Feature
by Aria Spencer
Effective November 1, 2004, the section governing utility passthroughs of the Rent Board’s Rules and Regulations, was amended. Section 6.16 (formerly known as Section 4.11) altered the way in which San Francisco landlords may pass the increased cost of PG&E utilities through to eligible tenants. Prior to last November, landlords who wished to pass the increased cost of utilities through to their tenants completed a simple form, and the additional cost was indicated on the tenant’s notice of annual increase. According to Rent Board staff, this issue was the focal point of interminable discussions by the Rent Board Commissioners regarding the lack of a system to ensure the correct application of utility passthroughs by San Francisco landlords. Periodically, a tenant would discover a discrepancy and/or challenge a landlord’s figures, at which time the Rent Board would have the opportunity to verify the legitimacy of the documentation and calculations. Until November 1, 2004, however, the Rent Board had no other means of oversight in regard to utility passthroughs. The most significant change introduced by the new Rules and Regulations is that a landlord must now submit a petition to the Rent Board in order to pass the increased cost of PG&E utilities through to eligible tenants.
Some San Francisco property owners may be under the false impression that their ability to petition the Rent Board for a utility passthrough is limited by a tenancy agreement that states the landlord will pay utility costs. This is not the case. Utility passthroughs are certified based on an increase in utility costs rather than actual costs. Consequently, the only way that a tenancy agreement can limit the landlord’s right to petition for the passthrough of such an increase is if the agreement expressly states that the tenant and the landlord agree that the landlord will not passthrough any utility increases.
Due to the steadily rising cost of energy, the potential gain from utility passthroughs is of growing interest to San Francisco landlords as a good method for recovering costs. Even if the majority of tenants in a building are paying close to current market rates, it is still worthwhile for an owner to file a utility passthrough petition because, once certified by the Rent Board, the passthrough is bankable—provided that the passthrough is imposed on the tenant’s anniversary date. This means that the passthrough may be imposed in subsequent years at the owner’s discretion when, for example, a recovering market justifies such an increase. However, landlords must understand that, once imposed, a utility passthrough expires after twelve months.
In fact, there are a few contingencies that make the process of petitioning for a utility passthrough somewhat complicated for those unfamiliar with the Rules and Regulations. For example, tenants on separate meters or with different base years may not be included on the same petition. Additionally, if coin-operated laundry facilities are present on the property—and they are not separately metered—the Rent Board requires that the income generated from such facilities must be deducted from the petition. Furthermore, the new Rules and Regulations establish new eligibility requirements for utility passthroughs.
Fortunately, the Rent Board has decided that—in the majority of cases—a hearing will not be necessary for the certification of utility passthroughs. However, a hearing may be scheduled at the discretion of the Administrative Law Judge (ALJ) if a tenant presents reasonable objections to the passthrough or if the ALJ determines that the documentation or calculations provided in the petition are problematic. Consequently, it is crucial that any pertinent records and documentation be organized and readily accessible because, at the hearing, the burden of proof will be on the landlord. Accuracy should be an important consideration for property owners, bearing in mind the potential tendency of some of San Francisco’s better-educated tenants to protest any proposed rent increases.
Remember that, according to 6.16(a) of the Rules and Regulations, “The landlord must file a Rent Board petition for approval of a utility passthrough for each unit subject to the passthrough.” Thus, if a utility passthrough is imposed (after November 1, 2004) without Rent Board certification, that passthrough will be considered unlawful. However, despite the new contingencies presented by this recently adopted procedure, utility passthroughs are highly worthwhile, especially considering recent projections with respect to the rate at which the cost of energy is expected to rise in the imminent future. Assistance and consultations are readily available from a handful of companies whose business it is to prepare and file landlord petitions with the Rent Board, helping landlords to increase building income and making the process of utility passthroughs straightforward and undoubtedly sensible.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Aria Spencer is the petition specialist for Property Management Systems, a full-service property-management company specializing in matters pertaining to the San Francisco Rent Board. She can be contacted at 415-661-3860. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.