Thousands of condominium tenants in the District could be entitled to pay lower rents and collect substantial refunds under a recent court ruling that all but wiped out rent control exemptions for condo owners.
Rented condominium units have generally been considered exempt from the city's stringent rent control laws, but the D.C. Court of Appeals declared that rent control applies to any condo building in which five or more units are rented.
The ruling could mean not only lower rents and massive refunds for condo renters, but also lower prices for buyers.
An estimated 30 to 40 percent of D.C.'s condo units are owned by investors who use the rents to make their mortgage and maintenance payments on the apartments.
If rent controls make condos unattractive to investors, the demand for units -- and their prices -- could plummet.
In a ruling issued six weeks ago, the D.C. Court of Appeals declared that no unit in a building where five or more units are rented can qualify for the rent control exemption for landlords who own only a few properties.
In the past, the real estate community and the D.C. Rental Housing Commission have interpreted the small-landlord exemption as applying to anyone who owns and rents no more than four units.
The size of the buildings involved has not been considered a factor.
The appeals court, however, said that was a "misreading" of the statute's language, and that the number of other rented units in the building must be considered.
Industry experts estimate that the ruling affects between 6,000 and 10,000 condominium units owned by investors who have considered themselves exempt from rent control.
One condominium lawyer estimated that 30 percent to 40 percent of the units in most Washington condominiums are now being used as rental property.
Those familiar with condo rentals say some tenants could qualify for rent refunds running into thousands of dollars.
"This is a very, very significant decision which clearly disadvantages a lot of condominium owners," said C. William Tayler, president of the D.C. chapter of the Community Associations Institute.
"Many of them are small investors who own one unit to live in and another to rent out.
"This will have a depressing effect of condominium prices overall . . . and we're going to try to get it overturned somehow," he said.
The rulings came after Belinda J. Dunmire, a tenant in the 170-unit Carriage House condominium near Washington Circle, complained to the D.C. Rental Housing Commission.
She said that her rent should be lowered because she believed her landlord owned more than four units and therefore should be regulated by rent control.
The housing commission agreed to award Dunmire a lower rent and triple damages, saying that her landlord, Myer Feldman, one of the developers of the Carriage House, had not proven that he owned fewer than five units and could meet the small-landlord test.
Feldman appealed the housing commission's decision to the D.C. Court of Appeals, where a three-judge panel concluded that it didn't matter how many units Feldman owned at the Carriage House: he was under rent control because he owned and rented a unit in a building that had more than four rented units.
Feldman has asked that the issue be reconsidered before the full court.
Few condominium owners in the city are aware of the ruling, and those who have heard about it were reluctant to discuss it because of its potential impact.
"The effect of this new interpretation would be chaotic because it could conceivably bring under rent control almost any unit in the city," said Donald Slatton, executive vice president of the Apartment and Office Building Association of Metropolitan Washington.
"The legislative history indicates that is not what the D.C. City Council meant by the small landlord exemption," Slatton said.
" The decision means that if you owned a unit in a 10-unit building where some of the units were owner-occupied, you could yo-yo in and out of rent control through no fault of your own if just one or two people decided to move and rent out their units or to move back."
Benny L. Kass, a D.C. lawyer who represents a number of condominium associations in the city, said the condo association members he had spoken with about the decision "were dumbfounded."
Eric Von Salzen, a lawyer with the firm of Hogan & Hartson, which represented Feldman, said the decision had alarmed the real estate community because it could effectively ruin the sale of condominiums as investments in the city and cause havoc for owners of rented condo units.
Von Salzen said that a unit owner might easily be sued by a tenant for a refund of as much as $11,000.
Von Salzen said a typical case could involve a unit in an older apartment building that had been rented for $250 a month before it was renovated and converted to a condominium and rented again.
In this example, Von Salzen estimated that such a unit could have been rented for about $400 after renovation and conversion.
The law would permit the rent to be raised about 10 percent a year. If the condominium conversion had been done five years ago, the rent could have increased to $560 by 1985.
Under the statute of limitations, a tenant can only sue for a refund for rents during the last three years.
In this example the tenant could seek a refund of the rents above the original base of $250 for three years, a total of $11,260, plus interest.
The rent control law allows landlords to apply for increases to cover the renovation expense and for annual cost-of-living increases, but most condo investors probably didn't do that, thinking they were exempt.
"This thing has probably created as much confusion as anything could," said G.V. (Mike) Brenneman, president of Brenneman Associates Inc., a condominium brokerage firm that has syndicated a number of condominium buildings around the city.
"It's really a tortured interpretation."
Von Salzen said it was less likely that a tenant could successfully sue for triple damages now because of a change in the law that requires a tenant to prove a landlord had acted in bad faith in order to win triple damages.
"It would be real difficult for someone to prove bad faith in a case like this, when everyone in town was working under the old interpretation of the law," Von Salzen said.
Real estate industry organizations said they planned to pursue the issue through the courts, and if that is unsuccessful, they will seek relief from the D.C. City Council.
A spokesman for council Chairman David A. Clarke, who owns a condominium and rents it out, said Clarke never comments or votes on questions involving the small landlord exemption, and he would have no comment on this issue.