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Introduction of Amending the Alameda Municipal Code by Amending Various Sections of Article XV of Chapter VI Concerning (1) Review of Rent Increases Applicable to All Rental Units and Rent Stabilization Applicable to Certain Rental Units and (2) Limitations on Evictions and the Payment of Relocation Assistance Applicable to all Rental Units. (Rent Stabilization 265)
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To: Honorable Mayor and Members of the City Council
From: Jill Keimach City Manager
Date: May 16, 2017
Re: Introduction of Administrative, Clarifying, and Other Changes to Ordinance 3148 Amending the Alameda Municipal Code by Amending Various Sections of Article XV of Chapter VI Concerning (1) Review of Rent Increases Applicable to all Rental Units and Rent Stabilization Applicable to Certain Rental Units and (2) Limitations on Evictions and the Payment of Relocation Assistance Applicable to all Rental Units
BACKGROUND
At its April 4, 2017 meeting, the City Council received a staff presentation on the Rent Program annual report, proposed amendments to the City’s Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance (Ordinance), and a request to prepare an updated fee study to fund the Rent Program. A hearing was also conducted and testimony was received from the public. At the conclusion of the hearing and after some Council discussion on several of the proposed amendments, the Council adjourned the meeting to April 7, 2017.
At the April 7 meeting, the City Council accepted the annual report, authorized staff to update the fee study and provided direction to staff regarding proposed changes to the Ordinance. Exhibit 1, Summary of Council Direction and Staff’s Recommended Amendments to the Ordinance, is attached.
In addition to providing direction on staff’s proposed amendments to the Ordinance, Council directed staff to prepare additional analysis of the following: 1) analysis of “no cause” eviction protections, including ordinance provisions from other cities, among other provisions; 2) revising the formula for calculating relocation benefits, for permanent as well as for temporary tenancy terminations; and 3) review of the Rent Review Advisory Committee (RRAC) process including use of a professional mediator with or without the RRAC and the role of the hearing officer.
Council agreed to a two-step process for moving forward with proposed changes to the Ordinance. The first step will be for the Council to consider amending the Ordinance to assist the Program Administrator in implementing the Ordinance fairly and efficiently, to support landlords and tenants in understanding their obligations and benefits, and to better carry out the purposes and intent of the Ordinance. This is accomplished by this evening’s consideration of staff’s recommendation to introduce an ordinance making the largely administrative changes summarized in Exhibit 1 and described below. In addition, a redlined version of the proposed new ordinance is attached as Exhibit 2.
Pursuant to Council direction, staff is in the process of retaining a third-party consultant to analyze and make recommendations regarding the three more substantive issues identified above. Once the consultant’s work is completed, staff will return to City Council with recommended actions for its consideration.
DISCUSSION
Stakeholder Input
As part of its consideration of the proposed changes to the Ordinance, there were several issues, primarily recommended changes dealing with noticing and timing of various requirements such as the offer of a one-year lease, where the Council directed staff to meet with the stakeholders and seek their input. Staff met with both landlord representatives and members of the Alameda Renters Coalition (ARC) on Tuesday, April 25, to review Council direction, hear feedback on the specific items for which the Council requested input, and discuss next steps.
Council requested input from stakeholders on four specific issues. The first was the length of time that the offer of a one-year lease should be left open. Landlords felt that the offer of a one-year lease should be left open for 30 days. Tenants felt that the offer should be left open for 60-120 days. The ordinance has been drafted to require that the offer of a one-year lease be open for 30 days. The second issue was within how many days should a tenant receive the first half and second half of his/her payment of relocation benefits. The Ordinance requires that the first half of the relocation payment be made after the tenant notifies the landlord he/she will be vacating the unit and that the second half of the payment will be made after the tenant vacates, following a notice of termination for no cause or no fault. However, the Ordinance does not specify within how many days of each occurrence such payment should be made.
Landlords proposed that the first half of the relocation payment be made within 30 days of a 60-day notice to terminate or within 15 days of a 30-day notice to terminate and that the second half of the payment be made within 21 days of the tenant vacating the unit, the deadline for the return of a security deposit. Tenants suggested that 100% of the relocation benefit be paid at the same time the notice of termination of tenancy is served. The payment of relocation benefits in two installments is a key provision of the Ordinance. Therefore, staff is not recommending a change in the basic payment structure. However, staff believes that payment of relocation benefits should happen in short order once a tenant has notified the landlord he/she will be vacating the unit and then when the unit is vacated. The new ordinance proposes payment of one half of the relocation benefits within three business days of the tenant’s notice he/she will vacate the unit and payment of the second half of the relocation benefits within three business days of the tenant move-out.
Council asked for feedback on a related issue regarding within how many days a tenant should receive relocation benefits when a tenancy is terminated (and a tenant vacates the unit) due to a governmental order to vacate the unit. Termination of tenancy due to a governmental order to vacate triggers payment of 100% of the relocation benefit as a tenant has to move immediately. Landlord representatives thought that relocation benefits should be paid within five business days. Tenants thought that relocation benefits should be paid within 24 hours of the notice to vacate. The amended Ordinance proposes relocation benefits to be paid within three business days.
Council had extensive discussion on several issues surrounding the governmental order to vacate, particularly around proposed language to specify that if the governmental order was due to a natural disaster or other event that was not the fault of the landlord, including willful actions of the tenant(s), that landlords not be required to pay relocation benefits nor offer the unit to the tenant at the same rent once the conditions that gave rise to the governmental order to vacate had been resolved. Currently, the Ordinance is silent on these circumstances. While the Council was generally inclined to require payment of relocation benefits under these circumstances, it was willing to seek feedback from stakeholders, particularly regarding a definition of “willful actions” and how such a determination would be made.
The landlord stakeholders expressed deep concern about the hardship of providing relocation benefits when there is a governmental order to vacate due to a natural disaster or other activity that was not the fault of the landlord. Concerns focused on high insurance deductibles, the fact that payment of relocation benefits is not covered by insurance, and that many landlords do not carry earthquake insurance. An additional concern was whether or not State law (certain provisions in the Health and Safety Code) may have some bearing on the requirement to pay relocation benefits under those circumstances. (State law may also bear on the obligation to pay relocation benefits due to willful actions of a tenant.)
The tenants felt that “willful action” amounts to criminal conduct and that in turn allows for a just cause eviction for which relocation is not required to be paid. Further, the tenants felt that a judge, who, for example, presides over an unlawful detainer action or a wrongful eviction action, would be the appropriate person to determine if an activity was a willful action on the part of a tenant.
Concerns around temporary relocation benefits versus permanent relocation benefits and the right to return to the unit once it is deemed habitable and at what rent were also raised by landlord representatives.
Given the complexity of this issue and the keen interest of both landlords and tenants, staff is recommending no change in the current Ordinance relating to relocation for governmental orders at this time but that the range of issues associated with a governmental order to vacate be further researched as part of the analysis on revising the formula for calculating relocation benefits.
Staff received additional correspondence from several landlords which is attached as Exhibit 3.
Proposed Changes to the Ordinance
As noted above, Council’s requested action is to introduce an ordinance that amends the City’s existing rent ordinance to better carry out the purpose and intent of the Ordinance. While most of the changes are clarifying and housekeeping in nature, there were several proposed changes to address more complex issues that generated substantial discussion. The clarifying/housekeeping changes recommended by staff and agreed to by City Council are captured in Exhibit 1.
The more complex issues include temporary tenancies and fixed-term leases and amount, notice, timing and payment of relocation benefits. Based on feedback received from the City Council, staff proposes to address those issues as follows:
Temporary Tenancies and Fixed-Term Leases
One issue discussed in the April 4 staff report, on which many members of the community commented and which Council discussed at some length were whether landlords were using fixed-term leases, i.e., leases that have an express end-date, to avoid paying relocation fees to tenants as the Ordinance does not currently require such payment at the end of a fixed-term lease. On the other hand, there are situations, for example, where an owner of a single-family home may be traveling, have business or have a military assignment out of the community for a lengthy period of time and wants to rent out his/her home without having to incur relocation costs.
To address these issues, at Council direction, the proposed amendment would allow a landlord, without incurring the obligation to pay relocation fees, to offer a “temporary tenancy” when the landlord wants to rent the landlord’s “primary residence” (as defined) for no more than a year so long as the landlord re-occupies the residence for at least six months thereafter. The only exception for a longer temporary tenancy (up to five years) would be for an owner who has a military assignment or a tenant who is in the military and has a military assignment of a fixed term. See Sections 6-58.15 EE (Temporary Tenancy defined), 6-58.15 U (Primary Residence defined), 6-58.37 (offers of temporary tenancies) and 6-58.150 E (no relocation fees at the end of a temporary tenancy).
Also, to address concerns about fixed-term leases being used to avoid paying relocation fees, the proposed amendment would allow a landlord to offer a fixed-term lease of any duration but (1) any subsequent fixed-term lease must be at least one year in duration and (2) if the tenant remains in the unit at the end of the fixed-term lease, whether by way of a lease (fixed-term or not) or a month-to-month tenancy, the landlord will be required to pay relocation benefits at the end of the tenancy. See Sections 6-58.38 (offers of fixed- term leases) and 6-58.150 F (payment of relocation fees at the end a fixed-term lease).
In addition, staff has clarified that for tenants who were on month-to-month tenancies when the Ordinance went into effect on March 31, 2016, it was Council’s intent that a landlord be precluded from offering such tenants a fixed-term lease when, as required by the Ordinance, the landlord must offer such tenants a one-year lease with the first rent increase following March 31, 2016, because to do so would potentially deprive a month to month tenant from receiving relocation benefits. See Section 6-58.35 A. 3. Because that was Council’s intent, staff has added a Section 3 to the Ordinance itself (on page 31 of the redline/strike-out version) to provide this change to paragraph 3 of subsection A of Section 6-58.35 is “declaratory of existing law”.
As a corollary to landlord’s being required to offer tenants, including prospective tenants, a one-year lease, after discussion with the various stakeholder groups, the amendment would require such offers to remain “open” for at least 30 days. See Section 6-58.35 B.
Another unresolved issue about fixed-term leases is whether a landlord must file a request for RRAC review when the landlord offers an existing tenant on a fixed-term lease that is about to end a new lease (whether fixed-term or not) that increases the rent by more than 5%. Under the Ordinance as written, the Program Administrator has been informing landlords they do not, but treating a tenant on a fixed-term lease who is to remain in the same unit as a prospective tenant seems contrary to the purpose and intent of the Ordinance. Accordingly, under the circumstances described above, the amendment would require the landlord to file a request for RRAC review (if the “new” rent were more than 5% above the “existing rent”) or require the landlord to provide notice to the tenant that the tenant could request such review if the new rent were 5% or less than the existing rent. See Section 6-58.55.
Amount/Notice/Timing/Payment of Relocation Benefits
For certain terminations, a landlord is required to provide relocation fees to the tenant, typically one half when the tenant notifies the landlord that the tenant will vacate on the date set forth in the termination notice and the other half once the tenant has vacated the unit if the tenant vacates the unit as set forth in the notice. Moreover, in some situations, a tenant may exchange additional time in the unit for a reduction in relocation fees. The Ordinance, however, does not provide specificity as to certain issues such as the notice to vacate informing the tenant that he/she is entitled to relocation fees and the amount of the fees, or the timing as to when the relocation fees are to be provided to the tenant. Similarly, the Ordinance is silent as to when a tenant must inform the landlord the tenant intends to exchange additional time in the unit for a reduction in the relocation fees.
To address these issues, as directed by Council and with input from the stakeholders, the amendment provides:
When the landlord serves certain termination notices, the landlord must inform the tenant in writing of the amount of the relocation fee to which the tenant is entitled and the failure to do so renders void any action to terminate the tenancy (section 6-58.150 A. 2).
For most terminations (other than those associated with a governmental order to vacate), the landlord is to provide one half of the relocation fees within three business days after the tenant has informed the landlord in writing the tenant will vacate the unit as provided in the notice (or on the date as permissibly extended for certain tenancy terminations) and the other half within three business days if the tenant vacates not only the unit but also removes all of the tenant’s personal property from the property (such as in a storage unit) on or by the date in the notice to vacate (as permissibly extended) [section 6-58.150 B. 2 and section 6-58.155 C.].
For a tenant who has vacated a rental unit due to a governmental order to do so, the landlord is to pay the full amount of the relocation fee within three business days of the tenant’s vacating the unit (section 6-58.150 B.3 and section 6-58.155 C).
For certain terminations, when the landlord serves the notice, the landlord must inform the tenant in writing that the tenant may remain in the unit one additional month for every year, or portion thereof, that the tenant has rented the unit (up to four months) and the landlord’s failure to do so renders the action void. The tenant must inform the landlord in writing within 30 days (if there is a 60 day notice to vacate) or within 15 days (if there is a 30 day notice to vacate) if the tenant wishes to extend time in the unit for a reduction in relocation fees.
The tenant’s failure to do so waives the tenant’s right to extend time but does not waive the tenant’s right to receive the full amount of the relocation fees. If the tenant chooses to extend the time in the unit, the tenant remains obligated to pay rent but the tenant and the landlord may agree that some or all the relocation fees to which the tenant is owed may be applied as a credit against the rent (section 6-58.150 C).
As mentioned earlier, a landlord is not required to pay relocation fees at the termination of a temporary tenancy (section 6-58.150 E) but is required to pay relocation fees if a tenant remains in a unit following the end of an initial fixed-term lease, whether at the end of a subsequent lease (fixed term or not) or subsequently the tenant receives a notice of termination for no cause or no fault (section 6-58.150 F).
Business License Requirement
Under the City’s business license ordinance, any property owner with two or more rental units must pay a business license tax, currently $20/unit. Council directed that the amendment include a provision that in order for a rent increase above 5% to be effective, the landlord must provide evidence the landlord has a current business license, assuming such license is required, and without that evidence the rent increase is void (but can be cured by obtaining the license and re-noticing the tenant). The Program Administrator advises that of the landlords who were required to have a business license and requested the RRAC to review the rent increase, 80% had current business licenses. The amendment now has that provision in section 6-58.75 A and C. Because a tenant triggers a review of a rent increase of 5% or less, the Program Administrator will check with the Finance Department in those instances to ascertain whether the landlord in question has a current business license and, for rental units not exempt under the Ordinance, the rent increase will not go into effect until the business license is current.
Data Collection
The Council was also interested in collecting more data for various aspects of Ordinance implementation. A key interest was learning more about the status of tenants who were evicted for no cause. The annual report documented 32 valid notices of termination for no cause, eight of which were served at 470 Central Avenue. The Council requested additional information on the remaining 24 terminations for no cause. Housing Authority staff was able to document the following information based on feedback from 14 landlords:
• Ten of the fourteen units for which information was available were single-family residences or condos
• Eleven of the no cause evictions were due to a property sale
• One of the units had a tenant over the age of 62 and six of the units had tenants with minor children
• The highest rent paid was $3,300/month and the lowest was $735/month
Exhibit 4 contains more details about the 14 units for which the Housing Authority was able talk to the landlord. In addition, several Realtors/landlords also followed up on the no cause terminations and provided the information in Exhibit 5.
The Council was also interested in the reasons why 40 tenants did not attend a scheduled RRAC meeting as documented in the Rent Program Annual Report (April 2016 - March 15, 2017). As noted below, the majority of tenants that did not attend a RRAC meeting had received dual offers, one above 5% (and hence the landlord’s filing with the RRAC) and one at 5% or less, and had accepted an offer for a rent increase between 0-5%:
• Twenty-eight tenants agreed to an increase of 0-5%
• Four tenants agreed to an increase of above 10%
• Eight tenants decided to move out of the unit (Six tenants explained their reasons for moving out. Please see data chart in Exhibit 6)
• No information was available for four cases
Based on Council input several forms have been modified to collect data such as the ages of household members (minor children, members over the age of 65), the reason for a no cause termination (sale of home, desire to do substantial repairs, etc.), rent as it compares to the federal Housing and Urban Development (HUD)-published fair market rent, number of bedrooms, etc. In addition, Program Administrator staff has re-designed the monthly reports to better capture the requested data and provide the information more easily. These changes will be incorporated beginning with the April 2017 monthly report.
Model Addenda
Lastly, the Council requested that the Program Administrator prepare model addenda that could be attached to residential leases that would provide clear and concise information about rights and responsibilities of the parties under the Ordinance. These addenda would be available on the Program web site, provided to property management companies and presented in trainings and workshops. A model addendum regarding the required rent increase notices under the Ordinance has been available since the Rent Program began. Based on feedback received at the stakeholder meetings, staff has generated a list of additional addenda that it will prepare over the next several months including:
• Required Relocation Benefits
• Offer of One-Year Lease
• Requirements for Certain Evictions Including 5% Rent Increase Limitation for Next Tenant
• Limitations on Unbundling Utilities and Other Pass-Throughs when Calculating Rent Increases
Conclusion
Staff is recommending that the Council introduce an ordinance amending the City’s existing rent ordinance as set forth above and in Exhibit 1. Staff is also working on the following Rent Program-related activities:
• Retaining a consultant to conduct the requested analysis of just cause evictions, revising the formula for calculating relocation benefits, and a review of the RRAC process including use of a professional mediator with or without the RRAC and the role of the hearing officer.
• Updating the Rent Program fee study for action by the City Council at its June 6, 2017 meeting.
• Preparing the Program Administrator Services Agreement between the City and Housing Authority for City Council approval at its June 6, 2017 meeting. This staff report will include a comprehensive description of the selection process and an analysis of the two proposals received.
FINANCIAL IMPACT
At its April 7 meeting, City Council directed staff to update the prior fee study for the Rent Program. If a Program Fee is adopted prior to July 1, 2017, there will be no impact to the General Fund to introduce an ordinance amending the Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance to make certain clarifying, housekeeping and other changes 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
Introducing 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).
Additionally, approval of the proposed amendments is exempt from further environmental review under the general rule in CEQA Guidelines Section 15061(b)(3) that CEQA only applies to projects that have the potential for causing a significant effect on the environment. As a series of text amendments and additions, it can be seen with certainty that there is no possibility that the ordinance will have a significant effect on the environment.
RECOMMENDATION
Introduce Administrative, Clarifying, and Other Changes to Ordinance 3148 Amending the Alameda Municipal Code by Amending Various Sections of Article XV of Chapter VI Concerning (1) Review of Rent Increases Applicable to all Rental Units and Rent Stabilization Applicable to Certain Rental Units and (2) Limitations on Evictions and the Payment of Relocation Assistance Applicable to all Rental Units.
Respectfully submitted,
Debbie Potter, Community Development Director
Janet Kern, City Attorney
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Annotated Summary of Staff’s Recommended Amendments to the Ordinance
2. Redline version of the amended Ordinance
3. Landlord Correspondence
4. Program Administrator data on the 24 terminations of tenancy
5. Relator/Landlord data on the 24 terminations of tenancy
6. Program Administrator data on the 40 tenants who did not participate in the RRAC process