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RENT CONTROL 101

ALL YOU NEVER WANTED TO NEED TO KNOW ABOUT BERKELEY’S RENT CONTROL PROGRAM

 

 

1. INTRODUCTION (Don’t fight it. Rent control is here to stay. Know the rules. Remain alert. Stand firm when you can. Learn how to prosper under rent control.)

 

 

2. THE MECHANICS OF RENT CONTROL

2.1. REGISTRATION

o EXEMPTIONS

• Exemptions – Complete

o   Golden Duplex Exemption

o   Owner-Share Exemption

o   Non-profit Co-op

o   Transient (<14 days, hotel tax paid)

• Exemptions – Partial

o   Costa-Hawkins SFR/Condo Exemption

o   Section 8 Exemption

o   New Construction Exemption

o   Tenant not in occupancy

o   Other Exemptions

• Establishing Exemption

o   Administratively

o   By Petition

• Strategic Exemption Creation

o   Collapse to SFR

o   Condo Conversion / sale

o   TIC Sales

 

o FORMS

• Initial Registration Statement

• Amended Registration Statement

o   For Exemption, re-registration

o   For Change of Owner Name, Address

• Vacancy Decontrol Form

o   Services, too

• Unit Status Form

 

o CONSEQUENCES OF NON-REGISTRATION

•       Penalties

•       No AGA

•       No Evictions

•       Rent Withholding

 

2.2. RENT INCREASES

o The AGA (65% of CPI)

o Increases By Petition

•       Capital Improvements / Offset Policy

•       Extra Tenants

•       Change In Space Or Services

•       Historically Low Rent

•       Fair Return on Investment

•       Eligibility Petition

•       Pied-a-terre Petition

•       Restoration of AGAs

o Vacancy Increases – The Main Game

o Exceptions:

•       Prior Eviction (the land mine clause)

•       Change in terms of tenancy that causes departure

•       Opt-Out from Section 8 – 3 years

•       Habitability Citation

•       Constructive Eviction

o On-Line Data Base - Useful

o 305 Rent History Printout – Useful

 

2.3. COUNSELORS – consult, listen, evaluate, get second opinion

 

2.4. HEARINGS – to be avoided when possible, managed when not.

o   Hearing Examiners … LM, KL, DH

o   Paperwork issues

o   Continuances

o   Preparation

o   Documentation

o   Best posture at hearing: professional, knowledgeable, non-confrontational

o   Representation

 

2.5. CERTIFICATION (mostly moot now)

 

2.6. TENANT PETITIONS

o   Non-Registration / Rent Withholding

o   Overcharges

o   Service Reduction

o   Substantial Deterioration

o   Reduction in Number of Tenants Allowed

 

2.7. SECURITY DEPOSITS

o State Law

•  Up To 2 x Rent (3x if furnished)

•  Return Or Account Within 3 Weeks

•  Inspection Requirement

o Berkeley Law

•  Applies To Most Exempt Units As Well

•  Interest On Deposits

o New Security Deposit Option for 2009

•  Conditions, Restrictions, Documentation

o In roommate situations, no requirement to split the deposit when one tenant leaves

o Pet deposit is OK, negotiable, no limit

 

2.8. SAFETY INSPECTION PROGRAM

o   Habitability Problems – Consequences

o   Annual Inspection Required – a good idea anyway

o   Gas Appliance Inspection Required

o   It’s Good Business

o   Avoiding Liability

o   The Habitability Defense

 

3. TENANT RELATIONS

•       Tenant Rights - extensive

•       Best Practice Regarding Tenants

•       Not friends, not enemies

•       Tenant Petitions

•       Problem Tenants: The 90-10 Rule

•       Owners’ Right To Enter

 

4. EVICTIONS [the third rail of Berkeley politics, and remember that judges are elected]

•       Non-Payment Of Rent

•       Owner-Occupant Evictions

•  Measure Y (Section 9) Evictions (hard)

•  Owner-Return (Section 10) Evictions (easy)

•       Eviction For Cause

•  Non Payment - Yes

•  Lease Violation – Maybe, if violation truly significant and unsolvable

•  Drug Use – No

•  Criminal Activity – No

•  Refusal to sign rental agreement – probably not

•  Damage to Unit – possible if severe

•  Tenant disturbing the peace – possible if outrageous

•  Sale of Property – no

•  Foreclosure - no

•       Temporary Eviction For Code Work

•  Application Process

•  Enforcement Process

•  Timing, Cost

•       The Habitability Defense

•       Ellis Evictions – The Nuclear Option

 

5. LONG TERM STRATEGIES

5.1. Vacancy Decontrol – The Main Game

o   Catch Hidden Subletting

o   Catch Non-Residential Use

o   Never threaten OOX eviction

o   Choose Tenants Wisely

o        Observe Discrimination Prohibitions

5.2. Value follows bedroom count

o   1-BR to 2 on Euclid, Fairview

o   2-BR to 5 on Fairview

o   Studio + Garage = 2-BR

5.3. TIC Sales

o   No city involvement

o   No inspection requirement

o   Need a good agreement

o   Cautions …

5.4. Condominium Conversion

o   Affordable Housing Fee (changing in 2009)

o   Exemption rules (changing in 2009)

o   Work without permits / Disclosure

o   Life Safety Standard

o   Cost - $25,000 ++ for 2-4 units

o   DRE for 5+

o   The math regarding conversion

5.5. Buyouts

o   Perfectly legal

o   The math is often favorable

5.6. Rental on the Short Term Market

o   Furnished

o   High Quality Units

o   Craig's list, CAL rentals, Sublet.com, extended stay, corporate housing

o   Beware the B&B prohibition

 

6. TENANT PROBLEMS / PROBLEM TENANTS

6.1. Illegal Sublets

o   Whole Unit Sublet

o   Housemate Sublet

6.2. Tenants Who Live Elsewhere

o   Occupancy Petition (office, storage, or P-a-T use)

o   Eligibility Petition (subtenants left behind)

6.3. Rotating Roommates

o   The Sublet Game – the last remaining original tenant (ABC, ABD, ADE, DEF)

o   Paperwork: Replacement Tenant Addendum, Multiple Tenant Agreement

o   Original T. v. Replacement T.

o   30-day deadline

o   Only accept $$ from leaseholders

6.4. Pack Rat Tenants

6.5. Complainers

6.6. Take-Over Tenants

         Service reductions

o   Eliminate management relationship

o   No master-tenant arrangement

o   Wing-clips

6.7. “Professional Tenants” may require multi-faceted strategy

6.8. Problems With Entry

6.9. Projection of unresolved parental issues onto property owner

6.10. Tenants who take advantage of RSB rules

6.11. Tenants from Hell (all of the above)

6.12. Owners' creation of tenant problems – its bilateral

 

7. MANAGEMENT UNDER RENT CONTROL

• Remain in control of the property at all times

• Use management company if necessary

• Summertime lease termination plan

• City of Berkeley Business License Requirement

• Use a Competent Rental Agreement

o   Right of entry for inspections

o   Right to take pictures

o   No attorney fee clause

• Do Require Application Form

• Do Credit Check Applicants

• Do call former owner (and former-former owner)

• Pay Interest on Deposits in December of Each Year

• Keep Good Records

• Know your tenants / be alert to tenant changes

• Go the Second Mile, but stand firm at the Third Mile

• Follow the 80-20 Rule

• Improving Units Between Tenants is A Good Strategy

• Inspect annually, and keep the forms

 

8. BUYING RENTAL PROPERTY IN BERKELEY

• Due diligence:

o   check the leases

o   check the RSB file

o   check especially for owner-occupant evictions (land mine)

o   get estoppels

o   check the building, the zoning situation, the permit file

o   do a thorough, personal inspection in addition to a contractor’s inspection.

 

• Financial diligence:

o   Do the numbers carefully

o   Do realistic financial projections

o   Will it cash flow?

o   Are there upside potentials?

o   What are the carrying costs?

 

 

Michael St. John, PH. D.

 

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St. John & Associates

BERKELEY

2115 West Street

Berkeley, CA 94702-1947

510.845.8928

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MENDOCINO

P.O. Box 338

Mendocino, CA 95460-0338

707.937.3711

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