Rent Increase Pass-Throughs Do Not Pass Go

A sneaky loophole that passes on property taxes to renters is being challenged by tenants rights advocates in City Hall.

A man walks past a building owned by Veritas Investments, one of the city’s largest commercial real estate firms. (Kevin N. Hume)

San Francisco tenants with rent control: Listen up. Have you ever received notice of a weird rent increase titled “operating and maintenance expenses” after your building was sold? If so, it was probably part of a complicated loophole in the city’s rent control laws that allows new building owners to pass on their debts and new property tax increases to renters.

It’s a sneaky pass-through that’s being used more and more frequently; According to Sandy Gartzman of the Rent Board, between 2008 and 2012 the city received an average of 21 requests from building owners seeking to pass these fees onto tenants per year. In the past 12 months, they’ve received five times that much. Of those, 91 percent were filed by new building owners, and in every single case, they’ve been granted permission from the Rent Board for a 7 percent rent increase for the building’s tenants.

In one case presented at the hearing, a tenant’s base rent was $847 and hadn’t increased rent since 2013. After the Rent Board approved a number of bond measure and pass-throughs, their rent increased to $1,050.

A seven percent rent increase may not seem like much. But for low-income renters and anyone with a fixed income, this legislation could be make-or-break for getting that rent check in on time, if at all. Brian Klein, who spoke at Friday’s hearing, says he’s been a resident of San Francisco since 1994 but is living on a fixed income due to long-term disability. His building’s new owner added a 7 percent increase to his rent when he bought the building, thereby passing on some of the debt he accrued in the purchase to Klein, who is now legally obligated to pay it.

San Francisco is one of the only cities where this is legal, and it came under attack in the Board of Supervisors’ Rules Committee Friday. A new legislation proposed by a progressive slate of supervisors would prohibit new building owners from raising rents on rent-controlled units due to an increase in property taxes — the latter which generally occurs 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.” As drafted, the new legislation would apply to any building purchased after April 3, 2018, or any pass-through application filed with the Rent Board after Dec. 11, 2017.

Pedestrians stroll past more Veritas/Greentree properties, easily identifiable by their RentSFNow signs. (Photo: Kevin N. Hume)

After several small property owners expressed grievances about the ordinance, Sup. Sandra Fewer, who co-sponsored the legislation, said that they were misinformed about who would be affected. Many people worried that this ordinance would restrict charges for maintenance that is factored into tenants’ rents, which is not the case.

“If you are a property owner now, it does not affect you. I am small property owner too. It does not affect me,” Fewer told the crowd. “I can still pass through increases in the water bill, if I paint the building, I can still pass those things through.

“This is not a debate about rental control,” she added.

More often than not, these rent hikes are coming from major property owners, like Veritas Investments and its subsidiary, Greentree Property Management; Only 15 percent of the pass-through requests the Rent Board received in the last 12 months were from buildings with fewer than five units.

“We thought it was very odd that as soon as Greentree bought our building we started seeing all these increases they started charging for the tenants,” said a Tenderloin resident named Neftali through a translator. “It’s weird because we think we’re paying our rent but we’re really paying the debt of our landlords.”

The issue has become more prevalent in recent years, as more houses in San Francisco change hands. Veritas Investments has been particularly focused on buying up large rental buildings, and currently owns more than 250 residential properties citywide.

Lance, who lives at 720 Baker St., a Veritas-owner property, says he received a 3-day eviction notice from Veritas after accidentally missing a pass-through notice.  

“We have not missed any payments or received any complaints,” he said. “We got pass throughs and we missed one, and that gives them a right to evict us. The rent goes up each month you don’t know what it is. If you miss that then you have a five-day unlawful payment and if you miss that too, you lose.”

Chief among one of the complaints of these pass-throughs is how badly they’re communicated to tenants.

Araceli Catalán from Causa Justa/Just Cause says the office sees confused tenants regularly.

“We get a lot of renters that come with their problems because they don’t know much about them,” she said. “They realize that these increases are beyond what the annual increases are allowed. These documents often have the words ‘pass through’ without really explaining what that word means.”

Kathy Lipscomb of Senior and Disability Action says her office has witnessed this issue as well.  

“The letters going to the tenants should be in a language that tenants can understand so tenants aren’t so scared they just leave,” she said.

Sandra Fewer called it the new legislation “common sense pass through” in a city suffering from a housing crisis. “Many of these speculators are buying up these large apartment buildings and adding these pass-throughs, and they are now doing corporate long-term housing.” she said.

After dozens of public comments and several clarifications made to the supervisors by the Rental Board, the committee passed the ordinance unanimously. It will move on to the Board of Supervisors to be heard on Tuesday.

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