Property owners came out in full force to Mountain View's Rental Housing Committee meeting last week, protesting what they call an unfair and illegal proposal that would suppress future rent increases if concessions are granted to tenants.
In recent months, the committee's housing staff has flagged ambiguity in the way the city handles rent concessions, discounts and other freebies that landlords offer to entice tenants to move in.
Because perks mean tenants are paying less in total rent during the first term of the lease, it's possible that it must carry over as the "base rent" going forward. That base rate for rent-controlled units then factors into how much landlords can raise the rent in the future.
City housing staff are asking the committee to approve a new regulation clearly stating that these concessions do affect the base rent, which can have huge implications on monthly rent going forward. For example, if an annual lease says the base rent is $3,000 for a tenant moving in, but they got the first two months for free, the base rent for future lease agreements going forward is actually capped at $2,500. plus the rate of inflation.
This isn't just a theoretical problem. Housing staff are currently working on 15 cases in which either a landlord or tenant has been stumped on how to handle this, according to Anky van Deursen, program manager for the city's Community Stabilization and Fair Rent Act (CSFRA). Although this hasn't been a widespread problem in the past, it's possible that the high vacancy rate during the COVID-19 pandemic caused a surge in landlords offering perks in order to fill vacancies.
Numerous landlords blasted the idea at the May 23 meeting, calling it a faulty interpretation of CSFRA that would harm both property owners and tenants alike. They argued that concessions will effectively end under these new regulations and make it harder for property owners to attract new tenants, while at the same time renters will have to weather higher move-in costs.
Curt Conroy told committee members that landlords have already dealt with the bruising effects of the pandemic, including lower rents and high vacancy rates, and that "temporary aberrations" like rent reductions should not lead to permanent changes in future rent. Local property owner Jeff Zell said the staff recommendations are heavily biased against landlords and that "millions of dollars" are at stake, adding that there are clear grounds for litigation if the proposal moves forward.
Joshua Howard, vice president of local government affairs for the California Apartment Association, said the city is at risk of destabilizing Mountain View's rental community and potentially forcing landlords to retroactively recalculate rents based on new rules.
"What you're considering tonight is a reckless regulation," Howard said.
Despite multiple accusations that the proposed rule changes are against the law, housing staff stood by its interpretation. Under CSFRA, the initial rental rate is defined by the amount of rent actually paid by the tenant for the initial term of the tenancy, according to a staff report. This is distinct from other terms like "stated rent," "asking rent" or "contract rent."
When asked how legally risky the proposal was, attorney Karen Tiedemann said she wasn't concerned and believed the city would prevail in court, adding that she and the rest of the housing staffers were surprised by the onslaught of legal threats.
"We did not anticipate the response to it, but in terms of risk, we would not have proposed it if we thought it was a risk," Tiedemann said. "Or we would have at least pointed out the risk."
In a community feedback sessions prior to the May 23 meeting, property owners insisted that concessions are clearly temporary and not indicative of future rents or discounts, and do not serve to mislead tenants into paying for more than they bargained for. It can also be a handy tool for tenants relocating from another apartment to avoid getting charged rent for both the lease that's ending and the new lease.
Tenants, meanwhile, argued that the actual market rate of a unit should take into account any reductions that helped fill the vacancy, and that property owners always have the option to simply lower the rent – instead of relying one one-time concessions – in order to attract tenants. They also argued that concessions and the possibility of rent hikes can be a loophole to circumvent the purpose of rent control in Mountain View.
Committee member Emily Ramos said regardless of where the committee lands in terms of including or excluding concessions from the base rent, the city badly needs to clear up the confusion. Right now landlords and tenants are claiming CSFRA is unambiguous in terms of whether waived rent is included, but both groups are coming to entirely different conclusions.
"When both sides say that the piece of language is clear as day and they are very opposite definitions, it's not clear as day. And that is on us to clarify it," she said.
Committee member Matt Grunewald was skeptical about the staff's recommended changes to lower base rents based on concessions, and said that the city would be eroding what has been common practice in the rental housing market for the first five years of rent control in Mountain View. He said it's likely that the result will be rent concessions will simply go away, and asking rents are unlikely to go down significantly as a result.
"I don't think it's going to benefit tenants," Grunewald said, referring to the possible loss of one-time concessions.
Rental Housing Committee members did not formally approve the proposed regulations at the meeting, instead taking a series of straw votes to guide development of the rules. Committee members voted 5-1, with committee member Julian Pardo de Zela opposed, that new regulations are needed to least clarify whether rent concessions should be calculated in the base rent.
Committee members also asked housing staff to consider options for how retroactive these rules should be. Unless specified, it's possible that tenants could seek lower rental rates based on concessions that happened five years ago when rent control was enacted.
Though a small tweak, the committee also agreed that tenants missing rental payments – either due to COVID or failing to pay – should not be included in the calculation of the base rent.