RSO Study Session #3: The Lightning Round

After this third City Council rent stabilization study session we can see more clearly what’s ahead for the rent stabilization ordinance. We have gained important protections since early 2017. And just last month Council eliminated no-just-cause eviction. Also landlords must now register their rental units. But on the menu is an exemption for some properties and a new ‘probationary’ tenancy proposal.

The November 20th rent stabilization afternoon study session was a bit of local-government sausage-making: councilmembers zipped through 35 rent stabilization policy decisions in two hours flat — a policy-making ‘lightning round’ that could dictate the arrangement for 7,700 city households in rental housing. On some issues the discussion wrapped in only three minutes!

The staff report provided 35 guiding questions and councilmembers took them question-by-question without hardly a reference to a table or a chart. Even the ten issue memos prepared by the city’s consultant went unused. And staffers largely sat on their hands even when the discussion suggested unintended consequences for tenants.

Susan Healy Keene at RSO study session 2018-11-20.
Community Development Department Director Susan Healy Keene, at right, teeing up the RSO ‘lightning round.’ RSO program director Helen Morales at left.

Mayor Gold kept the six public speakers to a strict 3-minute limit and allowed no comment on issues as they came up. Renters Alliance members Mark Elliot and Chuck Moffitt advocated for stronger tenant protections. Here we summarize here the Council consensus on each issue in the order it was discussed. Watch the meeting video for full details.


A new duplex exemption. Council will allow an exemption from the capped rent increase when the property owner is in residence. That means as many as 211 total households could face an unlimited annual rent increase if their landlord occupies the adjacent unit or decides to move in a member of the family. “The sky’s the limit” on the rent increase, Mayor Gold (pictured above) observed.

Under the proposed exemption, ‘owner’ would be defined broadly to include individuals, family trusts, and even partnerships. That kind of exemption is a real incentive for owner-occupancy. But it comes with a cost: in a duplex that today is rented to two households, one could be displaced when the owner moves in and the other would lose RSO protections due to owner-occupancy.

Council was careful to say that eviction protections would stay in place for the exempted remaining duplex tenant. So they couldn’t be evicted. (But that is an academic point because an unlimited rent increase is tantamount to eviction without a relocation fee if the owner is so inclined to raise the rent that much.) And Council did grant an exception from exemption for the very few Chapter 5 tenants resident who may rent in a duplex today. (There are few Chapter 5 households left.)

Use by landlords. Council will allow a significant relaxation on current conditions should a landlord wants to repossess a rental unit for his own use. And they can do that: section 4–6–6 (H) of the Beverly Hills Municipal Code allows the landlord to terminate a tenant “if the landlord seeks in good faith to recover such possession for use and occupancy by the landlord or the landlord’s spouse, children, or parents…”

The new policy would expand the definition of ’relative’ to four generations, up from three — a change sought by Councilmember Les Friedman. Under this provision a tenant could be displaced should the landlord move-in his parents, his kids or his grandchildren. That expansion to four generations also has implications for duplex tenants because it increases the chance that owner-occupation could trigger an exemption under the proposed duplex exemption.

Lester Friedman at RSO study session 2018-11-2
Councilmember Lester Friedman argues for an expanded definition of ‘owner’ for owner-occupancy.

What about the relocation fee? The current policy requires the landlord to pay a relocation fee. The new proposal, though, would require a landlord to pay the displaced tenant only 10% of the fee for each year of the tenant’s time in the unit. Because only four-in-ten tenancies last ten years or more, the tweak to the fee requirement would reduce the fee obligation for many owners. For example, about one-in-ten households would depart with less than a third of the fee each would be entitled to today — a very significant rollback.

Probationary tenancies. Council has proposed that the first year of any new tenancy is a “trial” year: the landlord could choose to discontinue the tenancy at the conclusion of the first lease year. He need give the tenant six months notice and there is no relocation fee obligation at all.

That means that new tenants do not enjoy protection from no-just-cause eviction. Indeed it is a rollback of the city’s current policy: today the tenant must be allowed to transition to a month-to-month tenancy after the lease expires.

How would this apply? Let’s take as an example a tenant midway though her first year in the apartment. The tenant is notified that she must find a new place to live come the end of the lease. Or this example: nine months into her lease the landlord informs her that he’s not continuing her tenancy. Because six-month notice is required, she would be obligated to leave her apartment three months after the lease expires (the three remaining months on her lease plus the three months that add up to a total of six months notice).

Again, there is no relocation fee although the tenant has incurred significant costs to move in and will certainly incur costs to find replacement housing. Notably the probationary tenancy proposal was not even included on the agenda for discussion!

Relocation fee amounts. The fee aspect of the current policy remains unchanged: after the lease expires and the tenancy goes month-to-month, relocation fees would thereafter apply. Moreover, relocation fees will apply whenever a tenancy is involuntarily terminated. For-cause terminations, of course, such as for nonpayment of rent, or for termination under the city’s new ’disruptive’ tenant standard, would not obligate a fee.

The fee schedule remains unchanged: it still tops out at the 2-bedroom tier. Households looking for replacement for their a 3-bedroom or 4-bedroom apartment will find the 2-bedroom fee falls far short. And the supplement for an eligible tenant (minor, senior, disabled) is still a flat $2,000 no matter how many children or seniors are resident. The supplement does not increase with inflation either. (Council discussed none of it.)

Rent banking. Council took this proposal off the table because it was too complex for the potential benefit to landlords. The principle of rent banking is that some part of an allowed rent increase which was not levied at the time could be brought forward to a succeeding year to stack on top of the increase then allowed in that latter year.

Council was concerned with rent ‘sticker shock’ should banked increments stack up. But it was simply to complicated to really explain at the dais and (as we argued) a real bureaucratic headache should staff have to field tenant calls when an unexpectedly-high rent increase appears.

Habitability standards and inspections. Council agreed to establish a new Beverly Hills-specific ‘habitability’ standard. Today the state’s requires a ‘tenantable’ unit to have heat, hot water, weather-sealed windows, and door locks (etc.). A higher standard would be a significant step forward. However Council punted the development of any new standard to a later time and perhaps to the new rent commission. (More on that below.)

Council did not agree to a regular inspection program, however, so Code Enforcement will continue to address tenant complaints just like the current system. That keeps a tenant in the unfortunate position of reporting her landlord for habitability violations and still vulnerable to retaliation. A mandatory inspection program would have solved the problem.

Council did agree to a random inspection program according to some protocol as yet unidentified. We will have to wait to see how these random inspections will be undertaken. In a significant disappointment, Council choose not to situate the inspections in the rent stabilization program but instead to keep it with Code Enforcement. (No doubt the landlords are happy about that outcome!)

Qualified status. Council agreed to provide a modest cash supplement to tenants who will qualify for assistance based on both household income and the cost of rent. (Together these constitute what is called the ‘rent burden,’ or the rent relative to household earning.) The principle behind the ‘qualified tenant’ subsidy was expressed by councilmember Wunderlich: the city wants to help those who need it, but the rest of us would shoulder a higher allowed annual rent increase.

As proposed, this ‘qualified subset’ of tenants would receive the cash equivalent of 1% of the maximum allowed annual increase. So if the allowed increase is 4.1% then the subsidy would effectively reduce it to 3.1% for qualified tenants. The details are yet to be determined, but the subsidy could go to lower-income tenants OR those who are rent burdened by unit-size tiers (like number of bedrooms).

Questions remain: should each household be guaranteed the subsidy? Should assistance be reduced if more tenants apply than was expected? Is the budgeted $500k even the right size pot of money?

Luxury exemption. Council decided to exempt some households from rent stabilization protections if the rent for their unit rises above some as-yet-determined threshold. Here rent cost is a proxy for ‘luxury.’ The threshold (wherever it is set) would vary by unit size. Councilmember Wunderlich suggested that any unit that rents for more than 1.75 times the median rent for the size category could be exempted. Using current registry data for actual median rents, the ‘luxury’ threshold in each unit-size tier would be:

  • Studio: $2,527
  • 1-Bedroom: $3,325
  • 2-Bedroom: $4,725
  • 3-Bedroom $6,563

Households paying a higher rent in each tier would be vulnerable to losing their cap on the allowed annual rent increase. How high could the rent be raised for these families? “The sky’s the limit,” Mayor Gold said. Based on registry data we estimate that 341 families (about 5% of all renting households) would no longer have the benefit of the current 4.1% cap if the threshold were fixed at 1.75 x median rent (as was proposed). As for whether exempted households would lose other RSO protections, we don’t know because Council spent exactly two-and-a-half minutes discussing it.

Seismic retrofit pass-through cost. The key concern is seismic retrofit. If 50% of the retrofit costs were passed-through to affected tenants over the proposed ten year period it would mean $57 more per month atop the base rent. That is in addition to the allowed annual increase and other passed-through costs (like a RSO program cost split). That magnitude of pass-through would hit residents of mid-sized properties (between 5 and 10 units) hardest given the somewhat lower rents in those properties.

No councilmember questioned whether the seismic cost should be passed-through to tenants, so it looks likely. West Hollywood, in contrast, recently put the entirety of the cost on the landlord. That city also caps the annual rent increases at only two-thirds the rate allowed by Beverly Hills — a sweeter deal.

Another seismic pass-through question remains: why should a capital expenditure depreciated over 20+ years be covered by tenants over only ten years? Council didn’t address that question because only thirteen minutes were spent on the whole issue.

Other pass throughs. Council quickly found consensus on pass-throughs for Chapter 6 tenants:

  • Some percentage of seismic retrofit over some time period;
  • Half the rent stabilization program cost;
  • Half the inspection program cost;
  • Half the water fee.

As for how pass-throughs will affect the few remaining Chapter 5 tenants, there was no discussion so perhaps it will remain unchanged.

Maximum allowable rent increase. You may have expected that this topic would eat up most of the study session. Yet Council took exactly three minutes to decide to maintain the allowable rent increase at 100% of CPI (consumer price index) as it is now. (This past July the allowed increase ticked up to 4.1% with the rise in consumer prices.)

Council also established a 3.5% to 7.5% range in which the allowed annual rent increase can float. When inflation carries the allowed increase higher, as it has recently, the allowed increase can’t exceed the 7.5% ceiling. By the same token, once consumer prices trend lower, the new floor of 3.5% will guarantee that landlords can raise the rent at that rate, which could be a couple of percentage points above the change in consumer prices in a low-inflation era. The 3.5% floor benefits the landlords: in fact it is a half-percentage higher than the rent increase allowed as recently as June!

This was seat-of-the-pants horse-trading. Some councilmembers wanted 3% to 7% (Bosse and Mirisch) and others 4% to 8% (Wunderlich and Gold). Councilmember Friedman recalled Solomon and suggested 3.5% to 7.5%. Done!

Protection from eviction during the school year. Council banned no-just-cause termination in October but there are other instances when a tenancy can be terminated by law. For example, state law allows a tenancy to be terminated for condominium conversion or redevelopment or even if the landlord wants to stop renting his property. Such terminations portend disruption for students who may have to move out of our school district.

This school-year provision would ensure that no household with a child enrolled in a ‘Beverly Hills area’ school is be evicted before the end of the school year. Council was divided on whether to apply it to teachers but in the end BHUSD-employed teachers got the protection too. So a notice of termination issued during the school year would not be effective until August, Council said, but that would not apply to any household terminated for any ‘at-fault’ reason (like nonpayment or eviction for being ‘disruptive’).

Rent commission. Tenants had proposed a tenant-landlord board to mediate disputes and make policy recommendations to Council. Landlords largely agreed. The board was proposed to include both tenants and landlords with a city official perhaps to preside as Chair.

Council also charged the new board with adjudicating ‘disruptive’ tenant terminations (a new provision in the RSO) and also tasked the board with certain appeals — the latter implying a quasi-judicial responsibility, which recommended a commission-like structure (5-members say).

However in a big step back, the new body is no longer predominantly tenants and landlords. The new rent commission will be a majority of three homeowners (!) with a single seat each for a tenant and a landlord.

Take-Away

The top-line news is the agreement on a new rent commission. We haven’t had one in this city for 25 years, and that represents a real commitment to the rent stabilization ordinance and program. However putting homeowners in the majority undermines the purpose and the intent of the body, in our view.

The missed opportunity here is not tasking that new commission with reviewing for-cause terminations as we suggested to Council today. A tenant can be served with a notice to quit for a correctable action, in some cases, or served with a 3-day notice to correct-or-quit for a condition long known to the landlord — like keeping a pet or an additional occupant who is a partner. We hear about retaliatory actions using those conditions as pretexts. If the tenant had the opportunity to bring the termination notice to the commission for review, we might avoid some unnecessary evictions.

The next top-line news item is the probationary tenancy. That’s simply a return to no-just-cause for new tenants without a relocation fee.

Who stood up for us? Councilmember Lili Bosse. When other councilmembers were content to let relocation fees go, she made a stand and insisted on a relocation fee for a relative move-in. That aspect of the discussion stretched to nearly 30 minutes! An excerpt:

If I owned a building and I want to put my mother or my children in the building, I should be able to do that. But I also feel that there is somebody who lives in that apartment building who’s life is going to change because we’re essentially evicting them… [and] I don’t think it should be free… What happens if the owner of the building wants to put their kid there or their mother there? They have no protection and that is what I’m uncomfortable with. — Councilmember Lili Bosse

Councilmember John Mirsich, however, though supportive of tenants (most significantly by supporting an end to no-just-cause eviction), was inclined to offer less when it came to fees. In the end Council compromised: the fee would be prorated at 10% for each each year of tenancy. That is less than most every rent control city mandates for an involuntary termination. Councilmember Mirisch also suggested the probationary tenancy.

Councilmembers Lester Friedman and Bob Wunderlich each staked out middle-of-the-road positions on most issues. Mayor Julian Gold, however, is usually the landlords’ ally — or at least the landlord-inspired conscience of the Council — and in this study session he tried to limit protections where he could.

Mayor Gold pushed the luxury exemption while pushing back on Wunderlich’s proposal to provide lower-income tenants with a rent subsidy to cushion the annual rent increase. With four votes in favor of the ‘qualified tenant’ subsidy, though, he tepidly agreed. “We’ll see what it looks like,” Gold said.

The draft rent stabilization ordinance will next come back to City Council on December 18th for what is likely to be a final approval. If you have an opinion about any of these proposed changes please give City Council a shout by email at MayorandCityCouncil@beverlyhills.org or by phone at (310) 285-1013.