The city is working to impose new restrictions on pass-through rent increases after ongoing protests from tenants. (Kevin N. Hume/S.F. Examiner)

SF Rent Board weighs proposal to force landlords seeking rent hikes to disclose their finances

The Rent Board Commission is debating proposed guidelines that would require landlords to disclose their profits to justify certain rent increases, but some property owners say the proposal would place “mom and pop” landlords at a disadvantage.

The new “evidence of reasonable reliance” requirement would apply to landlords seeking so-called “Operations and Maintenance” rent increases, or permanent 7 percent rent hikes on top of the annual allowable 2.6 percent rent increase. Tenant advocates have said that these types of increases are driven primarily by a landlord’s mortgage and property tax debts and often unfairly burden vulnerable renters.

The guidelines are intended to discourage corporate landlords from seeking to pass the costs incurred from purchasing buildings onto their tenants, which would still require a public hearing and a final approval at a future date.

The 10-member commission — which is comprised of tenant, landlord and neutral representatives and is charged with creating and amending the Rent Board’s policies — held off on voting on the new guidelines proposed Tuesday.

Instead, the commission scheduled a special hearing on Nov. 5 to allow for feedback from the landlord community, after several commissioners representing the interests of landlords said that new guidelines could place a burden on individual and “mom and pop” landlords.

In the meantime, the commission, which also hears and votes on appeals filed by tenants who have received OM or other “pass through” increases, agreed to temporarily hold off on approving or denying these increases until a decision on the guidelines is made.

“I think they want to just lower the threshold, to dilute and weaken the guidelines and last night was the first attempt to do that,” said Brad Hirn, a tenant advocate with the Housing Rights Committee, who over the past year has worked to organize tenants impacted by a host of pass throughs allowed under The City’s Rent Ordinance.

“Now we have to go through another step to reach another public hearing,” he said.

As written, the guidelines dictate that landlords “must demonstrate through documentary evidence that the decision to purchase the property” depended on their ability to file OM increases.

Reasonable reliance would be established by evaluating whether the operating and maintenance expenses in the second year after a building purchase exceed the landlord’s gross income for the property, or if an additional rent increase due to growing expenses was necessary.

Landlords must petition for reasonable reliance within two years of buying a building.

Commissioner Ashley Klein argued that it was unfair to base evaluations regarding a landlord’s gross income on the total number of rents that can be collected from buildings that are 100 percent occupied.

“Most properties have vacancies,” said Klein, adding that the guidelines should direct the commission to retrospectively “look at what building was doing in terms of rents over the last year” when evaluating whether a landlord’s eligibility for OM increases.

Commissioner Arthur Tom argued that small, mom and pop landlords should not be required to have to prove reasonable reliance in order to request OM increases from their tenants.

However Commissioner Reese Aaron Isbell, who worked with Rent Board staff to craft the guidelines, said that “there are no mom and pop shops in this scenario.”

He said that most petitions for OM increases that the commission has seen in the past year have been filed exclusively by large, corporate landlords such as Veritas Investments.

Last June, the Board of Supervisors responded to tenants’ complaints about pass-throughs by unanimously passing legislation that prevents landlords from passing debt service and property tax costs.

However, the law does not apply to buildings purchased within the four months prior to the its passage, and landlords who bought properties within this time frame can still pass through their debt so long as they can demonstrate that they relied on the increases.

A total of 24 Veritas Investments buildings fall into this category, according to tenant advocates.

While tenants are permitted to apply for financial hardship waivers to avoid OM increases, tenant advocates argued that tenants must disclose all of their financial information to their landlords in this process. They said that landlords seeking to increase rents should be held to the same standard.

“The increases are based on landlords buying new buildings at speculative prices that they didn’t necessarily need to buy,” said Deepa Varma, executive director of the San Francisco Tenants Union. “ What we are asking for here is just a little bit of fairness in terms of the kind of disclosures they are required to show [to evaluate] whether or not this type of increase is necessary.”

Last week, the Board of Supervisors unanimously adopted a resolution urging the Rent Board to develop “fair and objective guidelines” governing the reasonable reliance standard.

“Tenants should have their appeals and permanent rent increases evaluated with the full benefit of this guiding language,” said Sunny Angulo, a legislative aide in Supervisor Aaron Peskin’s office, who on Tuesday stood alongside representatives for supervisors Vallie Brown and Sandra Lee Fewer.

“In our view these are guidelines that the rent board should have adopted years ago to afford both tenants and landlords certainty and clarity around permissible increases,” she said.

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