Legal Corner Q & A

By Various Authors

A. No. You cannot directly pass through any recent increase in garbage rates, because garbage service is not considered a utility under the Rent Ordinance.

Rent Ordinance §37.3(a) provides that in addition to the basic annual rent increase which can be imposed on rental anniversary dates, owners of rent-controlled units can also raise rents to account for, among other items, banked increases, capital improvements, charges related to excessive water usage, property taxes and, of course, utilities. With specific regard to utilities, Rent Ordinance §37.3(a)(4) provides that “[a] landlord may impose [rent] increases based upon the cost of utilities as provided in Section 37.2(q)” of the Rent Ordinance.

However, Rent Ordinance §37.2(q) defines a “rent increase” and then further provides that “where the landlord has been paying the tenant’s utilities and cost of those utilities increase, the landlord’s passing through to the tenant of such increased costs does not constitute a rent increase.” The problem is that Rent Ordinance §37.2(v) then expressly defines the term “utilities” to mean “gas and electricity exclusively” (emphasis added).

In short, garbage service is not a utility and although you may be allowed to charge the tenant for garbage service under a provision in the lease (with the tenant’s payment for that service effectively a component of the rent due under the lease), you cannot directly pass through any increased cost of garbage service to the tenant under the Rent Ordinance because the increased cost is not a valid, direct pass-through under Rent Ordinance §37.3(a).

At the same time, however, extraordinary rent increases can be imposed under Rent Ordinance §37.3(a)(9), but only if authorized and approved by the Rent Board after hearing a landlord’s petition filed under Rent Ordinance §37.8. Under §6.10 of the Rent Board’s Rules and Regulations, the cost of garbage service is considered an operating and maintenance expense. An increase in such an expense can provide the basis for a Rent Board-approved increase, but basically only if the increased cost exceeds the amount of the annual rent increase which you could impose for that year. In other words, if the extra rent you get from a standard, annual increase is enough to pay the extra cost of garbage service, then the Rent Board expects you to pay that extra rent to Sunset Scavenger—you don’t get to keep it. Even if this is not the case, and the increased cost is more than the extra rent, the hassle to petition the Rent Board is likely not worth the trouble.
—Curtis F. Dowling

Q. How I can I temporarily reduce the rent, without reducing the original base rent?

A. Unfortunately, nothing in the Rent Ordinance contemplates a landlord reducing rent. When the Ordinance and the accompanying Rules and Regulations were drafted, apparently no one ever considered this a likely scenario. As a result, there is no apparatus in the Ordinance to give a temporary rent reduction, nor is there any indication as to the effect of that reduction. Instead, we are left to guess based on certain general principles. These principles include the rule that the base rent, whatever it is, may only be increased once per year, and then in an amount that does not exceed the allowable percentage as published by the Rent Board. Thus, a temporary rent reduction may possibly be interpreted to mean a new and lower base rent upon which any subsequent increase must be based. With this possibility in mind, the landlord is well advised to take all reasonable steps to avoid any kind of reduction in the base rent, unless his or her long-term view of the market is that it won’t matter anyway. (One might argue that a temporary rent reduction is tantamount to “reverse” banking, and that the landlord should thereafter be entitled to reinstate the decrease as a type of banked increase. While the argument has a certain logical appeal, its ultimate legal validity is open to substantial question.)

The easiest way to deal with the problem is to give the tenant a payment of some sort or a credit against each month’s rent for the tenant’s performance of some task, obligation or special benefit to the landlord for which the tenant was not previously obligated. Although I personally cannot see the difference between a rent credit and a rebate (i.e., the landlord collects the full rent and then writes a separate rebate check to the tenant), several of those in the local landlord/tenant arena feel that the rent rebate would be more supportable at the Rent Board than a rent credit. Therefore, I would strongly recommend this slightly more burdensome method.

New tenant tasks may be a basis for the rebate or credit. For example, the tenant could keep the hallway clean by sweeping it once a week, keep the laundry room clean or attend to the resident owner’s dog while the owner is away. Unfortunately, by assigning duties to the tenant around the building, the landlord may solve one problem and create another. The tenant may become the landlord’s employee, raising issues such as liability for the “employee’s” actions, worker’s compensation insurance requirements, etc. Whether or not the risk of such detriments is outweighed by the potential benefit is up to the individual landlord. Another basis might be the tenant’s commitment to undertake early payment of rent. For example, the tenant’s commitment to pay the rent five days before the first of the month may enhance the landlord’s cash flow, facilitating timely payment of the landlord’s bills and thus justifying a rebate or credit to the tenant. Another possibility might be to permit the tenant to pay a portion of the rent due each month and defer the balance of the payment until some future date, for example six months down the line, after the current economic situation changes for the better. The deferred portion could be permanently forgiven in exchange for the tenant considering a new one-year lease or some other action.

< p> These are just a few examples of the devices that may be used to deal with the problem of a tenant who is unable or unwilling to continue to pay rent under the current terms. The list is not exclusive and is probably as long as creative minds can make it. An important consideration, however, is that no method guarantees success at the Rent Board. Whatever you do, you will be taking a chance. If you give a rebate or a rent credit at this time and then later bring the rent back up to its prior level, there is the possibility that the Rent Board might disallow it as an illegal rent increase. The result could be rather substantial if the issue were brought to the Rent Board 10 years later after a dispute develops with the tenant, and the Rent Board analyzes the rent history. Remember that any illegal increase is null and void in its entirety, and every increase built upon it thereafter would also be rendered null and void. The Rent Board in declaring 10 year’s worth of increases null and void might opt not only to roll the rent back to its last legal level 10 years ago but also add a substantial repayment obligation on the part of the landlord to the tenant. (Overcharge repayments are limited to the three years prior to filing of petition, plus the time between the filing and the decision.) Thus, in considering whether or not to enter into such a relationship with a tenant, the landlord should think through the ultimate risks and potential consequences. Then the landlord must decide whether the risk is justified in the case of this particular tenancy, given its expected length and the tenant’s character.

Finally, I cannot overemphasize the importance of documenting your arrangement in writing, including the benefit the landlord is receiving in exchange for the rebate or credit. Memories fade, and the tenant likely will recall events in a light more favorable to the tenant. Since a substantial amount of time may pass until a judicial or administrative determination of your arrangement’s legality, you should have a detailed written agreement that clearly and explicitly states the specifics and understanding of the parties involved.

– Saul M. Ferster

Q. I hear I can deduct from the tenant’s annual security deposit interest the Rent Board fee that landlords are supposed to collect from tenants. I forgot to do this for several years. Can I go back and impose the “banked” fees on them?

A. Yes, under Chapter 37A of the Administrative Code you can collect a per-unit fee for each residential unit subject to the Rent Ordinance. Many owners fail to take advantage of this. This fee is billed each year on the property tax statement sent in November, but because the Rent Board is primarily a service to tenants, the law permits owners to collect the Rent Board fee from those tenant(s) in occupancy as of November 1 of each year. The owner may bill for this amount as of this date each year. Under 1999 amendments to the law, there are two steps. First, the fee must be deducted from the interest due the tenant on the deposit held unless the landlord has paid the interest payment annually to the tenant. In this instance, the owner can bill separately for the fee as long as the interest is paid annually to the tenant. Where no deposit is being held, the owner would bill directly for the fee. Second, owners can “bank” the fee and collect it in later years but they can only go back to fees imposed from November 1999 on. Owners who failed to collect the Rent Board fee for years prior to 1999 are out of luck. Request for payment of the fee must include: (1) written explanation that itemizes the fee amount due for each year for which payment is sought; and (2) itemization of interest due for each year not paid. A tenant’s failure to pay the Rent Board fee as demanded is not a ground for eviction under the Rent Ordinance; instead, you can go to Small Claims Court.
–Lawrence Scancarelli

Q. A tenant of ours is vacating and is leaving their back yard full of weeds. Can we deduct the cost of clearing out a yard of weeds from their security deposit? While we had no agreement that the tenants maintain the yard, the previous tenants did a fine job of keeping it cleaned and maintained.

A. You should not deduct the cost of clearing weeds in this instance. Absent a specific agreement in the lease to maintain the yard, such a deduction would be inappropriate. Even with such a lease covenant, I am not sure you could justify a deduction for weed clearing. Yards are generally common areas that the landlord should maintain throughout the tenancy. Moreover, as I describe below, state law strictly limits security deposit deductions.

Deductions from a security deposit account are allowed only for the following reasons: (1) to compensate a landlord for a default in rent; (2) to repair damage to the premises exclusive of ordinary wear and tear caused by the tenants or their guests; (3) to cover cleaning costs incurred after the tenants vacate the rental unit; and (4) to cover costs incurred in replacing or restoring the landlord’s personal property (like furniture) or appurtenances if the lease expressly provides for such an expenditure.

When the tenant moves out, the landlord has three weeks (1) to provide the tenant in writing with a copy of an itemized statement showing an accounting of any security deposit deductions; and (2) to return any unused portion of the security deposit to the tenant. Also, in San Francisco, the tenants’ security deposit accrues five percent simple interest per year after every year of occupancy, and this payment must be made on each lease anniversary date. If a landlord fails to provide a timely account for the security deposit or makes an unlawful deduction from it, the tenants can file a lawsuit (usually in Small Claims Court) and request the entire amount plus a fine of $600.

Deductions for “damage beyond normal wear and tear” are the subject of ongoing dispute. No statute or court has clearly defined what constitutes damage beyond normal wear and tear. I advise my clients to consider things like picture nail holes as normal wear and tear (no deductions).

Abnormal damage that would justify a deduction includes items such as large holes or dents in the walls, profound wall or floor markings, or water damage caused by the tenants or their guests. With regard to carpets, some dirt and minor stains are to be expected but rips, holes and noticeable permanent stains may justify a deduction. Weeds in the garden, on the other hand, are incidental to springtime and should not be used as a basis to withhold security deposit money.
– David Wasserman

Q. What’s the duty of a landlord in determining what is or isn't appropriate noise for tenants?

A. First, a landlord should look to the rental agreement for guidelines regarding tenant conduct or house rules. Some comprehensive rental agreements include strict guidelines concerning this area.

Next, a landlord can look to the Rent Ordinance for further guidance. The Rent Ordinance permits a landlord to evict a tenant who is committing a nuisance or is creating a substantial interference with the comfort, safety or enjoyment of the landlord or tenants in the building.

The landlord should evaluate the circumstances to determine whether or not a tenant's noise creates a nuisance or a substantial interference. For instance, a landlord may consider the type of noise, the time of occurrence (day or night), the frequency of the noise, and the persons with whom the noise is interfering. This type of eviction is largely dependent upon good witnesses who are adversely affected by the noise.

A landlord should consult with an attorney to determine whether a warning letter or an eviction is appropriate.
– Steve Williams

The information contained in this article is general in nature. Consult the advice of an attorney for any speciÞc problem. Curtis F. Dowling can be reached at 397-2700. Saul M. Ferster can be reached at 863-2678. Lawrence M. Scancarelli can be reached at his law office at 398-1644. David Wasserman is with Wasserman & Taxman, 567-9600. Steve Williams is with Wiegel & Fried, LLP (415) 552-8230. © Copyright 2002.