Bill intends to eliminate loophole in S.F. rent law
San Francisco Supervisor Sandra Lee Fewer will introduce legislation Tuesday to eliminate what she and many housing rights advocates call an unjust loophole in the city’s rent ordinance that landlords can use to raise rents so they can pay mortgage loans and property taxes.
As in many cities, when the costs of operating and maintaining an apartment building in San Francisco outpace the annual allowable rent increases set by the city’s Rent Board, landlords may request permission to pass on some of those expenses to tenants.
But San Francisco stands alone among major rent-controlled cities in the Bay Area in permitting landlords to pass portions of their property tax bills and debt service — payments on large loans typically taken out to buy buildings — to tenants. If their petition is approved by the Rent Board, landlords can hike rents permanently by up to 7 percent on top of the annual allowable increases. So-called operating and maintenance “pass-throughs” for debt service and property tax increases are banned in San Jose, Oakland
and Berkeley.
Fewer, who manages three properties herself, said it’s time for San Francisco to follow suit. As of Monday afternoon, fellow progressive Supervisors Aaron Peskin — also a landlord — Hillary Ronen and Norman Yee had signed on to her bill as co-sponsors.
“If people invest in real estate, I don’t want them to lose money on their investments, but I don’t think they should be using these loopholes to exploit tenants,” Fewer said.
Under her legislation, landlords would still be able to apply to pass on the costs of replacing a building’s roof, for example, or if garbage-collection rates suddenly climb. But passing on the expenses of paying loans and property taxes is “unfair,” she said.
“It doesn’t improve the property, it doesn’t make conditions better — it’s not upgrading anything,” Fewer said. “All it’s doing is making a corporation richer. That’s all it is.”
Christina Varner, deputy director of the city’s Rent Board, said there has been a deluge of pass-through petitions filed by landlords in recent months, and the central reasons why they’re being filed are unambiguous.
“The vast majority of petitions that are filed are due to increased property taxes and debt services,” she said. For landlords, Varner said, those expenses “typically arise out of the sale of a property.”
Buying a San Francisco apartment building usually requires taking out a large loan. And after the purchase is made, the reassessment of property values usually saddles landlords with steeply higher property tax bills.
That’s given rise to claims among tenants’-rights organizations that debt service and property tax pass-throughs have become a tool primarily of large, acquisitive property management companies making frequent real-estate transactions.
Brad Hirn, an anti-eviction organizer with the Housing Rights Committee of San Francisco, said large landlords banking on their ability to offset the costs of acquiring property by raising rents contributes to real estate speculation and risks displacing tenants, particularly those on tight household budgets.
“We see this legislation as one way to protect those tenants and address this ongoing problem of out-of-control speculation in the city of San Francisco,” Hirn said.
Charley Goss, government affairs manager for the San Francisco Apartment Association, which represents property owners, said debt-service and property tax pass throughs were an essential tool among several that landlords rely on to keep their operations going in such an expensive city.
“This has been a vehicle in San Francisco that we feel has helped members maintain their buildings and keep people investing in private property in San Francisco,” Goss said, adding that the apartment association planned to meet with city lawmakers to discuss the bill.
Fewer’s legislation would invalidate debt-service and property tax pass-throughs on operating and maintenance petitions filed at the rent board on or after Dec. 11, 2017, the publication date of a Chronicle article indicating she planned to introduce a bill doing away with them.
Of the roughly 100 petitions still pending, 56 were filed on or before Dec. 11, 2017. According to Fewer’s office, 47 percent of the petitions pending before the Rent Board were filed by two of San Francisco’s biggest landlords — Veritas Investments and Ballast Investments.
“Small property owners in San Francisco are not really involved in this,” Fewer said. “It’s these large corporations who have discovered this loophole and are taking advantage of it.”