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Recommendation to Accept the Annual Report for the Rent Program, Direct Staff to Prepare Certain Amendments to the Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance, Consider Revisions to Ordinance No. 3132 Governing the Rent Review Advisory Committee, and Authorize Staff to Prepare an Updated Fee Study to Pay for Implementing the Ordinance. (Rent Stabilization 265)
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To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Accept the Annual Report for the Rent Program, Direct Staff to Prepare Certain Amendments to the Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance, Consider Revisions to Ordinance No. 3132 Governing the Rent Review Advisory Committee and Authorize Staff to Prepare an Updated Fee Study to Pay for Implementing the Ordinance
BACKGROUND
In late 2014, a group of residents requested the City Council do more to protect renters who were being impacted by rapidly rising rents, notices to vacate for no cause, and low vacancy rates. To better understand what was happening in the local rental market, the City undertook a study to analyze the rental market and the demographics of the renter community. The study, along with a range of options for providing additional tenant protections, was presented to the City Council at its November 4, 2015 meeting.
Based on the rent study and the complexity of the issues involved in stabilizing rents and addressing no cause and no fault evictions, the City Council adopted an urgency ordinance that imposed a moratorium on residential rent increases at or above 8% for multi-family rental units built prior to February 1, 1995, and on evictions from all residential rental units except for “just cause”. That moratorium was thereafter extended until the Rent Review, Rent Stabilization and Limitations on Evictions Ordinance (Ordinance No. 3148 “the Ordinance”) became effective on March 31, 2016.
The Ordinance provides a process for resolving disputes concerning rent increases, including a hearing process leading to a binding decision for certain rental units; allows “no cause” evictions, but with significant limitations as to the number of rental units for which tenants may be evicted for “no cause”; and requires payment of relocation fees for “no cause” and “no fault” evictions. The most significant elements of the Ordinance are summarized in Exhibit 1.
A key requirement of the Ordinance is preparation of an Annual Report. The Annual Report is intended to provide City Council, staff, and the community with information necessary to evaluate the program’s effectiveness and to recommend changes to the program implementation or to the Ordinance if necessary. Staff is pleased to transmit the first Annual Report (covering the period from April 1, 2016 - March 15, 2017) (Exhibit 2) for Council review and acceptance. In addition to the Annual Report, staff retained BAE Urban Economics (BAE) to prepare a summary update of the City’s rental market, specifically comparing changes in vacancy rates and average rents in 2015 and 2016 (Exhibit 3). Lastly, based on the first year of implementing the Ordinance, staff has identified a number of changes to the Ordinance to clarify and clean-up a variety of provisions to ensure a more consistent and transparent rent program. In addition, staff met with and requested feedback from the Rent Review Advisory Committee (RRAC), and landlord and tenant representatives regarding changes they would like to see to the Ordinance. Staff is requesting Council direction on the proposed amendments/changes to the Ordinance.
DISCUSSION
Much has occurred since the Council’s adoption of the Ordinance one year ago. Most significantly, through an Agreement for Program Administration Services with the Housing Authority (HA), the Ordinance has been successfully implemented. These efforts are detailed in the Annual Report and in the discussion below.
Shortly following the effective date of the Ordinance, landlord and tenants organizations began circulating their own initiative petitions to significantly revise the rent program adopted by the City Council. The landlord petition failed to qualify for the November 2016 ballot but the tenant initiative did qualify. Because of the Council’s belief in the existing Ordinance, Council felt that voters should have a choice between what the Council had adopted and what was proposed by the initiative. Accordingly, Council placed the Ordinance, along with the initiative, on the November 2016 ballot for voter consideration.
Fifty-five and one-half percent (55.5%) of the voters approved the existing City Ordinance along with a provision granting Council the authority to amend (or repeal) the Ordinance without voter approval. Thirty-four percent (34.1%) of the voters voted in favor of the tenants’ initiative.
Following the November election, as required by the agreement with the HA, the City issued a Request for Proposals (RFP) to administer the rent program for the next three years. A selection panel interviewed two proposers and recommended that the HA continue to administer the rent program. On March 21, 2017, the City Council extended the HA’s existing agreement through June 30, 2017, with the intent to act on the HA’s new agreement in June, following any revisions to the Ordinance that could impact the scope of services regarding program implementation.
Annual Report
The HA, as Program Administrator, and on behalf of the Community Development Director, has prepared the attached Annual Report. In addition to the Annual Report, the HA prepares monthly reports on program activity that are provided to the City Council and are posted on the program web site (www.alamedarentprogram.org). The HA took on a major challenge when it agreed to provide Program Administrator services as it had to implement a new program in real time as it also developed all of the tools and resources necessary to administer the program. Initial work included hiring staff, conducting workshops about the new Ordinance, developing a web site, preparing FAQs, creating all of the forms and paperwork to support the requirements under the Ordinance, answering public inquiries, and staffing and training the RRAC. This was a challenging endeavor, made more so by the highly personal nature and immediacy of the issue.
The initial “start-up” period was followed by extensive and on-going efforts to educate the landlord and tenant communities about their rights and obligations under the Ordinance and intensive one-on-one work with parties disputing rent increase prior to RRAC hearings. This process has resulted in the majority of rent increase cases being resolved prior to a scheduled RRAC hearing. Work with landlords and tenants on terminations of tenancy and payment of relocation benefits rounds out Program Administrator duties.
Highlights include:
• An average of 432 landlord/tenant calls, e-mails, appointments per month
• 1,978 unique (unduplicated) interactions with individuals and 5,184 duplicated contacts and interactions
• Three mailers to 14,000+ residents and landlords (42,000 pieces of mail)
• 64 workshops, trainings and clinics attended by over 550 landlords and tenants
• 456 rent increase submissions, 434 of which were initiated by landlords for rent increases above 5%, and 22 of which were for rent increases of 5% or less, initiated by tenants
• 248 rent increases resolved prior to a RRAC hearing, 52% of which resulted in rent increases of 5% or less and 33% of which resulted in rent increases of 5.1%-10%
• 23 cases heard by RRAC, of which seven cases resulted in rent increases of less than 5%, 12 resulted in rent increases between 5.1%-10%, and four resulted in rent increases above 10%
• 0 cases heard by RRAC and appealed to the City Council or to a hearing officer
• 62 valid termination notices, 32 of which were for no cause (52%) and 22 of which were for owner move-in (35%), and 8 were for going out of the rental business (13%), and verifying payment of relocation benefits
As the second year of implementing the Ordinance gets underway, the HA will kick-off the following activities to improve program administration:
• Implement a client management database to better track inquiries, active cases, etc.
• Staff all positions with permanent staff (as opposed to part-time, temporary) for better customer service and continuity
• Establish a rent program office
• Implement online forms submission to streamline the process
• Formalize a pre-mediation option prior to a RRAC hearing
• Establish a social media presence and translate program brochures, FAQs, etc. to more efficiently and effectively respond to landlords and tenants
Staff recommends that the City Council accept the Annual Report.
Rental Market Update
City staff initially retained BAE to prepare an analysis of the City’s rental market in June 2015. BAE’s October 27, 2015 report helped inform the Council’s decision to move forward with an ordinance to provide additional renter protections. That report documented that between 2010 and 2013, Alameda’s median rent increased 12% (average annual increase of 4%). In addition to using Census data through 2013, BAE analyzed data for Alameda’s 20 rental properties with 50+ units from 2011 through the 3rd quarter of 2015. That data revealed that rents increased by 52% in the four years between 2011 and 2015 (average annual increase of 13%). While not inclusive of all rental property, apartment buildings with 50+ units comprise 17% of the City’s rental housing stock.
As part of the Annual Report process, staff requested that BAE provide an update of the data on rent increases and vacancy rates. BAE updated rent and vacancy rate information for 2015 and 2016 (through the 3rd quarter). For larger buildings with 50+ units, the vacancy rate increased to 3.8% in 2016, from 2.7% in 2015. There is not comparable data for vacancy rates for all rental units for 2016, but in 2015, the vacancy rate for all units was 1.2%. Analysts consider 5% a healthy vacancy rate that provides adequate availability of units for tenants while maintaining a strong market for landlords.
BAE’s update reports that the 2015 monthly median rent in Alameda was $1,513, comparable to the countywide average rent ($1,515), and lower than the Bay Area average ($1,651). Once again, while data is available for vacancy rates and average rents for all units through 2015, data through the 3rd quarter of 2016 is only available for large rental properties with 50+ units. Rents for these larger properties in 2016 averaged $2,339 a month. This is a 7.9% increase from 2015’s average monthly rent of $2,168. The annual rent increase for larger properties decreased from a 13% average annual increase between 2011 and 2015, to an average 7.9% increase from 2015 to 2016. Accordingly, rents continue to increase but at a slower pace. It should also be noted that rent increases include increases for in-place tenants as well as for adjusted rents for new tenants moving in. Therefore, it is difficult to know if in-place tenants receive on average smaller rent increases (due to the application of the Ordinance) than tenants moving in to a unit with a rent adjusted to meet the market rent.
Vacancy rates continue to be tight in Alameda as well as throughout the County and Bay Area. Rents continue to increase, but the rate of increase appears to be somewhat less than in the period 2011 to 2015, based on updated data for larger rental properties in Alameda.
Stakeholder Outreach and Input
To commence the process of reviewing the Ordinance, staff met with landlord and tenant representatives, including those from the California Apartment Association and Alamedans for Fair Rent Control, along with representatives from the Bay East Association of Realtors, Alameda Chapter, and Alameda Renters Coalition representatives. The RRAC also requested an opportunity to provide feedback on the effectiveness of the Ordinance from its perspective of mediating rent increase requests. At these meetings, staff provided a brief overview of the kinds of changes it planned to propose as part of the annual review and asked both the landlord and tenant representatives, as well as RRAC, for feedback about how the Ordinance was working. In addition to these meetings, letters from Alamedans for Fair Rent Control and the Bay East Association of Realtors are attached as Exhibit 6 and a letter from the Alameda Renters Coalition is attached as Exhibit 7.
Staff is requesting that the Council provide direction regarding issues/concerns raised by the stakeholders in the Rent Review Program as outlined below and contained in Exhibits 6 and 7.
Feedback Received from RRAC
The RRAC held a special meeting on January 24, 2017, to discuss the Ordinance and had the following suggestions:
1. Provide the opportunity for the landlord and the tenant to engage in mediation conducted by a professional mediator. Currently, prior to the RRAC’s review of a rent increase at its public meeting, the Program Administrator encourages the landlord and the tenant to meet with staff to determine if some agreement can be reached. This process is somewhat akin to informal mediation and has been successful but the Program Administrator and staff are not professionally trained mediators. Similarly, although the RRAC review process itself is sometimes referred to as mediation, it is not. The RRAC certainly encourages the parties to engage in a discussion that it hopes will lead to an agreement, but the RRAC has neither the time nor the skill to conduct a true mediation. Therefore, the RRAC advises that providing an opportunity for the landlord and tenant to engage in mediation conducted by someone trained in mediation will lead to more and better agreements. Those matters that do not get resolved through mediation would still be heard by the RRAC. The RRAC realizes that for mediation to be successful, both parties must participate voluntarily and willingly and the RRAC cannot compel either party to participate in a mediation. The RRAC believes, however, that most parties would use the services if provided. The RRAC also understands there will be cost to add such services to the program.
It should be noted that Program Administrator staff has been offering staff-based pre-mediation services for several months and has reported much success with that model. In addition, the Program Administrator has begun offering third-party mediation services to broaden the range of services available to landlords and tenants to resolve rent increase disputes prior to a hearing before the RRAC. The Program Administrator has also included funding for conducting third party mediation services in its budget and work scope for the upcoming Services Agreement.
2. For all rent increases, whether above or at/below 5%, for rental units not exempt from rent control, the RRAC feels a landlord or tenant should have the right to file a petition to have a hearing officer make a binding decision and, if no such petition were filed, the RRAC decision would be binding. Under the Ordinance, for rental units not exempt from rent control-generally multi-unit rental units for which a certificate of occupancy was issued prior to February 1, 1995-where the rent increase is above 5%, if the landlord and tenant cannot reach agreement and either is dissatisfied with the decision of the RRAC, either may file a petition and have a hearing officer decide the issue, which decision is final and binding. If no such petition is filed, then the RRAC decision is final and binding. The RRAC recommendation would extend those provisions where the rent increase was 5% or less. Council did not include those provisions in the Ordinance because it wanted to encourage landlords not to raise rents by more than 5%. By subjecting rent increases of 5% or less to a binding decision process, Council believed landlords would have less incentive to keep rents at that level. Staff does not believe making that change would be consistent with prior Council direction.
3. When the landlord and the tenant reach “agreement” regarding the rent increase before RRAC reviews the increase, the parties are to inform the Program Administrator of the terms of the agreement as to the rent increase. The RRAC believes the Ordinance should state the matter is dismissed, closed and withdrawn from the RRAC process and that the “terms of the agreement” should be more specific. As a practical matter, when the parties reach agreement, the matter is dismissed, closed and withdrawn from the RRAC process but the Ordinance does not say that expressly. This language could be included in subsection D of Section 6-58.75. Regarding the terms of the agreement, the Program Administrator does provide a form to the parties that outlines the rent increase percentage (in percentage blocks), whether the rent changed, if maintenance concerns were addressed, if the rent increase was delayed, or if terms of a lease changed. (Form RP-05, attached as Exhibit 8). Staff does not see the need for any more specificity regarding the terms of agreement reached prior to a RRAC hearing.
4. There has also been some discussion at the RRAC whether the number of members should be increased from five to seven. Given the number of recent meetings and the time demands, if there were seven members, scheduling meetings where a quorum (four members) would be present might be easier to facilitate.
Landlord Feedback
Staff met with a number of landlord representatives on January 30, 2017. Overall, landlord and realtor representatives felt very strongly that because the voters in November 2016 voted to confirm the Ordinance, it was important to continue the Ordinance as is. In addition, the landlords indicated that there has not been adequate time to fully test implementation of the Ordinance nor its costs. They therefore recommended that the Ordinance be unchanged for an additional year. The landlords, however, do have a number of issues that they would like the City Council to consider in the future. These are set forth in Exhibit 6.
Tenant Feedback
Staff met with Alameda Renter Coalition (ARC) Board members on February 1, 2017. ARC concurs with the intent of the Ordinance to stabilize the rental market in Alameda by addressing the impacts of unregulated rent increases and evictions. However, ARC believes that the Ordinance fails to accomplish its goal of creating stability in the rental market. Therefore, ARC has prioritized its six most important proposed changes to the Ordinance:
1. Eliminate “no cause” evictions.
2. Create a cap on the amount of the annual rent increase based on the Bay Area Consumer Price Index.
3. Eliminate the RRAC and replace it with a Hearing Officer or Administrative Judge and appeals to the court.
4. Create standardized relocation payments to reflect the “market rents” tenants will be required to pay in a new unit instead of the “below market rents” they are currently paying.
5. Create and maintain a rent registry database.
6. Remove the Sunset Clause and extend the one-year lease option.
These issues are described in more detailed in Exhibit 7.
Proposed Staff Changes to the Ordinance
As part of the annual review process, City staff and the Program Administrator have also put together a number of proposed amendments to the Ordinance, but these proposed changes do not fundamentally change the program. Instead, the amendments are intended to address issues not contemplated when the Ordinance was adopted, clarify ambiguities and eliminate internal inconsistencies.
Although there are numerous amendments, the overall purpose and intent of the amendments are generally administrative and clarifying. For example, staff is not recommending changes to the fundamental structure of the Ordinance which relies on a trigger of a rent increase above 5% to initiate a hearing before the RRAC. The Program Administrator received 434 notices of rent increases above 5%. This represents approximately 3% of the City’s rental housing stock. The low number of notices of rent increases above 5% relative to the number of rental units is consistent with the City Council’s goal of incentivizing landlords to keep annual rent increases below 5%; therefore, staff does not recommend any change in the trigger at this time.
As noted above, the goal is to assist the Program Administrator in implementing the Ordinance fairly and efficiently, support landlords and tenants in understanding their obligations and benefits, and to better carry out the purposes and intent of the Ordinance as originally adopted by the Council in March 2016.
In response to concerns that some landlords have raised about whether these amendments, if adopted, will be retrospective to actions taken by landlords prior to the effective date of any amendments, to the extent the amendments are substantive in nature or create new or different requirements for landlords (or tenants), staff proposes that the amendments be prospective only. A redlined version of the Ordinance capturing staff’s proposed changes is attached as Exhibit 4 to provide the specific language to facilitate any changes the Council may want to approve. In addition, a summary of staff’s proposed clarifying amendments to the Ordinance is provided in Exhibit 5.
Staff has identified the following issues for which it is requesting Council direction:
A. Fixed-Term Leases
1. The issue
Under the Ordinance, a landlord must pay a tenant relocation fees when the tenancy is terminated for either “no cause” or for “no fault” of the tenant, for example, an owner move in. A landlord, however, is not required to pay a tenant relocation fees when the lease terminates. For example, if a landlord and tenant have entered into a lease that begins on January 1, 2017, and ends on December 31, 2017 (a fixed-term lease), the tenant must vacate the rental unit by December 31, 2017, and would not be entitled to relocation fees under the Ordinance. (If, however, after December 31, 2017, the landlord were to accept rent from the tenant, the lease is converted to a month-to-month tenancy and terminating that tenancy could trigger relocation fees unless the termination were for cause.)
What the Program Administrator has found from time to time is that a landlord, apparently in an effort to avoid paying relocation fees, requires a tenant to enter into a series of fixed-term leases of short duration, such as for three or four months. Even though the rent cannot be increased because of the one increase in a 12-month period rule, at any time the landlord could inform the tenant that a new lease will not be offered and the tenant would need to vacate without relocation benefits.
2. The proposed solution
One approach to address this situation would be to require a landlord to pay relocation fees to the tenant at the end of a fixed-term lease. In other words, a tenant’s vacating a rental unit at the end of a fixed-term lease would be the equivalent of a no cause termination. However, staff believes that there are appropriate and legitimate reasons for offering a fixed-term lease. For example, a landlord may be traveling for an extended period of time, or the tenant may have a work assignment wherein the tenant will only be in the City for several months.
Therefore, staff is proposing an alternate approach that involves amending the Ordinance in two respects. The first is to add a definition of a “Temporary Tenancy” which a landlord may offer and for which no relocation fees would be required at the end of such tenancy. The second is to limit a landlord’s ability, after the landlord has made the one-time offer of a one-year lease and except for a Temporary Tenancy, to offer consecutive short fixed-term (less than a year) leases. Specifically, a landlord may offer a tenant a fixed-term lease of less than 12-months but any subsequent offer of a lease to the same tenant must be at least one year in duration.
A “Temporary Tenancy” would be defined as a tenancy at a “Primary Residence” at the end of which the landlord must immediately re-occupy the residence and reside therein for at least six months. This provision would allow a home owner, without being required to pay a relocation fee, to rent out his or her home due to travel or business plans that take the home owner out of the community for some period of time but to which the owner intends to return and remain for at least six months. See subsection EE of Section 6-58-15 (“Temporary Tenancy”), subsection U of Section 6-58.15 (“Primary Residence”), section 6-58.37 (a landlord may offer a temporary tenancy) and subsection E of Section 6-58.150 (no relocation fees at the termination of a temporary tenancy).
In addition, staff proposes a new Section 6-58.38 that would require the landlord to offer a lease of at least one year’s duration if the prior lease were less than one year in duration. (The exception to that requirement would be if the subsequent lease were a Temporary Tenancy of less than one year.) Under this scenario, the landlord would not be required to pay relocation fees when the tenant vacated either at the end of first lease (less than one year in duration) or at the end of any subsequent lease. The tenant, however, would have assurances that if the tenant were to remain in the rental unit after the end of the first, short-term, fixed-term lease, any subsequent lease or leases would be for at least one year. However, the Ordinance could provide, that in the event that a tenant, at the tenant’s sole election, wants consecutive short-term (less than 12 months), fixed-term leases, such consecutive leases could be permitted.
Lastly, staff proposes to amend the Ordinance to provide that if a tenant originally had a lease but it had previously converted to a month-to-month tenancy, the landlord shall not offer a tenant a fixed-term lease unless the tenant requests a fixed-term lease, which offered lease must have terms substantially the same as the original lease as to duration, household services and household composition. See paragraph 3, subsection A, Section 6-58.35.
Staff believes these amendments will remove the incentive for landlords to require tenants to enter into serial short-term, fixed-term leases as a strategy to avoid paying relocation benefits. By requiring that any fixed-term lease, that is not a temporary tenancy, be a minimum of 12 months in duration, tenants receive certainty regarding the length of tenancy and understand that pursuant to a fixed-term lease both parties agree and understand that the lease terminates by operation of its provisions and no relocation benefits are owed.
B. Tenancy Terminations for “No Cause”
1. The issue
The Ordinance allows a landlord to terminate a tenancy for no cause but limits the number of such terminations monthly and annually, i.e., if a property has five or more rental units, a landlord may utilize the no cause tenancy termination for 10% of the units monthly and 25% annually, as rounded up or down; if four or fewer rental units, the limitation is one annually. Subsection A, Section 6-58.140. The Program Administrator has found that this formula is somewhat imprecise in terms of determining the number of units to which it may be applied.
2. The proposed solution
Staff is proposing the formula be revised to be more precise such that if the property has 10 or more occupied units, a landlord may utilize the no cause terminations for 10% of the occupied units monthly and 25% annually, for seven, eight or nine occupied units, one monthly and two annually, and for six or fewer occupied units, one annually. See subparagraphs 4, 5 and 6, subsection A, Section 6-58.140. As a practical matter, the math under the Ordinance as written works out the same as the proposed revisions except for a six-unit complex where under the Ordinance as written, a landlord could utilize the no cause termination twice annually rather than once annually. Staff believes these revisions will be clearer to landlords and tenants.
Staff also notes that it is not recommending any change to the Ordinance concerning eliminating “no cause” for grounds of eviction. In the past year there were only 32 notices of termination filed with the Program Administrator based on “no cause”. In light of nearly 15,000 rental units, the number of no cause evictions is so small that staff concludes the Council’s decision last year to allow no cause evictions but limit the number both monthly and annually should not be changed at this time.
C. Notice to Vacate Due to a Governmental Order; Exceptions as to When Relocation Fees Must be Paid; Timing of Payment of Relocation Fees
1. The issue
Under the Ordinance, a landlord is required to pay relocation fees to a tenant due to a governmental order that the unit must be vacated. See subsection J of Section 6-58.140. Generally this will occur where the landlord has failed to maintain the unit such that it is dangerous to the health and safety of the occupants and the Fire or Community Development (Building Division) Department orders the unit vacated. Under the Ordinance, following the landlord’s correction of the conditions that gave rise to the governmental order to vacate, the landlord must offer the unit to the tenant at the same rent as charged previously and pay not only for relocation costs to move the tenant to a habitable unit but also for relocation costs to return the tenant to the unit.
A governmental order to vacate could be issued, however, through no fault of the landlord. For example, there could be an earthquake, a flood, or fire (not caused by the landlord) that causes the unit not to be habitable. Or, a tenant could willfully engage in activity that renders the unit uninhabitable. In those situations, it may not be appropriate to require the landlord to pay relocation fees to the displaced tenant nor to require the landlord to offer the unit to the displaced tenant at the same rent as before the displacement.
Also, with most tenancy terminations, a landlord serves a notice that provides at least 60 days’ notice before a tenant must vacate. With a governmental order to vacate, however, the tenant must vacate immediately and the Ordinance does not currently address when under those circumstances the relocation fees must be paid.
2. The proposed solution
Staff is proposing the Ordinance be revised to eliminate the payment of relocation fees when the governmental order to vacate has been issued through no fault of the landlord, including eminent domain proceedings. In eminent domain proceedings, state law provides for relocation assistance to displaced tenants and would therefore supersede the City’s Ordinance. See subsections A and E of section 6-58.150 and subsection C of Section 6-58.155.
Moreover, where the reason for the order to vacate was not due to fault of the owner, e.g., flood, earthquake, natural disaster, etc., it is not fair to require the landlord to offer the tenant the unit at the same rent as before and, where the governmental order to vacate was due to actions of the tenant, it likewise is not fair to require the landlord even to offer the unit to the tenant once the conditions have been resolved. Accordingly, staff proposes to amend paragraph A of subsection J of Section 6-58.140 to address those two issues.
Staff proposes to add a paragraph 3 to subsection B of Section 6-58.150 to provide the landlord must pay the full amount of the relocation fees within three business days of the governmental order to vacate, if that order to vacate is for a reason other than no fault of the landlord (e.g., earthquake, flood, fire, etc.) or actions of the tenant.
Finally, where a landlord has terminated a tenancy to comply with certain governmental orders, the Health and Safety Code also requires relocation fees to the displaced tenant. Staff is proposing the Ordinance be amended to require the landlord to pay, when applicable, the relocation fees under the Ordinance or as required by the Health and Safety Code, whichever is greater. See paragraph b, subsection J, Section 6-58.140.
D. Amount, Notice, Timing and Payment of Relocation Fees
1. The issue
The Ordinance requires relocation fees to be paid to the tenant when a landlord terminates a tenancy for certain reasons, for example, no cause or an owner move in. The Ordinance, however, refers only to a “Notice to Vacate” which is the notice for a no cause eviction rather than the broader phrase “other notice to terminate a tenancy”. In addition, the relocation fee includes a $1,500 payment which is intended to cover moving expenses. The $1,500 payment is to be adjusted each January to reflect a change in the Consumer Price Index (CPI). The change in the CPI, however, does not occur exactly on January 1. The Ordinance is also not clear within what time frame the relocation fees are to be paid or that the landlord must inform the tenant of the amount of the relocation fee to which the tenant is entitled when the notice to vacate is served. Those details are important so that the tenant can begin to make plans for alternative housing.
In addition, with certain tenancy terminations, such as no cause and withdrawal of the unit from the rental market, the tenant may “trade” relocation fees for additional time in the unit beyond the date to vacate in the notice to terminate the tenancy. That concept, however, is not reflected in the paragraph that addresses when the landlord is to pay the tenant the first half of the relocation fees. Moreover, the Ordinance does not require the landlord to inform the tenant in writing when the tenant has the option to exchange fees for additional time in the unit. The Ordinance is also not clear that if the tenant elects to exchange relocation fees for additional time in the unit, the tenant is nevertheless responsible to continue paying rent. Similarly, the Ordinance does not require the tenant to notify the landlord in any specific time frame if the tenant intends to exchange additional time in the unit for reduced relocation fees.
2. The proposed solution
Staff proposes to amend the Ordinance to include the broader “other notice to terminate a tenancy” in subsections A and C, Section 6-58.150. Because of the recent change in the CPI, staff recommends that if the Ordinance is amended, the current moving expense fee of $1,500 be changed to $1,553 (which is what landlords are now being advised is the correct amount) and that the previous November change to the CPI become the operative date so that the new fee can be adjusted as of January 1. See paragraph 1, subsection A, Section 6-58.150.
In addition, staff proposes to include a requirement that the landlord inform the tenant of the amount of the relocation fee to which the tenant is entitled when the notice to vacate is served and the failure to do so renders the action to terminate the tenancy void. See paragraph 2, subsection A, section 6-58.150. For no cause and no fault termination of tenancies (other than under a governmental order to vacate), staff proposes that one-half of the relocation fees be paid within three business days of the tenant’s notifying the landlord the tenant will vacate on the day set forth in the notice to vacate, and the other half within three business days of the vacate day if the tenant has moved out as previously indicated the tenant would. See paragraph 2, subsection B, Section 6-58.150.
For tenancy terminations where a tenant may exchange relocation fees for more time in the unit, staff proposes a landlord must inform the tenant in writing of that option when the landlord serves the notice to vacate/notice to terminate a tenancy and the failure to so inform the tenant in writing renders the action to terminate the tenancy void. The landlord would have to properly re-notice the termination of tenancy. In addition, if the tenant elects to exchange additional time in the unit for a reduction of the relocation fees, the tenant in writing notify the landlord within 30 days (if the vacate date is 60 days out) or 15 days (if the vacate is 30 days out). The tenant’s failure to notify the landlord timely waives the tenant’s right to dictate this option and grants that decision to the landlord, but does not waive the tenant’s right to receive the full amount of the relocation fees. See subsection C of Section 6-58.150. Finally, staff proposes to clarify that if the tenant decides to exchange time in the unit for relocation fees, the tenant remains obligated to pay rent for that additional time unless the tenant and landlord agree that the relocation fee payable to the tenant can be applied to the rent. See subsection C, Section 6-58.150.
E. Other Clarifying or Housekeeping Revisions
Staff is also proposing the Ordinance be amended to clarify certain issues, remove ambiguities or address non-substantive, housekeeping items as follows:
1. Staff is proposing to add or clarify certain definitions, the most significant of which, in addition to “Temporary Tenancy” and “Primary Residence” (discussed above) are: expands “Housing Services” to include window shades and screens, computer technologies, and entertainment technologies including cable or satellite television services; expands “Housing Unit” to include not only Single Dwellings Units but also Condominiums and Stock Cooperatives (and providing a definition of those terms); adds “Tenancy” to mean the right or entitlement of a Tenant to use or occupy a Rental Unit; and expands “Tenant” to include a sub-tenant, sub-lessee, and a roommate with the Landlord’s consent if such person has the legal responsibility to pay Rent or has agreed to pay Rent. See Section 6-58.15.
2. Certain rental units, such as housing units regulated by federal law or by a regulatory agreement or that are rented for 30 days or less, are not subject to the Ordinance in any respect. Other rental units (e.g., single-family dwellings, multi-family units built after February 1995, etc.) are exempt under State law from the rent control provisions, but not from the eviction or relocation fee provisions of the Ordinance. Currently those housing units not subject to the Ordinance are identified in the definition section as exceptions to the definition of a “Rental Unit”.
Staff is proposing to identify these housing units in a new section (Section 6-58.18) and expand the types of housing units not subject to the Ordinance to include fraternity or sorority houses, housing accommodations owned, operated or managed by a bona fide education institution for occupancy by students, houseboats, accessory dwelling units (formerly known as second or “granny” units), and housing units in which the landlord owns the rental unit, shares a kitchen or bath facilities with one or more tenants and occupies the rental unit as the landlord’s primary residence.
3. When the Ordinance went into effect in 2016, it required the landlord to provide to existing tenants a written notice that the rental unit was subject to the Ordinance, a copy of the Ordinance, a copy of any City regulations adopted to promulgate the Ordinance and any informational brochures provided by the City concerning the City’s rent program. For month-to-month tenancy tenants, the landlord needed to comply by mid-April 2016; for leasehold tenants, the landlord needed to comply no later than the first time the landlord received rent from the tenant (for most tenants, in mid-April 2016). (In addition, the Ordinance imposes this requirement on landlords for prospective tenants.)
After the Ordinance was adopted, but before it became effective, landlords contacted the Program Administrator and asked whether hard copies of the Ordinance, regulations and brochures had to be given to tenants or if they could refer tenants who had internet access to the rent program website where the materials could be found. The Program Administrator determined the requirements of the Ordinance would be satisfied by referring tenants to the website so long as tenants were given the option to receive hard copies and landlords documented how tenants wished to receive the materials. Staff proposes to revise the Ordinance to make it clear that landlords may satisfy this requirement by offering a tenant the choice of hard copies or of accessing the materials on-line and documenting which choice a tenant makes. This will likely have more application to prospective tenants. See subsection C of Section 6-58.20.
4. The Ordinance identifies a number of documents a landlord must file with the Program Administrator, e.g., the notice the landlord is requesting a rent increase above 5%, certain notices to terminate a tenancy, etc. See Section 6-58.30. From time to time, the Program Administrator will need other information or documentation from the landlord in order to process a request for a review of a rent increase. Although the authority of the Program Administrator to request such documents is implicit, staff proposes that a “catch all” subsection be added to Section 6-58.30 to make it clear the Program Administrator may request additional documents to carry out the purposes and intent of the Ordinance. Subsection K, Section 6-58.30.
5. Staff proposes (1) the landlord must make the offer of the one-year lease in writing, not just verbally (see Section 6-58.35); (2) the offer of a Temporary Tenancy would be excluded from the requirement to offer either a prospective tenant or existing tenant a one year lease (see subsection A of Section 6-58.35); and (3) the offer to the tenant must be kept “open” for at least five calendar days (see subsection B of Section 6-58.35).
6. Under the Ordinance, if a tenant pays for utilities, parking, storage, pets, etc. as part of the “rent”, a landlord cannot “unbundle” such charges, (i.e., compel the tenant to pay for these separately) nor increase any charges or fees related thereto, subject to limited exceptions. Moreover, if a landlord decides to unbundle such charges with a new agreement, those charges are to be included in calculating the amount of the rent increase. The Ordinance as written applies, however, only to “leases” and not to situations where a lease has been converted to a month-to-month tenancy or to month-to-month rental agreements. Staff is proposing to amend the Ordinance to clarify that these provisions also apply to month-to-month tenancies. See Section 6-58.40.
7. The Ordinance requires a landlord to notify a tenant that the landlord has requested the RRAC to review a rent increase that exceeds 5%. In the Capital Improvement Plan Policy adopted by the Council, the landlord is to notify the tenant when the Program Administrator has determined that the landlord may increase the rent because of the capital improvements. The Ordinance currently provides that a landlord does not have to provide notice to a tenant in connection with a Capital Improvement Plan. Because the Policy contradicts this, staff is proposing the Ordinance be amended to eliminate this discrepancy. See Section 6-58.50.
8. Staff proposes to amend the Ordinance to make it clear that the landlord (a) must serve the notice of the availability of the rent review procedures at the same time as when the landlord serves the notice of a rent increase under state law and (b) must serve the notice of the availability of the rent review procedures in the same manner as the landlord’s service of the notice of a rent increase under state law. The burden of proof that the landlord has properly served the notice will be on the landlord. As currently provided in the Ordinance, if the landlord fails to prove that the proper notice concerning the rent review procedures was served, the rent increase is void. Section 6-58.55; subsection B, Section 6-58.50.
9. The heading of Sections 6-58.60 and 6-58.65 refer to the “Text” of the notice to be provided to tenants when the landlord proposes a rent increase. Some landlords have asked whether this meant they are to “text” such notices to the tenants. To eliminate this ambiguity, staff is proposing the word “Text” in Sections 6-58.60 and 6-58.65 be changed to “Content”. The notice to the tenant in Section 6-58.65 also provides that a landlord or tenant has only seven days in which to file a petition for a Hearing Officer review following a RRAC decision, but Sections 6-58.70 and 6-58.75 provide for a 15- day filing period. Staff is proposing that the notice in Section 6-58.65 be revised to be consistent with the other sections, i.e., a 15-day time period to file a petition for a Hearing Officer to review a RRAC decision. Also, because the information in the Notice in Sections 6-58.60 and 6-58.65 is very important to a tenant, staff proposes that a statement in various languages be added at the top of the Notice to alert non-English speaking tenants that the information is important and providing a number to call if translation is required. The Program Administrator would then provide the Notice in the language requested by the tenant.
10. The Ordinance requires the landlord and tenant to inform the Program Administrator if they reach agreement on the rent increase before the meeting where the RRAC is to consider the rent increase so the Program Administrator can cancel the item. That requirement, however, is only in the section of the Ordinance where the landlord must request a rent review and not in the section where the tenant may request a rent review. In addition, if an agreement is reached but the Program Administrator is not informed, the item will remain on the RRAC’s agenda and the parties’ failure to appear could result in the rent increase being rendered void.
Accordingly, staff proposes to include in the tenant review section the requirement to notify the Program Administrator if agreement is reached and to include in the tenant and landlord review sections that if they fail to notify the Program Administrator and then fail to appear at the RRAC meeting, the consequences of the “Failure to Appear” section of the Ordinance may apply. Staff also proposes to clarify that the request for a rent review must be postmarked, if mailed, within 15 calendar days. See subsection C of Section 6-58.70 and subsection D of Section 6-58.75.
11. The Ordinance provides that after the RRAC takes into consideration a number of factors, it will “render a decision on the Rent Increase” notwithstanding that before the RRAC makes a decision it not only encourages the parties to reach a voluntary agreement but also discusses and deliberates before making a decision if the parties do not voluntary reach agreement. Staff proposes adding language to Section 6-58.85 to reflect these important aspects of the RRAC process. Staff also proposes to make it clear that in the RRAC hearing, as in the Hearing Officer proceeding, the landlord has the burden of proof concerning the rent increase. In addition, if the landlord and the tenant concur with the RRAC’s decision, the Program Administrator provides a form for them to sign that sets forth generally the terms upon which they agree. The Ordinance refers to this form as an “agreement” but it really is an “acknowledgment” and staff proposes to amend the Ordinance to reflect that language change. See subsections A, C and D of Section 6-58.85.
12. The Ordinance requires that when an “entity” owns a rental unit, a person who attends a RRAC meeting must have the lawful authority to bind the entity. Because that calls for a legal analysis, staff proposes to amend the Ordinance such that the Program Administrator makes that determination on advice of the City Attorney. See Subsection D of Section 6-58.90. In addition, when a tenant requests a rent review (a rent increase of 5% or less), the Ordinance is silent as to who may represent the landlord and/or the tenant at the RRAC meeting. Staff proposes to revise the Ordinance to require persons with the authority to bind the landlord and the tenant appear although, for a landlord, that would not necessarily be a person with an ownership interest. A failure to have a person with the authority to bind the respective parties present would constitute a failure of that party to appear. See subsections D and E of Section 6-58-90.d
13. Along those same lines, when a landlord requests a rent increase above 5%, the Ordinance requires a person with an ownership interest to attend the RRAC meeting but the Ordinance is silent as to whether a person with an ownership interest must attend the City Council meeting if the rent increase is “appealed” to the City Council and what are the consequences if such person does not attend. For consistency, staff proposes to amend the Ordinance such that if there is an appeal to the Council (for single-family homes, etc., or units built after February 1995), a person with an ownership interest must also attend the City Council meeting and the person’s failure to attend will render the rent increase void. Moreover, for consistency concerning the time period for those rent increases when a petition must be filed, staff proposes amending the Ordinance to provide 15 days for a tenant to request the City Council to review a RRAC decision. See subsection A of Section 6-58.95.
For appeals where the rent increase is 5% or less, a person with authority to bind the landlord (but not necessarily have an ownership interest) must appear at the Council meeting. In either case, the tenant or a person with authority to bind the tenant must also appear. See subsection C of Section 6-58.95.
14. The Ordinance, as written, is not clear that tenants in units subject to rent control but with rent increases of less than 5% are subject to non-binding RRAC decisions only. Staff proposes the Ordinance be revised to eliminate any uncertainty. See subsection A of Section 6-58.95, subsection A of Section 6-58.100 and subsections A and E of Section 6-58.105. Moreover, because the RRAC’s and Council’s decisions as to rent increases of 5% or less are non-binding as to all rental units, only the tenant, not the landlord, may request the Council to review a RRAC decision when the rent increase is 5% or less (and when the rent increase is for rental units exempt from the rent control provisions of the Ordinance, regardless of the rent increase). Subsection A, Section 6-58.95.
15. If a landlord is dissatisfied with the RRAC’s decision regarding a rent increase and the rental unit is not exempt from rent control, e.g., a multi-family rental unit built before February 1995, the landlord may initiate a hearing process before a neutral hearing officer (although to date, no landlord has initiated such a process). The Ordinance requires the landlord to notify the tenant in writing if the landlord initiates this process. The Program Administrator advises this is not necessary as first, the Administrator must coordinate the hearing process and in so doing, will inform the tenant and advise him/her of the process and second, landlords are likely to overlook this requirement. Accordingly, staff proposes to eliminate the requirement that the landlord notify the tenant when the landlord initiates the petition hearing process and place that obligation on the Program Administrator. Subsection A, Section 6-58.100.
16. For multi-family rental units for which a certificate of occupancy was issued before February 1, 1995, and where the rent increase is above 5%, a landlord or a tenant, following a RRAC decision, may file a petition to have a Rent Dispute Hearing Officer determine the rent increase. The Ordinance provides the burden of proof at the hearing to whichever party files the petition. Because the landlord is the party who initiates the rent increase, staff is proposing the Ordinance be amended so that the landlord always has the burden of proof, regardless of who files the petition. See Section 6-58.110.
17. If a timely petition is filed to have a rent increase determined by a Rent Dispute Hearing Officer, the Hearing Officer may request the parties provide documents and information in support of their position. The Hearing Officer may proceed with the hearing, however, even if a party fails to provide such documents or information. The Ordinance is silent, however, whether the Hearing Officer may proceed with the hearing in the unlikely event one of the parties fails to appear without good cause. Staff proposes amending the Ordinance to make it clear the Hearing Officer may proceed under those circumstances. See subsection D, Section 6-58.115.
18. Costa Hawkins exempts from rent control certain rental units for which an initial certificate of occupancy was issued after February 1, 1995, and “rental units that are separately alienable from the title of any other dwelling unit”. The Ordinance exempts from rent control such rental units that were constructed after February 1, 1995, and “single family dwellings”. Section 6-58.135 is proposed to be revised to be consistent with the terminology of State law.
19. When a landlord re-rents a unit after serving the prior tenant with a no cause termination, the landlord may impose on the new tenant rent that is no more than 5% higher than what the prior tenant was charged. If it is discovered the new rent has been increased in excess of 5%, the landlord is to reduce the rent and reimburse the tenant for the difference. The Ordinance is silent as to when this reimbursement is to occur so staff proposes to amend the Ordinance so that the reimbursement is made within ten business days. See paragraph 3, subsection A, section 6-58.140.
20. Under the Ordinance, it is not a breach of the lease if certain members of the tenant’s family are added to the household. Staff proposes to amend the Ordinance to clarify that no breach occurs if a person is added to the household who is related to the tenant by blood, birth, adoption, marriage or domestic partnership, the foster child or foster grandchild of the tenant or the other identified individuals, or a person needed for the reasonable accommodation of the tenant or other identified individuals. See paragraph 1, Subsection C, Section 6-58.140.
21. Similarly, staff is proposing the Ordinance be amended to clarify that an owner move in includes a person who is related to the landlord by blood, birth, adoption, marriage, or registered domestic partnership. See subsection F of Section 6-58.140.
22. Within seven days, a landlord is required to file with the Program Administrator a copy of the notice to terminate a tenancy for all no cause and no fault reasons. Subsection D, Section 6-58.30. Subsection E of Section 6-58.155 fails to make a distinction between these reasons and the “just cause” reasons. Staff proposes to amend subsection E of Section 6-58.155 to be consistent with Section 6-58.30.
23. Although it is implicit that City Council has the authority to adopt policies and regulations to implement the Ordinance, staff proposes to add a new section 6-58.200 to make that authority clear.
Fee Study/Annual Program Fee
In June 2016, staff recommended that the City Council adopt a fee to fund the Rent Program. At that time, the Council voted to pay for the first year of the Program with General Fund reserves. Council wanted to better understand the cost of the Program before considering a fee and requested that the item be brought back after more data on the Program and the cost to administer it were known. The Housing Authority has been able to administer the program over the last 12 months, and will continue to run the program for another three months, on the initial nine-month budget. This is primarily because it has been operating with temporary staff, pursues violations on a complaint basis only, and has delayed major expenditures such as purchasing a client database system due to the uncertainty of the Ordinance’s long-term future prior to the November election. Even with these budget-saving measures, staff does not believe that the cost of administering the program can be sustained as a General Fund-funded activity.
In addition to the costs associated with the Program Administrator, there have been large associated costs for the City Attorney’s office to provide the legal support for the program. The City Attorney recently added a new attorney to its office to assist with the legal workload related to the Ordinance. It is appropriate for these costs to be paid in part by the beneficiaries of the program. Therefore, staff is requesting authorization to prepare and present an updated fee study to the City Council at its June 4, 2017 meeting, with a recommendation that a fee be adopted effective July 1, 2017, to pay for the rent program beginning in the new fiscal year. Presenting an updated fee study in June will allow sufficient time for the Council to provide staff with direction regarding any amendments to the Ordinance and to factor any changes to the cost of implementing the Ordinance, such as proactively ensuring compliance with the Ordinance, into the fee study.
Because the Council did not adopt a program fee last year, the Ordinance is currently silent as to a program fee and who will be responsible for paying such fee. Staff is proposing landlords pay an annual program fee as determined by the City Council, up to one half of which a landlord may allocate to a tenant paid over a 12-month period. See Section 6-58.170. Staff anticipates recommending such fee, based on a fee study, when this matter is returned to the City Council.
FINANCIAL IMPACT
There is no financial impact to the General Fund for the Council’s providing direction to staff concerning potential revisions to the Ordinance. However, there is a substantial cost to the General Fund in the event that a Program Fee is not adopted for the upcoming fiscal year. It is anticipated that the cost of implementing the program, including the Program Administrator and City Attorney costs, will be approximately $1.3 million annually. The ultimate cost of the Program will be in part determined by any changes to the Ordinance the Council may direct.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The Ordinance is currently embodied in the Municipal Code and any revisions thereto will need to be incorporated therein.
ENVIRONMENTAL REVIEW
Providing direction to staff concerning this Ordinance is not subject to environmental review because it is a continuing general policy and procedure making activity and therefore it is not a project under the California Environmental Quality Act (CEQA) Guidelines, section 15378 (b)(2).
RECOMMENDATION
Accept the Annual Report for the Rent Program, direct staff to prepare certain amendments to the Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance, consider revisions to Ordinance No. 3132 governing the Rent Review Advisory Committee, and authorize staff to prepare an updated Fee Study to pay for implementing the Ordinance.
Respectfully submitted,
Debbie Potter, Community Development Director
Janet Kern, City Attorney
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Summary of Ordinance 3148
2. Annual Report
3. Rental Market Update
4. Redlined Version of Ordinance with Staff’s Proposed Clarifying Amendments
5. Summary of Staff’s Proposed Clarifying Amendments to the Ordinance
6. Landlord Feedback/Comments Regarding Changes to the Ordinance
7. Tenant Feedback/Comments Regarding Changes to the Ordinance
8. Form RP-05