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Supervisors work to stop SF landlords from passing management costs on to tenants

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Amina Rubio gestures toward the scaffolding outside the bathroom window in her Powell Street apartment. (Kevin N. Hume/S.F. Examiner)

San Francisco supervisors are working to close a loophole in rental law that allows landlords to pass on tax charges and debt incurred when purchasing buildings to their tenants.

The City’s rent ordinance protects rent-controlled tenants from exorbitant rent hikes by only allowing for an annual increase of 2.2 percent, but it also allows landlords to petition The City’s Rent Board to increase tenants’ rents above that limit if the cost of operating the building exceeds this amount.

With an increase of such petitions in recent years, tenant rights groups say they are seeing a pattern of abuse by landlords, oftentimes large real estate companies, who knowingly purchase rent-controlled buildings in need of repair and then pass a slew of costs — from property management expenses to the payments on loans taken out to finance the property — on to their tenants.

SEE RELATED: SF tenant advocates aim to eliminate landlord incentives that trigger evictions

Deepa Varma, executive director of the San Francisco Tenants Union, said “pass-throughs” are supposed to make things fairer for landlords whose costs go up, but they can incentivize speculative purchases.

“We are seeing the documents that [landlords] have been using to get the loans [that include] their expected increases in the amount of rent,” she said. “It’s very clear that it’s part of a speculative model of acquisition of land.”

Tenant groups have, among other things, called for regulations on so-called “operational and maintenance pass-throughs,” which can legally and permanently increase tenants’ rents by as much as 7 percent of their base rent.

Amina Rubio shows off binders full of legal documents inside her Powell Street apartment on Friday. Since Veritas Investments purchased the building in 2016, Rubio said tenants have had their rent raised to cover ongoing construction costs. (Kevin N. Hume/S.F. Examiner)

District 1 Supervisor Sandra Lee Fewer has taken up the issue and is expected to introduce legislation next week, with Supervisor Aaron Peskin co-sponsoring, that could block debt service and property tax from being passed to tenants after a building’s purchase. Currently, those expenses are treated as operations and maintenance expenses under city law.

Ian Fregosi, Fewer’s legislative aide, said no other rent-controlled jurisdiction in the state allows for tenants to be subjected to the debt service fee.

According to Rent Board Director Robert Collins, the agency received 104 operational and maintenance pass-through petitions for a total of 1,161 units since last March, up from 77 petitions for 784 units in the 2016-17 fiscal year. A decade ago, just 32 petitions for 228 units were filed with the rent board.

Tenants may petition for deferral or non-payment of these pass-through charges due to hardship, but the number of such petitions received by the Rent Board is significantly smaller, said Collins.

Rent-controlled tenants in some 21 apartments at a 34-unit building at 643 Powell St. have seen their rents increase by way of pass-throughs. The building was purchased in 2016 by Veritas Investments, The City’s largest landlord, and the increases came with a notable decrease in services at the property, according to some tenants.

Amina Rubio has lived in her rent-controlled studio at 643 Powell St. for 25 years. When Veritas took over, Rubio said her new landlord petitioned for pass-throughs that subjected her to permanent and temporary rent increases, ultimately increasing her rent by some $200.

A barrel marked as having lead-based paint is seen at the Powell Street apartments owned by Veritas Investments. (Kevin N. Hume/S.F. Examiner)

Since the change of ownership, Rubio said she and the building’s other tenants have been subjected to construction as the landlord has undertaken upgrades to the building in a bid to attract market-rate tenants.

A fresh layer of paint decorates the outside of the four-story apartment building, and inside the lobby has been outfitted with trendy mirrors, sofas and security cameras. But Rubio said that “dangerous construction” work has left holes in the walls, exacerbated a rodent infestation in the building, and that complaints about high levels of lead in the water went unaddressed for months.

“It wears on you after a while,” said Rubio, who is a student and said she cannot afford to move on her fixed income. Rubio alleged three long-term tenants of the building have left in the last six months due to the ongoing construction and increased rents.

A spokesman for Veritas confirmed that construction efforts are ongoing and have “a further re-plumbing of the building” and “further improvements and problems were discovered.”

The firm said the overall construction effort is 75 to 95 percent complete, and that “no tenants have been forced to leave, although some have decided to leave on their own choice.”

In response to the pass-through increases to the tenants’ rents, Veritas’ spokesperson said that if any residents “have concerns about ongoing rent obligations including pass-throughs, there are avenues available for hardship petitions with the Rent Board,” and that the company has stated that it would assist tenants in filing them.

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