Some DC landlords are giving tenants rent discounts, called “concessions,” then raising the price higher than the tenant might expect after the resident has lived in the building for a year. Now a lawsuit DC Attorney General Karl Racine (D) filed over this practice in a rent controlled-building is making its way through the court system, and may have picked up support from a DC agency decision.
To recap, in December Racine alleged in the lawsuit that a Van Ness apartment building gives residents an incorrect impression of how much their rent will go up each year under DC’s rent control law. According to the consumer protection complaint, 3003 Van Ness Apartments advertises units and rents them out at a monthly price below what it says it can legally charge by giving tenants a “concession,” or discount, on the rent. When it’s time for a rent increase, the landlord determines the new price based on the rent without the concession, which results in a larger adjustment, the lawsuit says. Racine says this practice deceives consumers and circumvents the rent control law’s limits on rent increases.
The Rental Housing Commission, which hears appeals of rent control disputes, ruled on this practice in January. It found in favor of Gabriel Fineman, a 3003 Van Ness resident who challenged the landlord’s use of concessions. The commission overruled an administrative law judge and held that the basis for calculating rent adjustments should be “the amount actually demanded, received, or charged as a condition of occupancy of a rental unit, rather than a maximum legal limit that may be preserved by a housing provider.”
In other words, the commission said rent increases should be based on the amount a tenant actually pays. Under the commission's reasoning, a tenant in a unit that is $2,000 per month with a $100 monthly concession should see an adjustment based on the $1,900 per month that the tenant actually pays, rather than a higher amount that’s reduced with a concession.
It isn’t clear whether the judge overseeing Racine’s lawsuit will adopt or ignore the housing commission’s reasoning. In situations when a law is ambiguous, courts typically defer to the interpretation adopted by the agency charged with enforcing the law in question. Smith Property Holdings Van Ness LP, the landlord’s official name, may ask the DC Court of Appeals to review the commission’s decision.
Caps on rent increases may not really reflect housing providers’ costs, landlords say
Councilmember Anita Bonds (D-At Large), who chairs the DC Council’s housing committee, held a hearing in October 2016 on several housing bills, including legislation intended to clarify how concessions should be factored into a rent increase. The committee didn’t take any further action on the concessions bill, and it died when the legislative period ended at the end of 2016.
The committee heard testimony that addressed the increase in expenses facing households and landlords. The amount rent may be adjusted under the rent control law is tied to the consumer price index, which is a measure of inflation that looks at changes in prices households pay for consumer goods and services. Landlord representatives said the expenditures that CPI takes into consideration for a household don’t reflect the expenses that go into operating a housing unit.
“The basket of goods and services that comprise the housing provider’s cost of doing business is quite different,” John Ritz, president of William C. Smith and Company told the committee. “DC Water, PEPCO, and Washington Gas costs are rising far faster than the rate of inflation reflected in the CPI.”
Ritz also cited expenses for real estate taxes and equipment such as kitchen appliances, HVAC unit, and carpeting. WC Smith manages rent-controlled units in all eight wards.
Kirsten Williams, vice president of government affairs, DC, for the Apartment and Office Building Association told me the trade group supports changes that include “full and honest disclosure requirements.” As an example, she suggested the possibility of revising the DC-produced annual rent adjustment forms housing providers file with tenants and the Department of Housing and Community Development. The forms could more clearly identify whether a concession is applied, she said.
Concessions are beneficial because they let housing providers offer renters a price lower than the maximum legal rent during periods when market forces allow or require it, Williams said. If the market changes, housing providers may find increases in their rental income allowed by the rent control law can’t keep up with expenses, she said.
“Our operating expenses are far outweighing what we’re able to receive in those annual increases,” she said. “Our concern is that potentially discourages reinvestment in that aging housing stock and we don’t want to penalize housing providers that were operating within their legal rights.”
Ritz and Marty McKenna, vice president for investor and public relations at Equity Residential, which co-owns and manages 3003 Van Ness, didn't respond to messages requesting comment.
The DC Council may consider legislation addressing concessions.
During the 2016 DC Council hearing, tenant advocates such as Fineman and Harry Gural, president of a tenant association at 3003 Van Ness, told the committee that rent concessions lead to higher-than-expected rent increases. “This way of calculating rent increases is illegal,” Gural told me recently. “There is no legal basis for applying a percent increase on the extremely high ‘rent’ that is reported to the city.”
Several witnesses urged the committee to delay any action until after receiving recommendations from Mayor Muriel Bowser’s Housing Preservation Strike Force, a commission Bowser launched in 2015. The group, which included Bonds, other government officials, and private sector representatives, issued a final report and recommendations Nov. 9, 2016. The document doesn’t mention concessions.
Bonds and Councilmember Mary Cheh (D-Ward 3), who represents the ward where 3003 Van Ness is located, introduced a new bill in September that’s intended to limit rent increases when there’s a concession. The bill is still in the housing committee, which hasn’t held a hearing on it.
Bonds’ communications director, Emmanuel Brantley, told me an effort is under way to address concessions. “I don’t have too much to share but what I can say is that the Council Staff is working very hard to adopt an approach that will not only address the symptoms of rent concessions but also the root causes,” Brantley said. “This is a very complex issue and they’ve been working extremely hard on this revision for many months now.”