Feature
by Elizabeth Miller
The annual increase notice for a rent-controlled unit in San Francisco can be mysterious, as well as a minefield to those who are not comfortable with what can and cannot be lawfully increased and deducted within the notice; unfortunately, owners and managers must navigate between the landmines to collect the increase due yearly. This article will give a rough overview of what should and should not be included in the 30-Day Notice of Change of Terms of Tenancy, which is referenced in this article as the “annual increase notice.”
Each year, the San Francisco Residential Rent Stabilization and Arbitration Board publishes the annual percentage of increase allowed. This percentage is effective from March 1 of the current year to the last day of February of the next year. Part 1, Section 1.12 of the Rules and Regulation of the San Francisco Rent Ordinance defines the percentage as being “no more than 60% of the percentage increase in the Consumer Price Index for All Urban Consumers in the San Francisco-Oakland-San Jose region as published by the U.S. Department of Labor for the 12-month period ending November 30.”
While understanding where this very small percentage comes from is useful trivia, it does not instruct the owner on how to handle the implementation of the increase each year when it is announced. For instance, what should be included in the increase notice and when should it be given?
The annual increase notice can fulfill much of the monetary paperwork each year for each unit by containing the allowable percentage increase, paying the tenant the interest owed on the security deposit and then deducting the percentage of Rent Board fees allowed. One can use the annual increase as a type of “one-stop shopping” for each unit on the move-in anniversary date, alleviating the worry of forgetting when to pay interest or bill back for Rent Board fees. The owner, of course, does not need to do all of these steps at the same time, but why not?
Each part of the notice has a function and should be spelled out in language that everyone can understand; not all tenants have the same reading comprehension, language ability or concept of numbers, so a clear step-by-step method is best. You may even need to explain what the move-in anniversary date is. For example, let’s say tenants moved in to their unit on July 23, 2005, and the lease term ends on July 22, 2006. The tenants must be in residence for a minimum of one year before the first available increase could be imposed. As rent is due on the first of the month per most tenancy agreements, August 1, 2006, becomes this particular tenant’s anniversary date. All of this should be spelled out to the tenant.
An owner who has not increased her tenants’ rent for more than one year or even several years may collect those “banked increases.” However, taking banked increases can be tricky and tenants may not be receptive to receiving an increase greater than the current yearly percentage; serving a tenant, for example, a banked increase of $230 per month because they have lived in the unit for decades without an increase can have repercussions. It is a monetary shock to the tenant. If there is banking involved in an increase, landlords should be very sure of what they are doing or seek professional help; the service of a large banked increase can be followed with a trip in front of an administrative law judge at the Rent Board for a decrease in housing-services petition if there are perceived or imagined deferred maintenance issues. Calling the Rent Board is always a good idea and even though it is something many owners shudder to even contemplate, the service is subsidized by owners and tenants. Why not use what you have already paid for?
If information about the rent ordinance or increase amounts is needed, call them. Ask where to find the information in the San Francisco Rent Ordinance, double check the information, be sure to document the name of the person you spoke with, and if there is doubt, call again and see if the answer is the same. A legal increase is the goal of all concerned, including the Rent Board. The rent ordinance is, after all, a set of rules to follow and to be used with respect. Follow the rules to your best advantage and, once again, if there is any doubt to what you are doing—seek help.
Once all of the available or desired increases have been taken, the owner may use the increase to pay security deposit interest. The owner must pay interest every year. It is not an option to pick and choose who is paid interest; the problem tenant who pays less than half of the market rate and/or has damaged the unit is due interest under the same law that guarantees it to the perfect tenant who is paying market rent. The interest rate is published each year by the Rent Board and, like the annual increase percentage, is effective from March 1 of the current year to the last day of February of the next year. If the tenant has not been paid interest since 1992, for example, it is owed and must be paid as a responsibility of the owner to pay the effective rate, even if the deposit is not actually in a bank earning interest. Paying interest to one tenant and not another can be construed as discrimination, as paying interest due is the law. Do not under or over pay.
The interest rate for the years preceding 2002 was 5% per annum, but in 2002 the rate was adjusted to a percentage calculated yearly by the Rent Board (The interest rate this year, starting on March 1, and continuing through February 29, 2008, will be 5.2%.)
Only the Rent Board fee can be deducted from the annual interest payment. Each owner pays the Rent Board fee in their property tax statement for the use of the Rent Board. This amount includes the tenant’s portion, which may be billed back to the tenant by the owner. This fee may be deducted from the interest or an invoice sent if there is no deposit, or not enough of a deposit to cover the fee. Just as the annual increase can be banked, so can the Rent Board fee. If the owner has never taken the Rent Board fees and the tenant has been in residence for previous years, up to the 1998-1999 tax year, the owner may deduct for them now.
While there are passthroughs that can be imposed on the annual increase notice, such as those for bond measures, water bonds, capital improvements, operating and maintenance expenses, or PG&E, the above-mentioned basics are the backbone of the notice. While the annual increase in San Francisco can be overwhelming and a place for owners to make mistakes, it is the legal way to increase rents and must be navigated. Once again, use the Rent Board resources you are already paying for, and if all else fails seek help from a professional. The owner is granted increases through the Rent Ordinance, and even though the increase may be small every year, it is there to be claimed. It is your responsibility and your right. Research to find out the information needed and request help—what you don’t know may hurt you.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or SF Apartment Magazine. Elizabeth Miller is currently the petition specialist with Property Management Systems and can be reached at 415-661-3860. Copyright © 2007 by SF Apartment Magazine. All rights reserved.