Rent Increases Due to Earthquake Expenditures
RENT CONTROL REGULATION 4113.
RECOVERY OF EARTHQUAKE-RELATED CAPITAL EXPENDITURES
(a) Purpose: This regulation is adopted as an emergency measure to
ameliorate the effect of the "Northridge" earthquake of January
17, 1994 upon the supply of affordable housing in Santa Monica.
The purposes of this regulation are 1) to encourage prompt
rehabilitation of buildings containing controlled rental units
which suffered substantial damage as a result of the earthquake;
2) to provide an expeditious process for owners of damaged
properties to recover earthquake-related capital expenditures
through permanent rent increases; and 3) to allow owners to
receive prior approval for pass-through of anticipated
expenditures.
(b) Pass-Through: For qualifying expenditures, this regulation
establishes an entitlement to a dollar-for-dollar rent increase
pass-through of the amortized portion of such expenditures,
including reasonable financing, without reference to the net
operating income earned by the property for any period, and
notwithstanding the procedure ordinarily applicable to rent
increase petitions specified in regulations 4100 through 4107.
Since this process will not be concerned with fair return, the
provisions of Civil Code section 1947.15 relating to attorney fees
shall not apply.
(c) Qualifying Expenditures: Expenditures qualifying for rent
increase pass-through under this regulation are any and all
expenditures reasonably incurred on or after January 17, 1994 in
the repair or replacement of damaged portions of buildings
containing controlled rental units or associated structures where
the damage resulted from the earthquake occurring on January 17,
1994, or subsequent aftershocks, including, but not limited to,
emergency repair, clean-up and security, and all reasonable
expenses in mitigation of further earthquake damage.
Reasonable expenditures include fees charged by architects,
engineers, contractors, subcontractors, and laborers, provided
such expenditures are reliably documented. However, expenditures
for demolition of entire structures are not subject to this
regulation. Reasonable expenditures do not include attorney fees,
although applicants may choose to have the assistance of counsel
in pursuing a rent increase under this regulation.
For any building which has earthquake-related expenditures for
purposes of this regulation shall also include replacement of
major building systems (water or waste piping, electrical service,
heating and/or cooling equipment and ductwork, gas piping, roof),
if such system has incurred damage as a result of the earthquake.
This regulation does not preclude any owner from seeking a rent
increase pursuant to regulation 4100 through 4107 on the basis of
nonqualified expenditures. Nonqualifying expenditures will not be
considered in proceedings under this regulation.
Any recovery or entitlement to recover under a policy of insurance
held by the owner shall be deducted from the aggregate expenditure
upon which a pass-through is calculated. Failure of the owner to
disclose the existence of insurance will cause revocation of any
increase granted under this regulation and may result in civil
and criminal penalties.
(d) Amortization Periods: All expenditures subject to this regulation
shall be deemed capital expenditures subject to amortization
reflecting the reasonable life of the improvement. Amortization
periods shall be the same for particular expenditures as the
periods currently specified in regulation 4041.
Amortization shall be only for the purpose of calculating an
annual amount for rent increase purposes. Rent increases granted
pursuant to this section shall be permanent rather than expiring
at the end of the amortization period.
(e) Financing Costs: If no proof is offered regarding financing
costs, a rate of interest shall be imputed to the expenditure
equal to the rate presently in effect for rehabilitation loans
made by the Federal Emergency Management Agency (FEMA) to
applicant residential landlords for loans equal in size to the
aggregate capital expenditure claimed. Alternatively, petitioning
owners may prove that she/he obtained financing at a higher rate,
in which case the actual financing cost shall be added to the
expenditure, provided that the actual financing cost resulted from
an arm's length transaction at a rate not in excess of prevailing
rates for rehabilitation loans. No interest rate in excess of the
prime lending rate plus 4% shall be allowed under any
circumstances.
(f) Time Limits: An owner may file a petition for rent increase under
this regulation either prior to incurring the expenditure, to
obtain pre-approval, or after incurring the expenditure. In order
to encourage prompt commencement and completion of needed repairs,
the following time limits apply.
No petition may be filed after January 17, 1995 unless time for
filing is subsequently extended by the Board. Owners who have not
completed repairs or replacements by that date, but who wish to
take advantage of the pass-through provided by these regulations
must file petitions by that date. An addendum for increases
following completion of proposed capital improvements must be
filed before January 1, 1996 unless time for submission is
subsequently extended by the Board.
(g) Petition Process: A petition for rent increase on the basis of
pass-through of earthquake-related capital expenditures shall be
filed on a form supplied by the Board, which form must be
completed in all respects. In addition to the information called
for on the form itself, owners must attach the following:
(1) a report, if required, certified or under seal, of a
qualified structural engineer or similarly qualified
professional identifying any structural deficiencies to be
remedied;
(2) documentary evidence, including, but not limited to,
photographs or other evidence, including videotape,
depicting all damage;
(3) estimates or contract(s) and invoices from licensed
contractors or subcontractors which itemize materials and
labor supplied or to be supplied, the specific repair or
replacement to be effected, and the address of the building
and unit (if any) in which the repairs are to be made;
(4) Proof of expenses incurred in the clean-up, emergency
repair, securing, fencing, tenant assistance or property
management expenses directly related to the emergency.
(h) Notice and Determination: At the time of filing of the petition,
owner must certify that he/she has mailed a copy of the petition
to each tenant at their last known address and posted a copy in a
conspicuous place on the front of the building, proximate to the
tag issued by the city. Owner must provide a list of tenants and
all known current addresses of tenants to the Board along with the
petition. If the petition does not meet the requirements of
subsection (g) above, the administrator shall deny it without
prejudice to later refiling.
The Board will immediately mail notices to tenants whose addresses
are known advising that tenants have 10 days in which to submit
written opposition to the rent increase petition. If a tenant's
current address is not known, a notice shall be sent to the
property address in case a forwarding order has been placed with
the post office.
Tenants may oppose a rent increase petition filed under this
regulation only on the following grounds:
(1) that an expenditure does not relate to earthquake damage
repair or replacement;
(2) that the amount of an expenditure is unreasonably high
relative to generally prevailing fees for equivalent
services; or
(3) if the petition relates to costs already incurred, that the
work was not actually performed.
The burden of proof with regard to each basis for opposition shall
be on the tenant; however, the Board administrator reserves the
right to investigate and make independent determinations of each
of these issues on the basis of information from any source.
Petitioning owners must allow physical inspection of the building
by a representative of the Board and must produce additional
documentation on request. Failure of the owner to cooperate in
the foregoing respects will permit denial of the petition without
prejudice to the owner's right to seek a rent increase under
regulations 4100 et. seq.
If the tenants do not oppose the petition, or oppose the petition
on grounds other than those permitted above, the petition may be
granted administratively. If the petition is granted
administratively, tenants may file an appeal as specified in
subsection (j) below. If the administrator denies the petition,
the owner may appeal to the Board.
If a tenant or tenants oppose the petition for one of the three
permissible grounds, the Board's administrator shall, in her
discretion, schedule a mediation session or a hearing to resolve
the disputed issues. If the issues are not resolved by mediation,
the administrator in her discretion may grant the petition or
schedule a hearing. The hearing will be limited to the issue
properly disputed.
If a hearing is denied, the tenant may appeal to the Board. If a
hearing is held, notice of the decision shall be mailed to the
owner and all tenants whose addresses are known, and the party
against whom the hearing examiner rules may appeal to the Board.
Nothing in this regulation is intended to abrogate section 1805(h)
of the Rent Control Law, prohibiting owners from implementing rent
increases while out of compliance with the Rent Control Law or
applicable health, safety or housing codes. Such noncompliance
will not be an issue in proceedings under this regulation.
(i) Approval of Proposed Expenditures: As noted above, owners may
petition for rent increase under this regulation on the basis of
proposed expenditures or completed capital improvements. In the
former event, after proposed expenditures are approved, the owner
will not be permitted to implement the approved rent increases
until an addendum is requested and issued.
In the interests of justice, the Administrator (or the hearing
examiner) shall have the discretion to apportion the individual
unit rent increases among the units in a manner and to the degree
necessary to insure fairness.
Upon completion of repairs, the owner must file a written request
for issuance of an addendum and provide copies of contracts and
invoices showing payment of actual expenditures. With the request
for issuance of addendum (on a form to be supplied by the Board),
the owner shall certify:
(1) that the building has been inspected and deemed habitable;
(2) that all tenants other than those who voluntarily
relinquished their tenancy have been offered the right to
re-occupy units; and
(3) that owner has complied with any legal obligations to
provide tenants with temporary relocation assistance during
the period of their displacement.
The Board shall give notice to tenants that a request for addendum
has been filed and that tenants have ten days in which to contest
the issuance of an addendum. The sole ground upon which an
addendum may be opposed is that claimed repairs were not actually
made. After review, the administrator shall approve the issuance
of the addendum if it meets the foregoing requirements and
corresponds to approval already given. If the actual cost of
repairs and replacement exceeds the approved estimate by a
substantial amount, the administrator may require further
information and documentation, and may disallow the excess if it
appears unreasonable.
There shall be no right of appeal from the issuance of an addendum
allowing pass-through of all claimed costs. If the administrator
refuses to issue the addendum for any reason, or denies
pass-through of costs in excess of those previously authorized,
the owner may appeal to the Board.
(j) Appeal to Board: If a party has a right to appeal to the Board
under any of the foregoing provisions, such appeal shall be filed
within ten days of mailing of notice of the event which gives rise
to the appeal. No late appeals shall be accepted. Appeals under
this regulation shall be processed in the same manner as appeals
from other administrative decisions concerning rent increases
under regulation 4100 through 4107.
(k) Time for Final Board Action: The Administrator shall oversee the
processing of rent increase petitions under this regulation so as
to require an initial administrative decision within 30 days and a
final Board decision within 90 days of filing. This shall apply
to approval of proposed expenditures and approval of completed
expenditures, but not to issuance of addenda under subsection (i)
above. Addenda shall be issued or denied within 30 days of proper
request.
(l) Any upward rent adjustment authorized under this regulation may
not exceed twelve percent (12%), twice the Employment Cost Index
(ECI), or fifty ($50) dollars, whichever is greater, for any 12
month period, for any tenant who had the right of occupancy as of
January 17, 1994, for whom such an increase would cause hardship,
as defined below. If the amount of any individual adjustment
otherwise justified under this regulation is greater than said
limit, the full amount shall be granted over a period of years.
Any intervening general adjustments shall be deferred until twelve
(12) months following the last increase authorized by this
schedule, except as provided in subsection (5), below.
(1) Upon the granting of the Emergency Earthquake Pass-through
as set forth in this regulation, any tenant of the subject
property has the right to establish that the implementation
of the full rent increase would impose an unreasonably
severe economic or financial hardship. The tenant shall
have the burden of proof to establish severe economic or
financial hardship by a preponderance of the evidence. To
establish an entitlement to a scheduled-out increase, the
tenant must show either (a), or both (b) and (c), as set
forth below.
(a) The tenant is entitled to and has received a
registration fee waiver as a very low-income senior
citizen or disabled citizen as set forth in Chapter 11
of the Board's regulations; or,
(b) The gross household income, as certified by the Board
staff, is at or below 80% of the median income,
adjusted for household size, for the Los Angeles area.
In circumstances where income levels vary, or where
there have been recent changes in income, the Agency
may require income information for more than the most
recent one-year period. For 1993/94, those figures
are:
Low Income Household - Maximum Income Levels
Household Size Maximum Income
1 $27,050
2 $30,900
3 $34,800
4 $38,650
5 $41,750
6 $44,800
and that,
(c) The tenant household will pay more than thirty per cent
(30%) of its gross income for rent if the full increase is
implemented.
(2) The administrator may determine that the amount of the
increase in excess of the annual limits, or any portion
thereof, be subject to the limitations set forth in this
subsection for the property, or any individual unit. The
administrator has the discretion to refer the issues of the
amount or duration of an increase schedule to mediation.
(3) For any unit that is subject to a regulatory agreement
pursuant to the Board's Incentive Housing Program, any rent
increase sought under this regulation shall be subject to
the restrictions set forth in Regulation 17207 of the
Board's regulations, and by the terms and conditions of the
agreement.
(4) The decision with respect to the imposition of annual limits
shall be appealable to the Board in the same manner and subject
to the same procedures as set forth in this regulation.
(5) If a unit becomes voluntarily vacant during the pendency of
an increase schedule pursuant to this section's annual limit
on rent increases, the landlord may submit a Request for
Addendum, consistent with Regulation 4107, subsections (b),
(c) and (d), of the Boards regulations, authorizing him or
her to implement the unit's full authorized increase without
application of the annual limit.
(6) No rent increase schedule shall last beyond thirty-six (36)
months from the date the increase is authorized.
[4113 Adopted 1/27/94;
[4113(l) Amended 2/3/94;