Rent-Control Vitriol
With rents skyrocketing, many observers think we could see a new round of rent-control regulations pop up in metros around the country. But in New York City, where half of all apartments are under rent control, the owners of one property decided to challenge the law.
James D. Harmon Jr. and Jeanne Harmon, owners of a five-story brownstone on Manhattan’s Upper West Side, challenged local rent-control regulations, which they say allow renters to pay 60 percent less than market rate. The two contended that the regulations “amounted to an unconstitutional taking of [our] property.”
The United States Court of Appeals for the Second Circuit in New York ruled against the Harmons, saying that, essentially, they knew what they were getting into when they bought the building. The court also pointed out that the owners still retain the ability to reclaim apartments, demolish the building, and evict tenants.
The Harmons took their case to the Supreme Court, which declined to hear it, theoretically boosting a locality’s ability to enact rent-control regulations.
A few months later, the owners of Geary Courtyard, a 14-story, 164-unit apartment building in San Francisco, found that it’s tough to raise the rent when you rely on public money to build a property, according to the San Francisco Appeal. The property, which was built with a loan of $18 million in tax-exempt bonds issued by the city in 1988, is now owned by Equity Residential and ERP Operating Limited Partnership of Chicago.
To obtain the loan, the developers had to agree that 20 percent of the apartments would be rented to low-income tenants at affordable rates.
When the current owners tried to raise the rents in April after repaying the bond money, the city sued. Though the owners offered residents a 15 percent increase before going to full-market rates, the Superior Court of California temporarily blocked the rent raise in June. The next step in the legal process is expected this fall.
Security deposits are OK, but in Massachusetts, don’t ask your residents for an amenity fee. That’s the word from a federal judge who ruled that one-time, nonrefundable amenity fees are illegal in the state.
A couple in Reading, Mass., apparently took issue with Denver-based Archstone’s $475 amenity fee for the use of a pool, gym, and outdoor grill. U.S. District Court judge William Young ruled in the couple’s favor, finding that Archstone’s fees violated state law. In Massachusetts, apartment owners can charge tenants only for first and last months’ rent, a security deposit, and a key installation fee.
The case was approved for class action status, meaning that Archstone could be responsible for refunds and damages to many tenants.
For other Massachusetts landlords charging these fees, this is a clear signal to stop. In fact, a month after the Archstone ruling, a tenant at 10 Emerson Place in Boston filed a similar lawsuit against the owner, Chicago-based Equity Residential, taking issue with the $500 amenity fee she paid as a condition of the lease. And in June, residents of Equity’s Longview Place in Waltham, Mass., filed another “amenity fee” suit.
Cases like these serve as a reminder to review how your jurisdiction’s laws govern such fees. But it also could be taken as a cautionary tale. In an environment where apartment owners have seemingly been able to raise rents at will, this is proof that tenants will fight back and do have a threshold.
Here are some other local legal considerations that could ensnare unsuspecting apartment owners:
Utility charges: Some counties limit the amount a landlord can charge for utilities, such as electricity and water. “That may be one of the things a landlord may think they have absolute discretion to do,” says Christopher Hanback, a partner in the Washington, D.C., office of the Holland & Knight law firm.
“Back-door” rent control: In certain areas, there has been talk about provisions that require a certain time period to have elapsed, often a year, before rents can be raised. That could be an issue when a landlord wants to raise rents multiple times in a year for a tenant on a month-to-month lease.
Communication with residents: Patrick Pettitt, founder and lead attorney for Hampton, Va.–based Sage Law Practice Group, says many states are requiring more communication with residents.
“Every state continues to slowly add new requirements and obligations, which are usually intended to force the property management company and residents to communicate more information, more frequently,” Pettitt says.
Some of that information may include written receipts of payments, notices that payments have been accepted with full reservation of rights, and notices that judgments have been paid in full.
Legal terminology: When providing a written notice, remember that precision matters. “Written notices require precise use of legal terminology. A ‘Notice to Pay or Quit’ is legally different from a ‘Notice of Noncompliance,’?” Pettitt says. “While use of one term over another won’t create a social gaffe at your local apartment association, using the wrong terminology in documents can prevent you from obtaining the result you need.”
