Law to curb raising rent due to taxes advances

A proposed ordinance to blunt the ability of landlords to raise rents so they may pay down mortgage loans and property taxes is headed to the San Francisco Board of Supervisors after winning unanimous approval from the Rules Committee on Friday.

As in many cities, when the costs of operating and maintaining an apartment building in San Francisco runs higher than the allowable rent increases set by the city’s Rent Board each year, landlords may request to pass on some of those expenses to tenants. Landlords may, for example, request a so- called operational and maintenance “pass- through” to help cover the cost of a new roof, or to keep pace with rising water or garbage- collection rates.

But the city stands alone among major Bay Area cities that have rent- control laws allowing landlords to pass on portions of their property taxes and corporate debt to tenants.

With the Rent Board’s permission, in what city officials and tenants’- rights groups call an unfair loophole, landlords may permanently increase rents by up to 7 percent on top of the

annual allowable increases. Such increases can be acutely painful for renters with low or fixed incomes. A 7 percent jump on someone paying $ 1,500 in rent is an extra $ 105 a month.

Operational and maintenance pass- through petitions have risen steadily over recent years, impacting a growing number of individual apartment units. According to Rent Board officials, the vast majority of operational and maintenance pass- through petitions are attributable to increased property taxes and debt service, which usually arise from the sale of a property.

The legislation, authored by Supervisor Sandra Lee Fewer, would eliminate debt- service and property tax passthroughs, as Berkeley, Oakland and San Jose have all done in recent years. Landlords would still be able to apply for pass- throughs for capital improvements, like painting or roofing improvements. Should the full board approve Fewer’s bill, it would apply to any apartment building sold after April 3, the date her legislation was introduced.

“There is a flaw in our rent ordinance that allows landlords to passthrough debt service and property tax increases they have incurred from simply purchasing a rent- controlled building, not for maintaining and improving” the property, Fewer said. Renters, she added, “should not be burdened with a rent increase just because they have a new landlord.”

Fewer, who manages three properties herself, said she was unaware that debt- service and property tax passthroughs existed until she began working on her legislation.

Buying a multiunit building in San Francisco usually requires taking out a sizable loan. And once the sale is made, reassessed property taxes usually saddle owners with higher property tax bills. As such, most debt- service and property tax passthrough requests come from large, acquisitive property management firms like Veritas Investments and Ballast Investments — two of San Francisco’s largest landlords.

Since May 2017, the Rent Board has issued decisions on 67 operational and maintenance pass- through requests.

Of those, 91 percent were filed by new property owners after the sale of a building, and all received permission to raise rents by the maximum 7 percent.

Among the dozens of speakers who came forward during public comment Friday, some identified themselves as small property owners who rely on debt- service and property tax passthroughs to stay afloat. Some also pointed out that tenants can apply for — and often receive — waivers if they can demonstrate financial hardships.

David Wasserman, an attorney who represents landlords on the Rent Board, said the committee was punishing all property owners in an effort “for the perceived misdeeds of one landlord,” referring to Veritas. The board is composed of pro- tenant, pro- landlord and neutral representatives who are appointed by the mayor.

“That’s not right, that’s not good legislative policy. The more you strip away from the owners, the less they have to improve their property,” Wasserman said.

The Board of Supervisors will take up Fewer’s bill at its meeting Tuesday.