With the approach of May 1, the effective date of the District's new rent control low, apartment building owners are preparing in increase rents legally 10 percent and more, and some are finding it's not as simple as they thought.
The Rental Housing Act of 1980 for the first time establishd an automatic annual rent hike for controlled apartments equal to the previous year's rise in the consumer price index to a maximum of 10 percent. However, increases of more than 10 percent are permitted for vacant apartments and to meet financial hardship, cost of capital improvements or substantial rehabilitation.
The act replaced the city's present policy of basing annual rent increases for controlled apartments on documented operating expenses. This has tended to yield increases of 5 percent to 7 percent and has generated what owners consider to be excessive paperwork.
With that many different kinds of rent increases, and a similar array of exemptions from the new rent control law, questions from landlords and tenants are pouring into the office of D.C. Rent Administrator Dorothy Kennison.
"Some landlords may be confused that they may implement a rent increase as of May 1" without complying with city requirements such as registration of their apartments and a minimum 30-day notice to tenants, says Kennison. They also must comply substantially with District housing regulations and file a "certificate of implementation" of the rent increase.
Because of the time it will take for owners to conform to these requirements, Kennison doesn't expect to see most owners put the increase into effect until this summer. "The bulk of the increases tenants would get will probably be in June or July," she predicts.
Most owners are expected to take advantage of the full 10 percent allowed by the new law, since the CPI last year rose 12 percent. "It must be made clear that 10 percent is the maximum," Kennison says.
Besides this automatic annual increase, the 1980 act permits landlords to raise rents for certain special reasons. They are:
Hardship: Owners have the option each year of taking a hardship rent increase instead of the automatic increase. The hardship increase is limited to the amount needed to produce a 10 percent return on the owner's equity, defined as a property's assessed value minus encumbrances (outstanding deby). It gives owners the advantage or raising rents more than 10 percent but also requires more paperwork.
Capital improvements: The new act permits owners to recoup capital improvement costs faster, with larger rent increases than allowed before. Improvements fall into two categories, for which the maximum increases differ. They do not include routine repairs or maintenance.
For the limited upgrading of individual units, a landlord may increase rent a maximum of 15 percent for each unit. Building-wide improvements justify a 220 percent hike.
John Hampton, special assistant to Kennison, expects these terms to encourage more renovation, especially in the area of energy conservation, such as conversion of oil heating to natural gas. Any savings in energy costs must be pased on to the tenants.
Substantial rehabilitation: Owners may raise rents under this provision by a maximum of 25 percent above what they were charging before renovation. Substantial rehabilitation is defined as costing at least half of the building's prerenovation value.
Vacancies: If a tenant leaves an apartment voluntarily or is evicted for good cause, such as nonpayment of rent, the owner is free to raise the rent 10 percent or to the amount charged on an apartment in the same building that is "substantially identical" in size, floor plan, physical condition and other characteristics.
A vacancy increase is the only kind that can be put into effect at the same time as the automatic annual rent hike. Thus, an owner who hasn't raised the rent for a year, either as an automatic adjustment or under the vacancy allowance, can take two 10 percent increases on a vacant apartment, for a total of 20 percnet. Owners are entitled to a vacancy increase only once a year for a given apartment.
"There's a lot of fear" among tenants that they'll be hard-presses to pay the combination of automatic and vacancy increases, Hampton says.
Kennison admits that it will "hit some people like a double-barrelled shotgun."
With the voluntary consent of 70 percent of a building's tenants, owners may raise rents for all the apartments by as much as the tenants will agree to. This could occur where there has been an increase in services, for example.
The new law limits most types of rent increases to once a year. Owners may not implement the automatic adjustment if they have raised rents in the past year, for example. Some owners mitakenly believe, Kennison says, that as of May 1 they are eligible for a rent increase regardless of when they last imposed one under the old law.
Owners may in some cases, however, petition for certain nonautomatic rent hikes only 6 months after taking an automatic increase.
The new law should cover some 123,000 units, Hampton says. It does not apply to persons owning four or fewer units throughout the District, nor to apartments that are owned or subsidized by the city or federal government. Also exempt are newly constructed units, apartments added onto existing buildings and certain units operated by nonprofit charitable corporations.
Apartments that lose their exemption may get a rent increase of no more than 5 percent of the average rent charged during the previous 6 months.
Some of the confusion among tenants over who is and isn't subject to the new rent controls should clear up as owners inform tenants signing leases that their apartments are exempt.
Now that the new law is in place to simplify rent increase procedures, Kennison has her eye on reducing the time spent on landlord-tenant disputes over higher rents. " we would like to do conciliations in order to avoid the time-consuming hearing process," she say. Conciliation, initiated informally when tenants challenge a rent increase, also could avoid the imposition of table damages on owners found to be violating the rent control law, Kennison says.