Mayor Ed Lee and Supervisors David Chiu and Jane Kim recently introduced legislation meant to simplify and provide standards for residential tenant hardship applications for capital improvement pass-throughs. At press time, the bill appears to have unanimous support, and will almost surely pass when it comes up for a vote before the full board.

The new regulation establishes specific guidelines for hardship exemption from capital improvement pass-throughs.

Under Subsection 37.7(h) of the Rent Ordinance, tenants will qualify for relief from payment of pass-throughs for rental property capital, rehabilitation, energy conservation, and renewable energy improvements if they can demonstrate that at least one of the following financial hardship conditions applies:

  1. Tenant is a recipient of means-tested public assistance, such as Social Security Supplemental Security Income (SSI), General Assistance (GA), Temporary Assistance for Needy Families (TANF), or California Work Opportunity and Responsibility to Kids (CalWORKS).
  2. Tenant’s gross household income is less than 80% of the current Unadjusted Area Median Income (AMI) for San Francisco (see table below), and the rent charged is greater than 33% of gross household income; and assets, excluding non-liquid assets and retirement account do not exceed amounts permitted by the Mayor’s Office of Housing when determining eligibility for below-market-rate (BMR) home ownership.

80% of Unadjusted Area Median Income (AMI) Published by the U.S. Department of Housing and Urban Development (HUD)

1 Person   –  $56,700
2 Persons  –  $64,750
3 Persons  –  $72,900
4 persons  –  $80,950
5 Persons  –  $87,450

3. Tenant is experiencing exceptional circumstances, such as excessive medical bills.

Under the new legislation, a decision on the application will be issued administratively by a Rent Board Administrative Law Judge (ALJ), unless a hearing is requested by the property owner within 15 days. If it is determined that such a hearing is not required to determine the facts of the case, a decision on the application will be issued by the ALJ. The decision of the ALJ may be appealed by the building owner. 

Pass-throughs for Soft-Story Retrofits

On April 18, 2013, the Board of Supervisors signed into law a requirement that all “soft-story” apartment buildings with five or more units and three or more floors will need to be retrofitted. A ground-floor commercial space, such as a store front, counts as one floor.

The law took effect on June 18, 2013. Many owners facing this retrofit requirement may wonder what portion of the cost may be legally passed on to tenants in the form of a rent increase.

Soft-story apartment building retrofits can be very expensive. The cost may be legally passed on to tenants no matter how many units are involved. However, the increases are limited to the greater of $30 per month or 10% (unless the rules are different – 5% is the maximum allowed for a five-unit building) of the tenant’s base rent. The cost of the retrofit is amortized over 20 years, at which time the additional rent must be discontinued. 

Two Retrofit Pass-through Examples

Retrofit cost estimates vary greatly, depending on many factors. If the owner gets a good deal, and the cost is only $60,000, including financing, for a six-unit building, the pass-through math would go as follows:

$60,000 divided by 20 years equals $3,000 per year, divided by the number of units in the building (six) equals $500 per year per unit, yielding a rent increase of $41.66 per month per tenant. 

If the $41.66 figure represents less than 10% of the petition base rent per month  $416.60) for each of the units, the owner can pass through the entire cost of the retrofit to each tenant, assuming no hardship exemption is granted. However, if the cost of the retrofit were far higher, let’s say a more realistic $150,000 – the amount of the rent increase would be $104.16 per month.

The base rent in this case would have to be at least $1,041.60 per month in order for the entire $104.16 to be passed through to the tenant in the first year in the form of a monthly rent increase for 20 years. Someone paying less than $1,041.60 per month, for example, a long-term tenant in the building who pays only $800 a month in rent would pay only $80 extra per month the first year, with the balance ($24.16) added the second year. 

Hardship Exemptions Made Easier

The bottom line is that clarifications and simplifications of procedures are being made available so that tenants can more easily claim hardship exemptions. Although the Board of Supervisors voted in the mandatory soft story retrofit legislation with a 100%  pass-through over 20 years, it is now backpedaling – as it so often does – due to pressure from the tenant lobby, and is looking for ways to exempt some tenants from these pass-through rent increases.

Peter Reitz is the Executive Director of SPOSF/SPOSFI.  Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.

 

 

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