The draft Rent Control Second Reading of the Rent Control Ordinance continues to be tweaked by City Staff, as they discover typos, errors and inconsistencies. In order to be legally adopted, the Second Reading has to exactly match the First Reading, except for typos and insubstantial changes. I’m not sure it conforms to this test, but one thing is for sure; it has all the hallmarks of a hastily-adopted ordinance that is ridden with errors, omissions and inconsistencies, indicating that the drafters have minimal understanding about how the rental real estate market actually works. Some that have been brought to my attention include:
1. 11.100.020.G States, “Interim Board means an appointed five (5) member board.” 11/100.030(a) states, “There shall be in the City of Richmond a Rent Control, Board. The Board shall consist of five (5) elected Commissioners. The Board shall elect annually as chairperson one of its members to serve in that capacity. The Richmond City Charter states, “The Mayor shall have the authority at any regularly scheduled meeting of the City Council to make appointments to or removals from all City boards, commissions and committees with the concurrence of at least four (4) other members of the City Council. Discussion: The City Council cannot set aside by ordinance the Charter authority of the mayor to appoint members of the Rent Board. An elected Rent Board will require a Charter amendment, which can happen at the November 2016 General Election at the earliest. If the ballot measure is successful, it will require a subsequent election to actually elect Rent Board Members. Both of these elections will likely cost the City of Richmond $100,000, or more.
2. Under 11.100.050 (a)(1) Annual General Adjustment the rate will be 100% of the CPI All Urban Consumers for the San Francisco-Oakland-San Jose region as reported for the 12 months ending March of the current year. The problem is that the CPI is not announced in March. See table below from bureau of labor statistics.
3. Nowhere is “fair return” defined. Apparently, this is totally left to the discretion of the Rent Board. How are owners supposed to decide if they can afford to paint, re-roof, upgrade to new windows, or earthquake retrofit without defined criteria on whether the tenants will help pay for any of the improvements. Does the City really want to deter owners from upgrading their property?
4. Many owners had given increase that were to take effect August or September 1st and with the recent action of making the base rent date July 21st, does that mean they have to roll back the increases they had already lawfully given? What about increases between August 1st and December 1st when the ordinance takes effect. If they are controlled by the new ordinance, that doesn't start until December 1st, what is their allowable increase?
5. Security Deposits- Owners will be required to pay interest on security deposits and hold the money in an interest bearing account. A typical interest-bearing account these is about 0.005%. This means if a tenant has a $1,000 deposit, the landlord would have to write them a check each year for $0.05 that will cost $0.49 to mail it to them.
6. The ordinance takes effect (i.e., "becomes law") on 12/01/2015. Yet the base rent ceiling is effective as of 07/21/2015. What about duly noticed rent raises that have lawfully gone into effect before 12/01/2015? For example, under today's law, a landlord sends out a 10% rent raise notice to a month-to-month tenant via U.S. First Class mail on 07/27/2015, lawfully taking effect 09/01/2015. Does this mean that as of 12/01/2015 the Landlord will be retroactively civilly and criminally liable for the increase, even though what he/she did at the time was perfectly legal? And wouldn't such a policy be legally problematic, let alone incentivize landlords to evict their month-to-month tenants now in order to get market rents by 12/01/2015?
7. What about month-to-month units that have not had an increase in the past year as of 12/01/2015 through 09/01/2016? Are these landlords supposed to wait until Sept 1, 2016 for an annual rent raise on these units? Aren't we making these landlords wait substantially more than one year for an "annual" increase otherwise allowed by the law?
8. The official draft minutes state that the ordinance be amended as follows: "Determine allowable rent increase pass-through costs for sewer increases or other property related fee increases above CPI as necessary." No real definition or rationale for defining a "property related fee" was included in the amended ordinance as passed. Yet the revised draft ordinance Sec 11.100.020(S) presumes to define this term without debate or corresponding amendment prior to vote as reflected in the official record. And if this task is to be delegated to the future rent board, shouldn't the amendment have stated that clearly as well?
9. How exactly does the ordinance expect to regulate security deposit increases to month-to-month tenants? (Interest is one thing, increases are another). Sec 11.100.010(J) defines "Rent" to include "security deposits for damages and cleaning." As you know, security deposits generally cover any tenant default under the terms of a rental agreement, not just damages and cleaning. Furthermore, it is standard and best practice to increase the security deposit along with the rent on an annual basis. Is the ordinance forbidding landlords to ever increase security deposits when also increasing monthly rent annually by the CPI? And if so, why? Landlords would have to pay interest on these funds anyway.
Reposted from Mayor Tom Butt's "E-Forum"