Rent Stabilization Update: What’s Next

Months have passed without a single word from Beverly Hills officials about rent stabilization reform. No press release, newspaper ad, or website update keeps us informed about the process even though the current policy is only temporary and change will come. Officials let weeks go by without a reply when asked. Even a public records request can be met with an incomplete response. And don’t get me started about the programs that must be managed better in order to properly serve tenants.

Why the silent treatment? The city’s reticence is troubling. We have behind us a year of policy talk but we have no new program or practice to better help tenants who face landlord harassment, unlawful unit entry, excessive rent increases and more. We may expect City Hall to be a bulwark against unscrupulous conduct, but the reality is that aside from the new 3% cap tenants in Beverly Hills are no better off than we were one year ago.*

So what’s next in this process? Community Development Director Susan Healy Keene provided me with a brief, unplanned and impromptu update last week.

Rental unit registration is nearly complete. Owners of 98% of rental properties have substantially complied with the registration requirements. That’s up from about 80% in December. Today only 11 properties (about 50 units) are not registered. Having failed in their lawsuit to invalidate the registry, recalcitrant landlords then faced penalties for non-registration. As I suggested back in December, is seems the smaller properties – mostly duplexes – are more likely to be not registered.

Registered rental properties number 1,073 (7,507 housing units) according to the Courier’s recent report. are registered. That is a sharp drop from the 1,131 rental properties the city tallied in last April’s Rental Housing Initial Data Survey. That survey counted 8,662 rental housing units based on various city data (likely utility bills). That is a whopping difference.

Rents are now ‘certified’ (established as the lawful rent) for more than 99% of rental units. In most instances tenants and landlords were able to agree on the rent charged. In other cases a discrepancy was resolved administratively. In just three cases (out of more than seven thousand) was a discrepancy unresolved, and in those instances the dispute went to a hearing officer. Why does this matter? The certified rent is the baseline from which future increases are calculated. It is important that the figure be accurate and reflect only lawful past rent increases.

Our rent stabilization program still has no dedicated manager. City Council in September agreed to hire a rent stabilization executive director. That is important because¬†responsibilities are split between Community Development Director Healy Keene, Assistant Director of Community Development Raj Patel, and Community Preservation (aka code enforcement) Nestor Otazu. Without an official in charge accountability is diffuse; nobody can be held responsible for systemic failures. Yet the position remains empty. Interviews are commencing, we’re told.

The timeline for completing a final rent stabilization policy will stretch to nearly two years. I expected the policy process to wrap last fall when the process kicked-off a year ago. How mistaken I was! The timeline has been pushed back because the consultant hired to conduct an economic study now anticipates it will be delivered in August (not April as expected). That pegs City Council action sometime in September – and that is a best-case scenario. While the 3% annual cap and relocation fees do remain in effect, there has been no progress on new tenant protections. For example, no-just-cause eviction is still allowed.*

The next step in the policy process will likely be another tenant-landlord facilitated dialogue. City Council had expressed interest in again hiring Professor Sukhsimranjit Singh from Pepperdine’s law school and he apparently he will have another chance at bat this summer when he presents the consultant’s preliminary findings to tenants and landlords. We don’t know what that process will look like, but expect a return of at least one facilitated dialogue.

Officials say they want to reach out to tenants and landlords. Finally some interest from our rent stabilization officials to talk to tenants about the process! Indeed last such effort was a¬† ‘workshop’ to introduce changes to the rent stabilization law – and that was nearly a year ago. Tenants have many questions about how housing laws generally affect them, and we want to know what the city can – and cannot – do to protect our rights. Outreach and education can’t come too soon. Still, I’ll believe it when I see it: my many recommendations for additions (and even corrections) to the city’s rent stabilization webpages have gone unheeded.

My View on These Latest Developments

On the bright side, I am happy to finally hear some news about the rent stabilization program. By the city’s measure, progress is good on the registration of rental properties. That is the first step toward an effective rent stabilization program. I’m also happy that city staff is looking ahead to a return engagement for Professor Singh. Though tenants and landlords could not find common ground on many issues, as suggested by his final report, talking is always good.

However there is ample cause for concern. Momentum slowed as rent stabilization reform has dragged on. Now we are looking at a fall wrap-up on the allowed rent increase percentage and the relocation fees. But will City Council entertain an end to no-just-cause evictions? Will the city embrace new habitability standards or touch on any of the many other tenants’ concerns? We have model rent stabilization ordinances in other cities and we could draw from them what would work for Beverly Hills. Will we?

More worrisome, the city’s rental unit registry numbers simply don’t add up. The Courier reported the city has registered 1,073 properties comprising 7,507 rental units. Toss-in the 11 properties not yet registered (another 50 units) and the totals rise to 1,084 properties and 7,557 units. But that is far short of the number of rental units counted by the city’s survey in April. In fact the current registrations fall short of the Rental Housing Initial Data Survey totals by 46 properties and 777 units. Which numbers are correct?

I did the math by subtracting from the survey’s totals 328 units in 12 rental buildings that were built after 1995. (Under the state’s Costa-Hawkins law, localities can’t extend rent controls to properties that were issued a certificate of occupancy after 1995. That’s why we need to repeal it!) That left 1,119 properties and 8,334 units that could be subject to registration according to the city’s initial survey.

But the number of properties either registered, or required to be registered, falls about 10% short of the total rental units according to the Rental Housing Initial Data Survey. Was the survey that far off-the-mark, or is the city not capturing rental units that should be registered and subject to rent stabilization? Whatever it may be, I suspect that our city has not conducted a very careful count of rental units.

Finding the correct number of rental units should be straightforward: inventory all rental units permitted prior to 1995 and subtract units subsequently razed or otherwise lawfully withdrawn from the rental housing market under the Ellis Act. The Ellis act stipulates conditions for withdrawal and imposes strict notification requirements. The city should have tracked all instances when a rental unit was withdrawn under the Ellis Act.

However rental properties that are standing empty or perhaps undergoing extended renovation would not be formally withdrawn from the market and must be counted. Likewise, properties not registered because they are used as full-time AirBnB short term rentals must be counted. Ditto rental units already unlawfully combined to make a larger unit: each must be counted separately and then returned to the rental market. The city cannot let its decades of lousy record-keeping serve as an inaccurate baseline from which we build our rent stabilization program.

There is one more category of rent-stabilized rental property that I’m sure has not been counted: condominium buildings not exempted from rent stabilization under the state’s Costa-Hawkins law. Not withstanding the conventional wisdom that condominiums are not subject for rent stabilization, the legal aspect is convoluted (see my memo to the city) and there may be properties that are not exempt and thus should be registered. I hope the city attorney will offer an opinion.

I don’t think the city will have done its due diligence until it compares the total permitted multifamily units (minus those formally withdrawn from the market) with the smaller universe of properties identified by staff as register-eligible. Keep in mind that rent-stabilized cities are very careful not to let even a single unit subject to rent control slip beyond regulation.

The consequence for not doing the due diligence? We will embark on a rent stabilization program based on a faulty and inaccurate registry baseline.

And last is the issue of certified rents. The certified rent for any unit is the maximum allowable rent (MAR) upon which all future allowed rent increases and surcharges may be based. It is critical that the MAR be accurate. Not only that your rent payment is the same number as reported by your landlord; but that is be an historically accurate accrual of lawful rent increases since you began your tenancy.

I tried to make this point in an earlier email blast when rent appeals letters went out last summer: a rent that was unlawfully increased years ago only compounds the aggregated unlawful increase year-upon-year. This is especially true for longtime tenancies. Imagine an unlawfully large increase in year two: fast forward two decades and that extra-large incremental increase has compounded every year.

Given the very small number of rent appeals I will bet that few – perhaps a tenth of one percent of tenants – dug back though rent receipts to ensure they weren’t increased unlawfully. City Hall should have informed tenants of the implications of simply verifying their current paid rent against the landlord’s reported rent (effectively overlooking what may be many years of excessive rent payments). But the city provided tenants with no such guidance. Shame!

Here’s a tip: you have have already passed on filing an appeal, and now it’s too late. But it is not too late to take a very close look at any utility assessment or other pass-through costs to ensure that they are lawfully imposed. The city has very strict guidelines about how shared costs (like utilities, and capital improvements for Chapter 5 tenants) are passed-through. Does that mean that the city will alert you to any impropriety? Nope! It’s up to tenants ourselves to protect our rights.

* No better off than a year ago and possibly worse off. Here’s a fun fact: in December Vice-Mayor Gold suggested that landlords be rebated for any rent forgone since January of 2017 if the final allowed annual rent increase percentage is ultimately higher than the 3% established that month. Just imagine digging into your pocket for a couple of years’s worth of rent rebates and cutting another check to your landlord.

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