licenses as well as a real estate broker’s license.

Risks & Disclosures

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum.

This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment.

This website contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, Colorado Financial Services Corporation and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment.

There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment.

Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment.

IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes, therefore, you should consult your tax and legal professional for details regarding your situation.

Securities offered through registered representatives of Colorado Financial Service Corporation, Member FINRA / SIPC. Kay Properties and Investments, LLC and Colorado Financial Service Corporation are separate entities. OSJ Address: 304 Inverness Way S, Ste 355, Centennial, Colorado. 303-962-7267.

Kay Properties & Investments, LLC, is registered to sell securities in all 50 states.

DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than $5 million dollars). If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.

Prepare for Tax Season with These 4 Resources

Written by Apartment Management Magazine on . Posted in Blog

By Becky Bower | ApplyConnect.com

tax-planning

As the year comes to a close, take the time to prepare for tax season early. With just a little extra prep work, you’ll avoid a huge headache next year. Here are 4 tax resources to get you started on organizing your office, getting all the deductibles you can get, and achieving a stress free tax season.

  1. Organize Your Home Office in 4 Easy Steps

When it comes to taxes, before you can do anything, you need to be organized. In this article, we break down the organizational process into 4 easy steps. Your office never looked so clean. Read More!

  1. Use Apps to Deduct from 2016’s Business Tax Return

You want to get as many deductibles as you can get, but compiling the mileage, paperwork, and receipts behind those hefty tax deductibles can be stressful. By utilizing apps, you can cut down on the physical paperwork and access everything from your phone or laptop. Easy. Read More!

  1. Cash in on Tax Deductions for Your Rental Properties

When you have a rental property, utilizing every tax deduction you can is very important. Take advantage of our common deductible checklist and organizational list now. This can help you make sure no stone goes unturned. Read More!

  1. Tips to Having a Stress Free Tax-Season

There’s no denying that tax season can be pretty stressful. While utilizing handy apps and utilizing deductibles are certainly important, it’s also important to maintain good communication with your tenants during this time, and setting goals for 2017. Read More!

While tax season might be far from your mind as Thanksgiving comes close, by taking some time to start going through your documents and receipts, and utilizing our tax resources above, your workload next year won’t be as hefty. Once it’s all said and done, and you have that big tax refund check in hand, you’ll be happy you started your taxes early.

MOVING THE GOAL POSTS

Written by Apartment Management Magazine on . Posted in Blog

By: Wes Wellman | Wellman Properties

monopoly-housing

“Now we have to work to overturn the Costa-Hawkins Rental Housing Act at the state level in order to have truly effective renter protections,” declared tenant activist James Vann following the passage by 75% of the voters of increased rent controls in Oakland. New rent laws also just got voter approval in Alameda, Richmond, and Mountain View. These victories combined with Democratic super majorities just achieved in both the California Assembly and Senate have the left salivating at the prospect of further gains. Repeal of Costa-Hawkins with its vacancy decontrol provision is the grand prize coveted by tenant extremists.  For the left, no victory is ever the end but merely the beginning of new demands.

Since strong rent control measures already blanket most of the greater Los Angeles area new tenant protections tend to be advocated for and accomplished at the regulatory level rather than at the ballot box.

Los Angeles homeowners outraged at the proliferation of McMansions in their neighborhoods have pressured City official to enact Historic Preservation Overlay Zones to somewhat minimize the size of allowable projects. Alert tenant activists have attempted to hijack this politically popular movement to extend its protections to rental housing as a means of limiting the recycling of underdeveloped multi-family properties. Never mind that limiting new housing supply increases demand and prices for existing units, they will deal with that by demonizing landlords and pushing for stronger rent control measures.

Led by Santa Monica and soon to be followed in Los Angeles restrictions are being placed on landlords doing tenant buy-outs. Generally tenants are required to be notified of their rights before making an offer and will have 30 days to rescind their consent. Completed agreements need to be filed with the City. Agreements can be voided in the event the owner fails to give the proper disclosures to the tenant.

Tenant screening just got more difficult with the passage of Assembly Bill 2819. This bill permanently masks all eviction actions unless the owner obtains a judgement within 60 days. When an owner obtains possession of the property prior to the conclusion of a case there is little incentive to go back to court and incur additional costs just to obtain a judgement which is usually uncollectible. Additionally it removes an incentive to resolve a case promptly to avoid the previously required unmasking of the record after 60 days.

Landlord entries into tenant apartments are getting closer scrutiny. Some regulators take the position that the law only allows entry in an emergency, to make necessary or agreed repairs, to show the units to potential buyers, tenants or workers or to conduct a pre-move-out inspection. When entering for one of these approved reasons the owner must give 24 hours advanced written notice, except in an emergency. The notice must include the purpose of the entry. Entry with the consent of the tenant is allowed. This leaves problematic the issues of preventative maintenance inspections and photographing. ACTION Apartment Association, Inc. has asked its attorneys for clarification and advice on these issues and we will update readers in the near future. In the meantime, readers are advised to consult with legal counsel regarding entry into apartments.

Our industry must work tirelessly to repel opposition forces at the ballot box, in the corridors of power and in the courtroom. Westside Apartment Monthly is your on-the-scene reporter.

Top Markets for Expected Rent Growth in 2017

Written by Apartment Management Magazine on . Posted in Blog

Shared Post from Multifamily Executive | By

rentgrowth2

California once again dominates the list of rent-growth leaders for the coming year, with more than half of the top markets, but it may come as a slight surprise to some.

Oakland tops the list, with San Francisco and San Jose still in the top 10. Oakland’s rent-growth pace has slowed significantly recently, and San Francisco and San Jose are both experiencing rent cuts. There’s been a lot of fear about oversupply in these markets, which could be contributing to the current situation. The Bay Area economy has experienced a notable decline recently, but its job-addition volumes are substantial.

“[Apartment operators] will pretty quickly realize that the [Bay Area] market hasn’t gone off the edge of the cliff, regaining some confidence on pricing power,” says Greg Willett of MPF Research.

The continued above-average growth in these California markets is good news for business, but it’s squeezing renters more than ever. A one-bedroom unit in San Francisco in October rented for $3,373, on average, which is slightly more than half the area median income monthly paycheck after taxes, according to real estate listing site Rent Jungle.

Las Vegas is the second rent-growth leader for next year, at 6.1%, just behind Oakland. The metro was hit hard by the recession but has experienced improved growth in the past 18 months that makes it a great market going forward. Seattle; Dallas; Nashville, Tenn.; and West Palm Beach, Fla., are the other markets defined as rent-growth leaders for the coming year.

Absent from 2016 are Portland, Ore.; Fort Worth, Texas; Atlanta; and Phoenix, which all are expected to come in just under the cutoff of 4%.

Forecast Rent Growth Leaders in 2017

Rank (MetroForecast Rent Growth)

Oakland                                                     1 (6.5%)

Las Vegas                                                  2 (6.1%)

San Francisco                                           3 (5.7%)

Sacramento                                               4 (5.6%)

Seattle                                                         5 (5.4%)

San Jose                                                     6 (4.9%)

Riverside – San Bernardino                      7 (4.5%)

Dallas                                                          8 (4.4%)

Nashville                                                    8 (4.4%)

West Palm Beach                                       8 (4.4%)

Los Angeles                                              11 (4.3%)

San Diego                                                  11 (4.3%)

Fort Lauderdale                                       13 (4.2%)

Kayla Devon

Kayla Devon is an associate editor for Hanley Wood’s residential construction group. She covers business, products, and technology for both Builder and Multifamily Executive magazines. Find her on Twitter: @KaylaDevon_HW

4 KEY CHALLENGES IN COMMERCIAL REAL ESTATE FOR 2017

Written by Apartment Management Magazine on . Posted in Blog

Shared post from IREM | Saraf Ahmed, Bisnow

cre-2017

As 2016 rapidly comes to a close, Bisnow takes a look at the concerns and priorities for real estate firms in the year ahead. Bisnow sought out IREM president Michael T. Lanning, whose background includes SVP and market leader at Cushman & Wakefield in Kansas City, MO. The following are his four biggest challenges for the industry to tackle in 2017.

Talent Growth

To keep up the momentum, management teams must focus on hiring and securing new young talent to the field—particularly with those seeking to establish their careers in the real estate industry over the long term. Brokerages and real estate businesses can do their part by supporting young professionals and mentoring them through internships and in the early stages of their careers. One surefire way to ensure the nurturing of young talent is to reach out to students who may not have considered real estate as a possible career path; IREM’s university outreach program, for instance, seeks out students before they graduate college. Planting the seed early is key; real estate is a tough industry, and those hoping to enter it must come prepared.

Sustainability

As we slowly begin preparing for the challenges and rewards of 2017, more scrutiny is being placed on the reporting and results stemming from each real estate project. Helping project owners and developers outline and reach their sustainability goals may play an important role for a multitude of real estate firms, but should begin to take precedence.

Keeping Up With Tech Advancements

Most people rely on some form of smart tool as their primary form of communication, whether that’s a smartphone, tablet or laptop. Email, instant messaging, video conferencing and social media are now the primary avenues of immediate contact, and real estate firms need to recognize that—and readily adapt to it. “Real estate managers today have to be adaptable to changes in the workplace and in the properties they manage,” Michael says. “And that includes adopting new technologies, software and apps.” Whether it’s lease renewals, remote meeting capabilities, virtual building tours or online banking, real estate managers need to pay attention and adapt as more professionals begin incorporating these tools into their careers.

Economic Uncertainty

Although real estate is cyclical, every player in the industry from the small-town broker to the CEO of Cushman & Wakefield must be prepared to weather every storm. While it is impossible to predict and micromanage every aspect of the market and its effect on one’s business, it is essential to develop evolving tactics and strategies to protect it. This necessitates a wide range of skills, particularly in effectively managing. The only thing real estate brokers and managers can be inflexible on is flexibility, and they should expect to adjust their management focus on a yearly, monthly and even daily basis to satisfy clients, developers and owners.

Read more at: https://www.bisnow.com

New Earthquake Retrofit Standards Proposed for Santa Monica

Written by Apartment Management Magazine on . Posted in Blog

building-safety

The Building and Safety Department of Santa Monica has made recommendations to Update the Technical Standards of the City’s Seismic (Earthquake) Retrofit Provisions of the Municipal Code. The recommendations were presented to and approved by the Building and Fire Life Safety Commission and have been forwarded to the City Council. The Council has agendized this item for discussion on December 6, 2016. Sources in the City estimate that a formal ordinance will go to the Council in February, 2017. Happy New Year?

In the months prior to developing the new standards City Staff drove by and looked at all multi-family residential and commercial buildings in town and reviewed building records in order to compile an inventory of Potentially Seismically Vulnerable structures. In so doing they identified 2,813 Vulnerable Buildings. Of this total, 582 were considered retrofitted and will not require further work while 2,231 properties are either not retrofitted or will require further analysis. The inventory list is in draft form pending verification against building records. It is expected that the list will be eventually available on line for owners and others to consult.

The recommended standards for 2-story buildings are the same as the City of Los Angeles 2015 standards. However, 2-story buildings with a moment frame and a final permit will be deemed already complete. 3 and 4- Story, Soft Story Buildings with previous approved retrofit work will have to analyze the entire story above the weak story for lateral load behavior.

The recommendations do not deal with the question of the possible pass-thru of costs to tenants as this is a matter to be determined by the Rent Control Board following passage of the ordinance.

The new updated law will contain administrative provisions for compliance and verification of retrofit projects.
There will be time limits to complete requirements. The final time limits are in discussion. The general milestones for time limit compliance are propose to be:

  • Notification by the City of Santa Monica to the building owner;
  • City of Santa Monica to record notice with the County of Los Angeles Registrar/Recorder
  • Submission of a structural analysis of the building reporting either compliance or recommendation for retrofit;
  • Provide the City with confirmation that the “Tenant and Occupant Advisory” notice to the tenants has been provided to each tenant;
  • Application for a building permit and submission of retrofit plans;
  • Obtain a building permit;
  • Start of construction;
  • First building inspection;
  • Final building inspection and approval;
  • Release of recorded notice

Any notification to a building owner of a Potentially Seismically Vulnerable Building is appealable within 60 days from the date of the notice. Appeals will be heard by the Building and Fire Life Safety Commission. Appeals must be of a technical nature and cannot be related to financial hardship or non-technical matters.

It is expected that a City webpage will be available for more information.

Get your checkbook ready!

NEW RENT BOARD STORIES PART 1: THE WEST HOLLYWOOD TURTLE FOUNTAIN DECISION

Written by Apartment Management Magazine on . Posted in Blog

landlord-law_2

The type of rent control action which annoys property owners the most are rent decrease decisions. The Santa Monica Rent Board rendered approximately 4,890 of these decisions since April 1979 and West Hollywood issued approximately 4100 of them since June 1985.  The West Hollywood is actually worse because they began issuing decisions more than six years after Santa Monica did and because it has far fewer controlled rental units. West Hollywood Commissars love rent decrease decisions almost as much as they love Halloween, (which has actually been declared a holiday in that crazy city).

Santa Monica rent decrease decisions have been much less oppressive since the published decision was issued in Santa Monica Properties v. Santa Monica Rent Control Board (2012) 203 Cal.App.4th 751. In that case the Santa Monica Rent Board went too far by attempting to regulate the timers and the heat of the Jacuzzi and sauna at a luxury apartment building.  The Court of Appeal reversed the Board’s decision with an opinion which found that, “. . . the minimal reduction of adult recreational services of a type commonly found only in luxury housing does not justify decreasing rents without evidence that the rent thereby became excessive or the landlord thereby realized an unjust or unreasonable return on the investment in the property.”

The Santa Monica Properties decision reduced the severity of rent decrease decisions in Santa Monica, but unfortunately, West Hollywood Rent Stabilization Commissars refuses to recognize any adverse rent control decision unless their name is on it. Therefore, on April 26, 2016 they rendered the infamous “Turtle Fountain Decision” which they awarded monthly rent decreases for all tenants in a 36-unit apartment building based on the following; (1) reduced accent lighting in plant containers ($3 per unit); (2) vines on pool fence removed while painting the building ($8 per unit); (3) reduction of tables and chairs in the pool area ($6.50 per unit); (4) removal of hallway carpets areas ($20); and (5) non‑functioning turtle fountain by the pool ($3 per unit).

The most outrageous of the rent reduction above was the rent reduction granted for the removal of the turtle fountain. This was based on the following testimony;  “[Tenant] testified that there was a working turtle fountain at the  mid­ point of the pool, between the pool and fence. [Supporting witness] testified that the fountain, on the pool deck, made an arc of water into the pool.  Now, the turtle fountain is still connected, but it is rusted and not working, [Tenant] added.”  The rent decrease decision did not even attempt to say the rent reduction was based upon a “substantial reduction in housing services.”  Instead, it states that the reduction was based upon “a substantial decrease in the turtle fountain.”

The decision was quickly appealed to court and the judge issued a stay order was to prevent the tenants from reducing their rents based on the reduction of “housing services” described above.  And if you don’t believe it, go to West Hollywood Rent Stabilization Department and ask to read Rent Board Story D-4078. But don’t go there on Halloween because every City office is closed that day. That’s a good thing.

L. Jacobson  October 2016

LANDLORDS SUE RENT CONTROL BOARD FOR VIOLATION OF VACANCY DECONTROL LAW

Written by Apartment Management Magazine on . Posted in Blog

rent-control

On May 16 ACTION Apartment Association, a non-profit association of landlords, sued the Santa Monica Rent Control Board for a judicial decision as to whether the RCB’s prohibition of passing on actual water billings to tenants violates the Costa Hawkins Vacancy Decontrol Law.  The complaint alleges that the vast majority of apartment buildings in Santa Monica are master metered for water meaning that the Water Division bills the landlord for the water used by the tenants.  New buildings must be designed to allow separate metering and direct billing from the Water Division to the tenants but older buildings were not designed or constructed to allow this.  Despite this situation, the RCB has insisted that landlords must absorb the cost of water used by the tenants rather than allowing a sharing arrangement whereby each tenant pays an agreed share of the water bill.

The complaint alleges that the State vacancy decontrol law allows landlords to establish the initial rental rate by agreement with new tenants and that as part of the rental agreement the parties can agree that the tenant pay an agreed share of the water bill.  Prohibiting landlords to establish a water-pass-through agreement places landlords of these buildings at a competitive disadvantage with owners of newer buildings with separate metering and fosters excessive use of water by tenants.  This latter situation creates a special hardship for landlords because the water rates in Santa Monica are scheduled to increase by over 41% from 2014 to 2020 and the City has placed criminal and civil penalties on landlords if their tenants’ use of water causes the landlords’ buildings to exceed the mandatory curtailment requirements.

To accomplish its purpose, the RCB has created its own definition of “rent” to include water.  The lawsuit alleges that the term “rent” has an ancient and well recognized meaning.  Absent special circumstances, it is the cost of housing.  It includes the water pipes but not the water.  All other utilities, such as, gas, electric, telephone, and internet services, are separately billed and paid by tenants and not considered part of the rent; but in Santa Monica the water utility is treated differently for these older buildings.  This is yet another example of extreme rent control as practiced in Santa Monica.

A ruling in favor of the landlords in Santa Monica would be a binding precedent for all landlords in the State as the basis of the lawsuit is that the State enacted Costa Hawkins Act preempts any inconsistent municipal ordinances.

Donald Woods, Esq.

dwoods@donaldwoodslaw.com

PayRent.com