Rent Control Loophole Closed

Until this week, it was perfectly legal for new landlords to pass on their property taxes and debt services to rent-controlled tenants.

People walk past RentSFNow signs, the leasing arm of Veritas, the city’s largest residential property owner. (Photo: Kevin Hume)

It’s been a bad month for Veritas. The massive real-estate corporation — which owns more than 250 apartment buildings citywide — was the subject of a ruthless City Hall hearing on May 16, where dozens of tenants took the mic to complain about squalid living conditions, unexplained rent increases, and never-ending construction. Sup. Jeff Sheehy, who called the hearing out of concern over the company’s business practices, called Veritas unethical for making “people’s lives unlivable.”

If you’re into Schadenfreude, it was highly entertaining to watch Veritas’ representatives squirm on the stand. But the hearing ended without any clear calls to action, essentially offering little more than a public finger-wagging at a company that’s been pushing rent-controlled tenants out through sneaky, barely-legal tactics for years.

This week, Sup. Sandra Fewer took the admonishments a step further. On Tuesday, she introduced legislation to the Board of Supervisors that would block one of Veritas’ sneakiest legal loopholes: passing on debt services and property taxes from newly-purchased buildings to the tenants who live there. In a rare show of solidarity, the Board approved the legislation unanimously, without a single amendment.

The legislation targets “operational and maintenance pass-throughs,” called O&Ms in tenant-rights circles. Under current law, large-scale property owners can use these pass-throughs to legally raise someone’s rent, even if they live in a rent-controlled unit. Each increase is reviewed (and nearly always approved) by the city’s Rent Board, and often adds around $70 to $200 to someone’s monthly rent.

It might not seem like much — but if you’re on a fixed income, the difference can push you out of your house and onto the street.

Rosamaria Cavalho, the program manager for code enforcement outreach program at the Central City SRO Collaborative, says she’s noticed a sharp rise in the number of Tenderloin tenants in her office who are confused about the rent increases they receive in the mail.

“In 2014, tenants started coming in to our office with these O&M rent increases,” she says.  “Looking at them, I realized that a huge portion were related to debt services and property taxes. In 2015, I saw more. Then again in 2016, and again in 2017, with the large majority of them coming from Greentree and Veritas.”

The tenants Cavalho sees who are most affected by these increases live on a fixed income, largely seniors, those with disabilities, immigrants, or single moms. There is a hardship provision that tenants can file to avoid paying these fees — but the paperwork is extensive, and that alone is a deterrent.

“People don’t want to fill out the application because they’re giving so much financial information to the landlord,” Cavalho says. “It’s a roadmap for landlords to figure out how to price them out.”

One woman whose paperwork ended up on Cavalho’s desk was Lan Tran, whose rent was set to increase by $60 per month.

“It seemed unbelievable that this slight, Vietnamese senior of 72 years old was being asked to shoulder the mortgage and property tax expenses of her landlord’s recent purchase of the building,” Cavalho says. “Ms. Tran, a woman on a tightly fixed income, visually impaired, who has liver disease, for which the dream of home ownership would never be a reality, was somehow responsible for a mortgage payment not her own, and equity that did not belong to her.”

Fewer became aware of the O&M charges when tenants approached her office with concerns about the rent increases.

“I had tenants coming to us and telling us about these expenses that were put onto their base rent. I’m a property owner myself, but I wasn’t aware of a lot of the pass-throughs,” Fewer tells SF Weekly. “These two items are really unreasonable. The tenants don’t get a share of the equity, and it’s not an improvement to their building or living circumstance. It’s just that they have a new owner. It’s very unfair and unjust.”

Under Fewer’s legislation, property owners who purchased their homes after April 3, 2018, will be prohibited from adding fees to rent-controlled units due to an increase in property taxes or debt services, both of which generally occur when a building is purchased.

In addition, the ordinance demands more stringent review of new landlords asking permission to increase rents due to added management costs, which can include anything from garbage, repairs, elevator service, or pest control, but also property taxes, management, insurance, and the vaguely termed “other maintenance.”

The unanimous approval from the Board was a huge victory for tenants citywide, particularly those whose buildings will eventually be bought by large real-estate corporations like Veritas. But by closing this loophole, Fewer has subtly changed the real-estate market, as well.

“If Veritas is buying the majority of housing stock in S.F., and they are also outbidding everyone else, they are bloating the cost of housing,” Cavalho tells SF Weekly. “That pushes out any mom-and-pop small owners who want to buy real estate. Just knowing they can pass this burden onto the backs of tenants means that of course they’re going to outbid, because they don’t have to pay for it. They don’t have to worry about it.”

In other words, we may see Veritas’ steady takeover of San Francisco’s housing stock slow down, slightly. Nevertheless, the debt they accrue from here on out will no longer be renters’ problems.

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