San Francisco Rent Board News Archive: 2003

Rules & Regulations Section 1.18 amended 1/4/03

The following language was adopted by the Commission at its February 4, 2003 meeting. This language amends Section 1.18 of the Rules and Regulations and was effective immediately. A brief explanation of the reason for the amendment and the language that was adopted follows.

Former Commissioner Aung authored the proposed amendment, because the Section as currently written permits evictions for substantial rehabilitation to occur before any hearing is held or the actual costs of the work are certified. Tenants can therefore be evicted and not realize they have the right to reoccupy the unit, although the subsequent petition for exemption may be denied due to the failure of the owner to meet the expenditure requirements. The proposed amendment provides guidance to landlords and tenants by creating a rebuttable presumption that the costs on the approved construction permits are the estimated cost of the proposed work. The proposal also requires that a landlord who recovers a unit or units pursuant to Section 37.9(a)(12) must file a petition for exemption within a certain period of time after recovery of the unit or be deemed to have wrongfully recovered possession in violation of Section 37.9(f).

After discussion resulting in a few amendments to the proposed language, the Board voted as follows:

MSC: To pass the proposed amendments to Rules and Regulations Section 1.18, with minor changes. (Becker/Marshall: 5-0)

The amended regulation reads as follows below:

Section 1.18 Substantial Rehabilitation

(Amended August 29, 1989; September 5, 1989; September 26, 1989; June 18, 1991; renumbered effective February 1, 1995; amended February 4, 2003.)

"Substantial rehabilitation" means the renovation, alteration or remodeling of a building containing essentially uninhabitable residential rental units of 50 or more years of age which require substantial renovation in order to conform to contemporary standards for decent, safe and sanitary housing in place of essentially uninhabitable buildings. Substantial rehabilitation may vary in degree from gutting and extensive reconstruction to extensive improvements that cure substantial deferred maintenance. Cosmetic improvements alone such as painting, decorating and minor repairs, or other work which can be performed safely without having the units vacated, do not qualify as substantial rehabilitation.

Improvements will not be deemed substantial unless the cost of the work for which the landlord has not been compensated by insurance proceeds equals or exceeds seventy-five percent (75%) of the cost of newly constructed residential buildings of the same number of units and type of construction, excluding land costs and architectural/engineering fees. The determination of the cost of newly constructed residential buildings shall be based upon construction cost data reported by Marshall and Swift, Valuation Engineers, as adapted for San Francisco and posted in January and June of each year in the Department of Building Inspection for purposes of determining permit fees. The schedule in effect on the date of the Notice of Completion of the improvements shall apply. Where the landlord is seeking to recover possession of a rental unit under Section37.9 (a)(12) of the Rent Ordinance, improvements will not be deemed substantial unless the estimated cost of the proposed work for which the landlord will not be compensated by insurance proceeds equals or exceeds seventy-five percent (75%) of the cost of newly constructed residential buildings of the same number of units and type of construction, excluding land costs and architectural/engineering fees, based upon construction cost data reported by Marshall and Swift. For purposes of such evictions under 37.9(a)(12) of the Rent Ordinance, there shall be a rebuttable presumption that the cost stated for the work in the applicable approved construction permits is the estimated cost of the proposed work. For purposes of determining whether improvements are substantial under Section 37.9(a)(12), the determination of the cost of newly constructed residential buildings shall be based upon construction cost data reported by Marshall and Swift, Valuation Engineers, as adopted for San Francisco. The schedule in effect on the date the notice to quit is served shall apply. Where the landlord is seeking to recover possession of several units in the same building under Section 37.9(a)(12) of the Rent Ordinance for one proposed substantial rehabilitation project, the schedule posted and in effect on the date of service of the first notice of termination shall apply. A landlord who recovers possession of a rental unit under Section 37.9(a)(12) must file a petition with the Rent Board for exemption based on substantial rehabilitation within the earlier of: (i) two years following recovery of possession of the rental unit; or (ii) one year following completion of the work. A landlord who fails to file a petition within such time and thereafter obtain a determination of exempt status from the Board shall be rebuttably presumed to have wrongfully recovered possession of the tenant's rental unit in violation of Section 37.9(f).

50-50 Capital Legislation Passes on Final Reading

New Legislation Regarding Capital Improvements, File No. 020716

On January 13, 2003, the Board of Supervisors passed on second reading a settlement of the Proposition H lawsuit that: (1) dismisses the City"s appeal so that the permanent injunction issued by the Superior Court against Proposition H is final, and (2) amends the Rent Ordinance to enact compromise capital improvement legislation sponsored by Supervisor Ammiano. The new law will go into effect thirty days after the legislation is signed by the Mayor, and will apply to all capital improvement petitions filed on or after November 14, 2002.

The Ammiano legislation makes extensive changes to current law concerning the passthrough of capital improvement costs. The major changes are as follows:

NEW RULES APPLICABLE TO ALL PROPERTIES:

1. Like now, one hundred percent (100%) of the certified costs of seismic work required by law (and other work required by new laws enacted after November 14, 2002) may be passed through to the tenants subject to the 10% annual limitation; however, the amortization schedule is changed from the current 10 years to 20 years;

2. One hundred percent (100%) of the certified costs of energy conservation work approved by the Commission on the Environment may be passed through to the tenants and there is no annual limitation on the amount of the passthrough. (At present, a new EPA Energy-Star-compliant refrigerator is the only item approved for certification under this section);

3. For the first time, all capital improvement petitions which request certification of more than $25,000.00 in costs must include copies of either competitive bids for the work or copies of time and materials billing for work performed by all contractors and subcontractors; otherwise, the landlord must pay for an estimator hired by the Rent Board; and

4. With certain exceptions, the Board may not certify costs of work required to correct code violations for which a notice of violation remained unabated for 90 days.

NEW RULES APPLICABLE TO PROPERTIES WITH 1 TO 5 RESIDENTIAL UNITS:

1. Like now, one hundred percent (100%) of the certified costs of capital improvements may be passed through to the tenants;

2. The amortization schedules are changed from the current 7 and 10 years to 10, 15 and 20 years for specified capital improvements; and

3. Capital improvement rent increases are limited to 5% of the tenant"s base rent at the time the petition was filed or $30.00, whichever is greater, in any 12 month period.

NEW RULES APPLICABLE TO PROPERTIES WITH 6 OR MORE RESIDENTIAL UNITS:

1. Only fifty percent (50%) of the certified costs of capital improvements may be passed through to the tenants;

2. Like now, the amortization schedules remain 7 and 10 years for specified capital improvements, and capital improvement rent increases are limited to 10% of the tenant"s base rent at the time the petition was filed or $30.00, whichever is greater, in any 12 month period; or

3. In the alternative, a tenant may elect to have one hundred percent (100%) of the certified costs passed through to the tenant, with an annual limitation of 5% and a total limitation of 15% of the tenant"s base rent applicable to the capital improvement rent increases.

The complete text of the legislation is available at the Rent Board and on the Board"s website at http://sfrb.org under "News and Archives-What"s New at the Rent Board".

Note: Revised capital improvement petition forms to implement the new legislation are being developed and will be available before the effective date. Since the new legislation will apply to all petitions filed on or after November 14, 2002, landlords may wish to wait to file petitions on the revised forms.