Facilitated Dialogue #5 Recap

City of Beverly Hills last spring implemented an interim rent stabilization policy that capped at 3% annual allowable rent increases, mandated for all tenants relocation fees, and created a rental unit registry. Then Council tossed it to the community to hug-it-out over the key policy details. This latest in the series of sessions focused on these three key issues: tenant-landlord communication; habitability standards for individual units; and the allowed annual rent increase. This is my recap of Dialogue #5.

Professor SinghFacilitator Sukhsimranjit Singh opened dialogue #5 by identifying rent stabilization as a three-party arrangement in which property owners, tenants and the city needed to improve communication. “We begin with relationships,” he said, and asked what tenants were proposing concerning three key issues: the creation of a representative committee to hear tenants’ and property owners’ complaints; the creation of habitability standards that exceed what state law specifies as ‘tenantable’; and the allowed annual change in rent.

However Dialogue #5 represented a departure from the four earlier dialogue sessions. In dialogue #1 and dialogue #2 facilitator Sukhsimranjit Singh asked tenants and property owners to identify key provisions of the rent stabilization law that we wanted to address. In dialogue #3 he tasked us with making policy proposals “reasonable in nature” and gained agreement that smaller committees comprised of representatives from each side could together take the conversation forward. Dialogue #4 formalized those committees and set us to meet in this session.

This fifth dialogue, held on Sunday, July 30th, brought the tenant and property-owner committees together in a table dialogue. And your tenant committee came prepared with proposals.

Tenant-Landlord Representative Committee

Tenant committee Chuck Moffitt read our first recommendation – a representative committee – from a prepared position statement:

The Committee strongly endorses the creation of a Landlord/Tenant Relations Commission, whose purposes shall be to serve as the first avenue of dispute resolution on all matters between landlords and tenants. From time to time, the commission shall also make recommendations to the City Council on landlord-tenant relations and other housing related matters.

Committee member David Berke said that tenants have expressed concerns with unit habitability, which deteriorates with under-investment in unit maintenance. But tenants feared retaliation, he added, speaking of a canvass of tenants, for making a complaint because no-just-cause tenancy termination could result in eviction.

One property owner challenged the assertion. “You’ve canvassed tenants? How many?” Berke said perhaps 50-60 had expressed such misgivings. (City staff confirm that reporting such issues represents an ongoing challenge.) However another property owner thought different. “I think it’s a great idea — John Mirisch has spoken of it.”

Regarding purpose, Berke said tenants needed a first line of defense when facing eviction (for example). Could such a body head off such a dispute before the courthouse? Could it be binding? Such questions aside, tenant and property owner representatives agreed in the value of a representative body to hear both sides of a dispute and perhaps also make policy recommendations to the city.

Facilitator Singh said, “It can be your voice to the city – you fourteen [committee representatives] can create it.”

[Note: the city’s Human Relations Commission two years was tasked with hearing disputes in a non-binding ‘tenant-landlord forum.’ It has also made recommendations concerning rent stabilization policy. While some of those recommendations did inform the City Council’s January urgency ordinance, the commission is not purposed to specifically represent both tenant and property owner interests.]

Rental Unit Registry

The representative body was an easy ask compared to the rental unit registry. Some property owners were adamantly opposed to the registry in general and providing data to the city specifically. “We’re required to disclose private and confidential business information which we’re told will be a public record,” one said. “We don’t see any need for the registry or for disclosure.” As to the potential for the registry (which would track tenancies in a database) to uncover instances when a tenant’s rent was unlawfully increased, the same property owner suggested there was no need. “Who has the incentive to complain? The tenant. They can report it, they can go to court.”

Tenant committee member Chuck Moffitt countered that there is a legitimate need for some of the information collected by the registry. He argued that property owners know everything about a tenant’s finances. “You ask us about our financial status but we don’t get any of that information from you.” Other tenants agreed: we have no way to know what kind of situation that we are waking into, or much about the property owner in which we would invest our home.

Moffitt read the tenants’ position statement:

The Committee strongly endorses the Registry, which is required to properly determine the property owners adherence to laws and regulations. We believe it is imperative that the registry database also contain information about the landlord’s performance: information concerning complaints against the landlord for violation of habitability standards, code violations, lawsuits filed against him, all of which should be a matter of public record and that enable a prospective tenant to make an informed choice whether or not to do business with that landlord.

A property owner addressed the issue of buyer-beware by noting that City of LA has a website that provides property information such as inspections and code violations “with just two or three clicks.” He said, “Our city can make it more robust. Just type in the address.”

Moffitt asked what info property owners didn’t want to provide. The property owner that spoke forcefully against disclosure replied that some tax information shouldn’t be public. [Presumably referring to the city’s business tax on gross receipts.] “And the rent paid, where tenant #1 knows tenant #2’s rent. Tenants don’t want to make that public and no landlord should have to disclose an individual rent.” He continued, “As for evictions and lawsuits? All of that is in the public domain. If a tenant doesn’t retrieve it…” The issue was “bureaucracy,” he said: “it should be on the tenant” instead of the city analyzing the information. “He should take the initiative.”

Tenant Alma Ordaz replied, “We’ve heard it from both sides: ‘We don’t have enough data.’ A registry is the natural and effective repository. The property owner knows how I spend my money, but I go in knowing little and I need to be an informed consumer.” A property owner said that the business license already reflects a range of rents. “That is not enough data to analyze,” Alma said.

Another property owner suggested that estoppel agreements in certain cases (such as involuntary terminations) could document rents when someone was evicted. A second said a more limited registry could only register units when someone was evicted to identify “unscrupulous landlords.” He added, “We agree with transparency.”

Yet a different property owner turned that around. “When somebody leaves with no-cause it is reported. But as a landlord I’d like to know if somebody has been serially evicted with [no-just-cause] 60-day notice,” he said. “Or arrested for disturbances.” [To which a tenant committee member called the blacklisting of tenants “absurd” and noted there is no comparable blacklist for property owners in any case.]

As for reporting individual amounts, the property owner added that if after a voluntary vacancy he rented to an oligarch he may not want him to know the prior tenant’s rent.

Facilitator Singh summarized, “The tenants’ concern, you feel like you want information on the landlords: finance, performance. As for rent data, a range avoids reporting the exact amounts. The landlords ask, What is the city’s purpose? At what cost and who pays? And, you say, disclosure to tenants could be done by creating a website.”

A property owner added that if the city wants housing data we have macro data given annually. “You have aggregate rents already” [evidently referring to the business license].” Moffitt countered that the tenant’s primary concern is that “we’re not diving into a hole” (leading to under-maintenance, say). Tenant David Burke said the registry was about “verifiability and accountability,” to which a property owner replied, “It’s the free market and you are consumers,” adding she carefully assessed a property before she took a lease.

One property owner took issue with the way the city process has been conducted. “We should have taken the time to gather information but this was not done prior to the ordinance.”

Facilitator Singh summarized. “I’m hearing arguments in favor of the registry by tenants, or landlords say it could be a mandatory disclosure from a landlord giving 60-day notice. You are making a proposal to reevaluate the registry. A property owner added, “For us it’s about privacy, security, cost… but we do want additional information on evictions and habitability complaints.”

Habitability standards

“We have a mutual interest in maintaining and improving life in Beverly Hills,” Berke said. “We are both part of the same problems and solutions. The T-L committee might be our best idea.” Tenant Gwen Owens added, “But people don’t want to complain.”

Moffitt reads the tenants’ committee position:

The interest of good landlords and tenants in maintaining their property and homes in optimum condition are entirely harmonious. Accordingly, the Committee concluded that habitability standards beyond the minimum required by the State of California should be included in the Ordinance, or elsewhere in the municipal code. Such standards, present in the codes of other cities, include minimum time standards for the replacement of carpets and window covering, and the frequency of required interior and exterior painting. We believe that good landlords cannot object to such standards and that a simple yearly sign off by the tenant that such standards are being met creates no cost or administrative burden. Landlords who fail to meet minimum habitability standards should not be permitted any rent increase until they do so. If they fail to meet the standards within a specified period, they should be subject to fines, as is the case in the City of Los Angeles and elsewhere.

“Who decides what unit meets that criteria?” a property owner asked. “The tenant can say, ‘Mine doesn’t meet standards and I’m not paying the increase.’ He-said, she-said.”

Facilitator Singh: “Tenants – a clear guideline. What is habitability?

Tenant committee member Michael Schulman noted that other cities have timelines for unit fixture replacement. Moffitt likened leasing a unit to buying a car: it comes with a warranty. “Give us the product you gave us originally” by maintaining it. “There is a standard for delivery to the tenants” in a replacement schedule, he said. Tenant Owens clarified, “Annual increases – there has to be maintenance. We expect it.”

Tenant committee member Ramin Zar added, “You want to make sure your investment in the unit is OK and so do we.”

Someone suggested that property owners would be required to replace fixtures but tenants could sign-off that they didn’t need them replaced — even if it was longer than the replacement interval. “I’m ok with [replacement] time and [tenant] sign-off,” a property owner said.

Agreement followed.

A property owner noted the state standards were basically health & safety. “Tenants want to propose a revised standard and a procedure to enact it…and I’m not opposed.” Another nodded. “”When my tenant cares about the unit, I care more about the unit. I think [a revised habitability standard] is a good idea.” Tenant committee member Schulman suggested a standardized lease could formalize that process.

Facilitator Singh pounced. “It’s a win-win. There should be minimum standards in practice. Let’s merge two interests: decide the rent change and make it co-dependent on [meeting] habitability standards. Make a proposal to me.”

Rent Change

Facilitator Singh: “This is an issue that is at heart several things: economics, underlying values, but the numbers are important. Landlords are up to 7%.”

Moffitt introduced the tenants position:

The Committee believes that the yearly permissible rental increase under the Ordinance, currently 3%, be instead determined by the Los Angeles Region Consumer Price Index. There is no rational defense of a 3% minimum rate adjustment. Nearly all commercial leases use CPI as both a floor and cap for rents. The CPI is used by other cities for such determinations, and the CPI is also used elsewhere in the ordinance for determining the acceptable rate of increase in the amount of relocation fees. The Ordinance should be consistent.

Moffitt added, “Now there is a permissible 3% regardless of condition. You [property owners] want the ability to argue for a higher increase.” Returning to the committee position statement:

The Committee believes that no rent adjustment should be approved unless the landlord maintains the rental property in acceptable condition. (See Habitability Standards below.) That is to say, the yearly rent adjustment should not be automatic.

The Committee believes that the ordinance does not properly distinguish improvements from maintenance, and that only the cost of improvements, not maintenance, should be passed through to tenants. For example, the Ordinance classifies such items as replacement flooring and roofing as “improvements” when they merely return a property to a prior state. The Ordinance, like rent stabilization ordinances in other cities, should make it clear that replacement of base amenities does not constitute improvement.

The Committee believes that permissible capital improvement pass throughs should be 40% of the value of the capital improvement, and that the permissible rent increase relative to those improvements be based on the objective standard of Internal Revenue Service amortization schedules.In the spirit of cooperation with property owners, and to minimize the aggravation that construction poses to tenants, the Committee believes that landlords who undertake construction projects on the properties subject to the ordinance should be given preferential, expedited treatment by the City in the processing of their building and other permits.

A property owner spoke up. “We give you a counter-proposal: the cap should be 7% plus pass-throughs and rent-banking. From 10% to 3% is a 70% reduction” in allowed increase. “We are divorcing CPI from this,” he added, “because housing is an investment not a consumable.” [CPI is a consumer price index and there was some discussion about how it might reflect the cost of providing housing].

One tenant said that max increases were more common than acknowledged. “It’s why we need more data but it was never collected and the Council wasn’t interested,” replied the property owner. [He had earlier argued strongly against collecting rent data, however.]

A property owner added that his increases were 2%-3%. “Knowing I had the potential of 10% we put on a new roof and self-funded a major renovation – all not passed through. With 3% I’d have no choice.”

Another property owner was a recent purchaser and expected to be underwater with only a 3% allowed increase. But one property owner demurred. “I don’t see the need for tenants to bring a buyer into a profit-making situation immediately. You paid a certain multiple thinking you’d get it back with big increases.”

He continued, “And the rent adjustment process won’t work well either. One hearing officer can’t [adjudicate] a city of 8,000 tenants. But there are other ways: a buyout of your tenant – ‘Take thirty grand’ [for voluntary departure]. We could have put more teeth into the old ordinance and hired more compliance officers.”

Facilitator Singh summarized. “Landlords: 7% not CPI, pass-throughs for capital improvements [not maintenance] and rent-banking to carry over your unused increases year to year.” He said, “You both have the power. ‘We reached this number.’ Or the Council can say [what it should be].”

After a break, one property owner offered a proposal. “7% annual tied to habitability standards, and we will maintain it. We’ll hold it to a standard but we need to recoup our investment. No pass-throughs besides seismic retrofit [estimated to affect 1500 units in 300 buildings]. We’re happy with 7%. And we don’t need the rent-banking.”

Another argued that CPI was “artificially low” and had “not much to do with real estate.” He added, “Our maintenance costs rise between 6-8%.” He was asked how he recouped that if he imposed modest increases even with the 10% cap. “When the units turn over we return it to market rent.”

Facilitator Singh: “Landlords are at 7%, no pass-throughs and no-rent banking. You’re saying indexed to CPI. Is that the way you want to present it to the city? Are you committed to CPI?”

Tenants agreed among ourselves: an allowed annual increase should be contingent on maintenance and based on a concrete measure of economic conditions rather than an arbitrary number. Tenants acknowledged that property owners had concerns about costs and perhaps a bump-up from CPI (the ‘plus’) could be warranted if expenses are demonstrably higher in Beverly Hills compared to doing business elsewhere.

In closing, Facilitator Singh summarized by enumerating the progress made.

  • Tenant-landlord committee: equal representation plus an adjudicator or neutral party that would collectively resolve disputes (prior to the courthouse); provide a voice to the city; and make policy & program recommendations.
  • Registry: The city’s goal is not entirely clear, so there is concern for the safety and security of the information by landlords (primarily) while tenants expressed concern for the habitability aspect of the registry (as well as property owner accountability).
  • Habitability: “Harmonious interests” prevailed in establishing higher standards than state law with any increase (above zero) contingent to meeting such standards.
  • Rent change: This was left undecided as tenants sought a CPI-indexed cap and property owners stood on 7%.

The next facilitated dialogue (#6) will take place Sunday, August 13, 2017 from 2:00 p.m. to 6:00 p.m. at the Roxbury Park Community Center. On the table then: continued discussion about the allowable rent increase as well as relocation fees and involuntary terminations. Save the date!

Professor Singh

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