San Francisco Apartment Association

Legal Corner Q & A

Petitioning for Passthroughs

by Various Authors

Q. We have some units with laundry equipment and have recently experienced a huge spike in our water bills. Can we pass these increases on to the tenants or remove the equipment?

A. Be advised that any increase you pass onto the tenant for increased water costs is considered a rent increase by the San Francisco Rent Board. Therefore it cannot exceed the annual allowable rent increase unless it is approved by the board or fits into one of two limited exceptions.

When you encounter an increase in water bills that you believe is the result of increased tenant usage (not Water Department penalties or improvement bonds), you should file an Operating and Maintenance Expense Petition (called an O&M petition) with the Rent Board to pass some of the increase onto the tenant. (Note that water is not considered a utility by the Rent Board, so a Utility Passthrough Petition is improper.) An O&M petition can allow for a rent increase of up to 7% beyond the normal annual allowable increase (only for tenants of at least a year) and in some instances can include increased expenses related to property taxes, insurance, maintenance, repairs and debt service.

The O&M petition must be based on increased expenses that occurred over a recent two-year period. To be successful, you must provide copies of all claimed charges and proof of payment of the charges—prospective increases will not be considered. The bonus of the passthrough is that it will be added to the tenant's base rent, and affect (increase) all subsequent annual rent increases.

For increased water-bill passthroughs, the two exceptions to the petition process are: (1) penalties assessed by the Water Department for water usage in excess of Water Department allocations, or (2) increases from Water System Improvement Bonds authorized in the 2002 election. If usage penalties or bond increases are imposed, you may pass 50% of those costs onto the tenant without filing a Rent Board petition. (Look for an article on the new water-bond-measure passthrough in an upcoming issue.) However, there are several requirements that must be met for you to qualify for these passthroughs. For instance, the penalty passthrough requires you to have installed several water-saving devices in the unit(s), and despite this, you could still be assessed with penalties. More details on these passthroughs are set out in Sections 37.3(a)(5)(A) and (B) of the Rent Ordinance. You should consult an attorney before attempting either of these.

However, with the complications of the foregoing, you may be tempted to remove the laundry equipment. If you remove it, you will undoubtedly face a decrease in services petition filed by the tenant with the Rent Board. The laundry equipment and water are housing services included with their tenancy, and your removal of those services may entitle them to a reduction in rent. The amount of that reduction will be determined at a Rent Board hearing. In an extreme situation, the tenant might even claim that the removal of the equipment somehow resulted in their “constructive eviction” from a portion of the premises.

Finally, you should note that a sudden spike in the water bills may simply be due to a leak or defective equipment. We recommend that you send a professional plumber to check for leaks and efficiency of the equipment before resorting to any of the above.
– Sally Morin & James M. Millar

Q. Does Proposition 65 apply to commercial buildings as well as residential properties?

A. The simple answer is yes. Prop. 65, originally approved by California voters in 1986, does not distinguish between commercial and residential buildings. Prop. 65 specifically exempts any person employing fewer than ten employees. But some plaintiffs/claimants have argued that if the owner or owner entity employs third-party service providers such as janitorial companies, and these providers employ ten or more persons, Prop. 65 applies. Given that risk and the ease of compliance, it is better to comply. Owners can purchase official warning signs from SFAA.

Prop. 65 requires that all such businesses issue warnings prior to exposing the public to chemicals known to cause cancer, birth defects or reproductive harm. The prohibited chemicals include, but are not limited to: (1) tobacco products, (2) furnishing, hardware and electrical components, (3) combustion sources, (4) construction and maintenance materials, (5) certain cleaning products, (6) swimming pool and hot tub disinfectants, (7) paint products and painted surfaces, (8) engine related exposure and (9) pest control and landscaping products.
– Jerod Hendrickson & Lawrence M. Scancarelli

Q. Regarding the new Gonzalez rules on replacement roommates: Is it correct that an owner can still limit the number of occupants who are not relatives, as long as there is an occupancy limit codified in the lease?

A. The Gonzalez amendment does not involve roommate replacement, which was the subject of the Leno amendment of a few years back, but simply provides that certain relatives cannot be denied admittance to a unit, without overcrowding. Those relatives are a tenant's child, parent, grandchild, grandparent, brother or sister, or the spouse or domestic partner of such relatives. However, even before the Leno amendment's one-for-one roommate replacement requirement, substantial controversy existed over occupancy limits. Typically, in older leases, one sees clauses such as “occupancy limited to two adults and one child.” Of course, the laws prohibiting discrimination against children render such clauses invalid by attempting to restrict their number. Likewise, laws against discrimination based upon family status may operate to invalidate restrictions of persons perceived to be family. Unfortunately, “family” is defined very broadly under San Francisco Housing Code sec. 401 as “[o]ne or more persons related or unrelated living together as a single integrated household in a dwelling unit,” rendering almost any two people living together theoretically a family. Gonzalez, fortunately, is not so expansive.

The solution to this problem has always been to limit occupancy to specified persons. Rather than saying no more than four people shall occupy the unit, the lease should say that no one shall occupy other than Manny, Moe, Jack and Phil. The result is the same—limitation to four individuals, the only exception being relatives specified under Gonzalez. (Leno, of course, involving a one-for-one replacement, does not increase occupancy.)

Moreover, the Gonzalez amendment does limit additional persons to some extent by restricting the total number of occupants to two persons in a studio unit, three persons in a one-bedroom unit, four persons in a two-bedroom unit, six persons in a three-bedroom unit, or eight persons in a four-bedroom unit, or the maximum number permitted in the unit under state law and/or local codes such as the building, fire, housing and planning codes. Unfortunately, these latter codes may permit more people.

By writing your leases to allow only certain named tenants, rather than limiting the number of occupants, you will be able to hurdle most occupancy pitfalls presented by local law. The PPMA Lease provides the format for this approach.
—Saul M. Ferster

The opinions expressed in this article are those of the authors and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. The information contained in this article is general in nature. Consult the advice of an attorney for any specific problem. James M. Millar and Sally Morin can be reached at 415-981-8100. Jerod Hendrickson and Lawrence M. Scancarelli can be reached 415-398-1644. Saul M. Ferster can be reached at 415-863-2678. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.