California Apartment Association 980 Ninth Street, Suite 1430 Sacramento, CA 95814 800.967.4222 caanet.org September 21 st, 2016 Mayor Sam Liccardo and Council City of San Jose 200 East Santa Clara Street San Jose, CA 95113 Dear Mayor and Council, The California Apartment Association (CAA) would like to thank the Council for allowing additional time to review the fair rate of return regulations. CAA is committed to providing its expertise in developing a system that is streamlined, efficient and not a regulatory burden. This additional time to review the regulations has provided us the opportunity to discuss our recommendations with the Housing Department. The modifications we are proposing are intended to create a fair and equitable hearings process: Section 09.02.05(C) - Comparable rents: The expectation by the Housing Department that a property owner would have the private financial data of a neighboring property owner(s) to establish a rent level is unreasonable. The availability of this type of information is not widely accessible and shouldn't be a form of evidence that a hearing officer can expect a property owner to have. Instead we would recommend the use expense ratios, as one alternative, to determine a fair rate of return. Section 09.06.03(F) - Evidence of expenses: The requirement that evidence be in the form of receipts, cancelled checks or original invoices is unreasonable as those forms of evidence are rarely utilized as record-keeping and transactions are increasingly taking place electronically. The Housing Department has addressed this in part, but they are still qualifying evidence that comes in the form of an original invoice or cancelled check as best, not recognizing that evidence may have never been in this format. Section 09.06.03(F) - Source of Evidence: The regulations do not specify how certain types of expences, management fees or personal expenses, can be demonstrated since these are typically reflected in ledgers which, according to the regulations, are not considered sufficient forms of evidence. The overly discretionary nature of the guidelines prevents any sense of predictability for those filing a petition. For the hearing officers, the property owners and the tenants, having a set of clear guidelines from which to determine a fair rate of return would create a system that all sides would have trust in. We look forward to your support in amending the fair rate of return regulations to incorporate the suggested changes. We look forward to your acceptance of these modest changes. Our goal is to prevent the creation of a regulatory burden for property owners, which would restrict their right to achieve a fair rate of return. Sincerely, Anil Babbar Vice President California Apartment Association, Tri-County Division
RESOLUTION NO. A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN JOSE AMENDING AND RESTATING CHAPTER 9 OF THE REGULATIONS FOR THE OPERATION AND ADMINISTRATION OF THE SAN JOSE RENTAL DISPUTE MEDIATION AND ARBITRATION ORDINANCE, CHAPTER 17.23 OF TITLE 17 OF THE SAN JOSE MUNICIPAL CODE AND SUPERSEDING RESOLUTION NO. 77922 WHEREAS, on August 30, 2016, the Council of the City of San Jose ("City") approved Resolution No. 77922 adding Chapter 9 to the Regulations of the Apartment Rent Ordinance ("Interim Regulations") providing procedures for the fair return petition process; and WHEREAS, Although Interim Regulations were discussed at the Housing and Community Development Commission ("HCDC") on August 11, 2016, and included changes suggested by HCDC, there were additional comments from the Law Foundation of Silicon Valley and the Tri-County Division of the California Apartment Association that were received after the final draft of the Interim Regulations were complete; and WHEREAS, the City Council directed City staff to respond to stakeholder concerns and, if necessary, to return to Council with amendments to the Interim Regulations; WHEREAS, City staff conducted additional outreach to the stakeholders, including a second discussion at the September 8, 2016 HCDC meeting and have amended and restated Chapter 9 of the Regulations; and WHEREAS, the City desires to approve a new amendment to Resolution 61114 for the existing regulations for the operation and administration of the Apartment Rent Ordinance to amend and restate Chapter 9 attached as Exhibit A, in order to provide T-30318.002 /1350582_2 1 DRAFT-Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
ADOPTED this day of, 2016, by the following vote: AYES: NOES: ABSENT: DISQUALIFIED: ATTEST: SAM LICCARDO Mayor TONI J. TABER, CMC City Clerk T-30318.002 /1350582_2 3 DRAFT-Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
9.02.03 Notice of Petition and Proposed Increase The landlord must serve on all tenants a City approved notice of the proposed petition filing, requested increase, proposed effective date of increase and tenant's rights to file, prior to filing the petition. 9.02.04 Opposition Statements. A tenant may submit a statement in opposition to the claim(s) made by the petition on a City approved form ("Opposition Statement"). The Opposition Statement should be filed with the Program within 10 days of the date of the City Complete Notice. The Opposition Statement must be accompanied by a proxy form and should include any supporting documentation intended to be presented at the hearing. 9.02.0305 Supporting Evidence. A. The wnedandlord must submit with the petition complete at least three (3) sets of copies of all evidence the ewnerlandlord is relying on to support his or her claim, marked accordingly. Receipts, cancelled checks, and detailed invoices are the best documentation. B. Tax returns and ledgers may be submitted as part of the supporting evidence, however, T-tax returns are not accepted as sufficient evidence for Current Year claims, or for any year less than three years prior to the Current Year. Copies of contemporaneously prepared ledgers are not accepted as sufficient evidence for the Current Year. C. Evidence that may tend to show that rents were unusually low for the quality, location, age, amenities and condition of the housing includes evidence of rents collected in comparable buildings located in the same neighborhood. D. Evidence that may tend to show destruction or vandalism of the building or units includes contemporaneous insurance claims. 9.02.0406. Acceptance for Filing; Completeness. A. A petition will not be accepted for filing for under any of the following circumstances: 1. Where the petition is not made on the City petition form or not correctly completed. 2. Where the petition is not accompanied by three copies of all required supporting documentation. T-30318.002 /1350582_2 A-2 DRAFT-Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
months, the rate of inflation for the applicable petition period, a list of all unresolved City code violation complaints, and a summary of the petition and evidence submitted. G. In the event that the petition is complete except for missing Base Year NOI evidence, tthe wnerlandlord may submit a City prescribed form requesting the Program to accept the petition without the complete Base Year NOI evidence. The form will require an affidavit under penalty of perjury indicating that the wnerlandlord does not have and cannot obtain this evidence, and a description of how this evidence and may require a filing fee to cover the cost for Program staff to investigate and prepare a report for the Hearing Officer. A modified City Complete Notice will be sent in this event. The scheduling of the hearing will occur after the Program staff report is complete. H. Once the hearing is scheduled, all tenants and the landlord shall be mailed notice of the hearing date and time, and information regarding the availability of the petition, any tenant submitted opposition statements or petitions, supporting documentation, and staff report at City Hall for review. 9.03 Scheduling and Appearance; Withdrawal 9.03.01 Program staff shall assign an (Arbitration) Hearing Officer to hear the completed fair return petition and the administrative hearing on the petition shall be scheduled within thirty (30) days of the mailing of the notice of determination of completeness. In the event the Hearing Officer elects to hold a pre-hearing conference, the pre-hearing conference shall be scheduled within 30 days and the hearing thereafter. Notice of the hearing date shall be sent to the Fetitionerlandlord and affected tenants. The notice of the hearing date shall be deposited in the U.S. Mail at least two weeks prior to the hearing date. 9.03.02 Requests for rescheduling of the hearing will be considered if they are for reasons beyond the control of the requester and are received by program staff at least seven (7) days before the hearing date. Additionally, requests for rescheduling based on a party's medical emergency or similar significant conflicts may be allowed by Program staff if they were clearly unforeseen upon documentation of the unforeseen event and the immediate notification of Program staff. 9.03.03 Failure to appear by petrtienerlandlord or a proxy designated in writing to act for pe#feneflandlord shall result in a determination that the petition has been withdrawn. 9.03.04 If tenant petitions also have been filed for service reduction, housing code violations or other violations of the Ordinance, the hearing on NOI petition shall not occur until the mediation hearing for the tenant petitions is completed and period for T-30318.002 /1350582_2 A-4 DRAFT--Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
C. A brief presentation of the results of any Program investigations or staff reports in relation to the petition, if any^requested by Hearing Officer; D. Rebuttal by landlord. 9.04.04 Speakers' Presentations. The presentation of each person speaking during a hearing shall be concise and to the point; visual and other presentation aids may be used as deemed appropriate by the Hearing Officer, provided that the presenter furnishes such materials in advance for inclusion in the hearing record. Notwithstanding Regulation section 3.04.02, the Hearing Officer shall establish equitable time limits for presentations at a hearing, subject to adjustments for translation and reasonable accommodation. 9.04.05 Right of Assistance. All parties to a hearing shall have the right to seek assistance in developing their positions, preparing their statements, and presenting evidence from an attorney, tenant organization representative, landlord association representative, translator, or any other person designated by said parties to a hearing. 9.04.06 Hearing Record. The Hearing Officer shall maintain an official hearing record, which shall constitute the exclusive record for decision. The hearing record shall include: A. A copy of the petition and documents submitted to support the petition; B. Any written responses to the petition received from one or more affected parties-tenants; C. All exhibits, papers, and documents offered either before or during the hearing; D. A list of participants present at the hearing; E. A summary of all testimony upon which the decision is based; F. A statement of all materials officially noticed; G. All findings of fact and conclusions of law; H. Any tentative decisions provided to the parties for comment and any comments received; I. All recommended or final decisions, orders, or rulings; and J. Hearing audiotape^-&}r e cording. T-30318.002 /1350582_2 A-6 DRAFT-Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
9.05.02 The decision shall include findings of fact and conclusions of law which support the decision, and shall specify the following: A. The amount of the rent increase, if any, for each unit. B. In the case of a downward adjustment in the rent, an itemization of each reduction in service on which the reduction is based, and the amount of reduction attributable to that housing service. An itemization of housing code violation shall be listed separately and the amount of reduction attributable to that violation. This provision is not intended to prohibit service reductions allowed under the Ordinance and regulations that cannot be readily itemized in this manner. C. Any conditions which are placed on the award; D. The date on which any adjustment to the rent is effective for each unit. E. At the option of the Hearing Officer, any determinations for service reductions or other tenant petitions appealed to the Hearing Officer. F. The cover page of the decision will provide that the date the decision is issued is the date of mailing. 9.05.03 Voluntary Agreements. The Hearing Officer may recess the hearing to allow for the negotiation of a Voluntary Agreement. Voluntary Agreement negotiations are not recorded. Voluntary Agreements shall be executed on an approved City form and be consistent with Chapter 1-8 of the regulations, however, the Voluntary Agreement shall not set the base year net operating income and/or its component elements, or the fair return. 9.06 Guidance for Substantive Determinations 9.06.01 In calculating net operating income expenses for capital expenditures and replacement of facilities, materials or major equipment necessary to maintain the same level of services as previously provided may be allowed except insofar as such expenses are compensated by insurance proceeds or other sources. Such expenses shall be limited to those actually incurred in the base year or in the current year. The amount expended shall be amortized according to the schedule, below provided that the Hearing Officer may use 7 years for unlisted items, or such other period as is determined to be reasonable and consistent with the purposes of the Ordinance. T-30318.002 /1350582_2 A-8 DRAFT-Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
C. Expenses must be out of pocket and not reimbursed by any source in order to be reasonable. D. Expenses that vary more-4hafr40%-4i#efenf-from-prior years-mnsri-be-accompanied by- -a-written-jystifigation and other documentation acceptable4o4rie Hearing Offieefrier trie-variation in -order to rie-reasonarila. If the Hearing Officer determines that the variation or timing of expenses is not reasonable, then such expensesfs-not-eeeststent witriririe-purposesrerririe-ofdmance, these-expenses may be reallocated or amortized as the Hearing Officer determines to be consistent with the Ordinance. E. Financing expenses for capital expenditures and replacement of facilities, materials or major equipment will be reasonable if they are for a period not exceeding the amortization period and the annual interest rate does not exceed 3.5%. Any financing with an interest rate in excess of 3.5% must be reasonable under the circumstances and must be documented to the satisfaction of the Hearing Officer. F. Expenses should be documented by original contemporaneous and complete invoices or other similar documents that identify the provider, cost, address of work, dates, and the nature of the work performedfremfieensed-busmesses and be provided along with cancelled checks or otheras proof of payment thereof. Original documents cost, address-of work; dates and-the-aatareaf-trie work performed. G. Expense claims based on cash payments andor payments to affiliated entities must be documented to the satisfaction of the Hearing Officer. reasonable 9.07 Definitions 9.07.01 All undefined capitalized terms shall be defined as provided in the Interim Ordinance and if not defined therein, in the fair return petition form. 9.07.02 "Beyond the Control of the Owner" shall mean not precipitated by voluntary actions, such as ownerlandlord's issuance of notices to vacate without cause, but not including voluntary vacancies or vacancies after an unlawful detainer proceeding. 9.07.03 "Capital Expenses" shall mean expenses for capital expenditures and replacement of facilities, materials or major equipment necessary to maintain the same level of services as previously provided. 9.07.04 "Capital Improvements" are building, unit or property additions or modifications that improve the housing services to tenants from the level of services as previously provided. T-30318.002 /1350582_2 A-10 DRAFT-Contact the Office of the City Clerk at (408)535-1260 or CityClerk@sanjoseca.gov for final
September 22 nd, 2016 Mayor Sam Liccardo and Council City of San Jose 200 East Santa Clara Street San Jose, CA 95113 Dear Mayor and Council, The California Apartment Association (CAA) would like to thank the Council for allowing additional time to review the fair rate of return regulations. CAA is committed to providing its expertise in developing a system that is streamlined, efficient and not a regulatory burden. This additional time to review the regulations has provided us the opportunity to discuss our recommendations with the Housing Department. The modifications we are proposing are intended to create a fair and equitable hearings process: Section 09.02.05(C) - Comparable rents: The expectation by the Housing Department that a property owner would have the private financial data of a neighboring property owner(s) to establish a rent level is unreasonable. The availability of this type of information is not widely accessible and shouldn t be a form of evidence that a hearing officer can expect a property owner to have. Instead we would recommend the use expense ratios, as one alternative, to determine a fair rate of return. Section 09.06.03(F) - Evidence of expenses: The requirement that evidence be in the form of receipts, cancelled checks or original invoices is unreasonable as those forms of evidence are rarely utilized as record-keeping and transactions are increasingly taking place electronically. The Housing Department has addressed this in part, but they are still qualifying evidence that comes in the form of an original invoice or cancelled check as best, not recognizing that evidence may have never been in this format. Section 09.06.03(F) - Source of Evidence: The regulations do not specify how certain types of expences, management fees or personal expenses, can be demonstrated since these are typically reflected in ledgers which, according to the regulations, are not considered sufficient forms of evidence. The overly discretionary nature of the guidelines prevents any sense of predictability for those filing a petition. For the hearing officers, the property owners and the tenants, having a set of clear guidelines from which to determine a fair rate of return would create a system that all sides would have trust in. We look forward to your support in amending the fair rate of return regulations to incorporate the suggested changes. We look forward to your acceptance of these modest changes. Our goal is to prevent the creation of a regulatory burden for property owners, which would restrict their right to achieve a fair rate of return. Sincerely, Anil Babbar Vice President California Apartment Association, Tri-County Division CC: Jacky Morales Ferrand Shasta Greene
From: Melissa Morris [mailto: ] Sent: Friday, September 23, 20161:42 PM To: The Office of Mayor Sam Liccardo <TheOfficeofMayorSamLiccardo@sanjoseca.gov>; Districtl <districtl@sanjoseca.gov>; District2 <District2@sanjoseca.gov>; District3 <district3@sanjoseca.gov>; District4 <District4@sanjoseca.gov>; District5<District5@sanjoseca.gov>; Oliverio, Pierluigi <Pierluigi.Oliverio@sanjoseca.gov>; District7<District7@sanjoseca.gov>; Herrera, Rose <rose.herrera@sanjoseca.gov>; District9 <district9@sanjoseca.gov>; District 10 <DistrictlO@sanjoseca.gov>; City Clerk <city.clerk@sanjoseca.gov>; Grabowski, Ann <ann.grabowski@sanjoseca.gov>; Morales-Ferrand, Jacky <Jacky.Morales-Ferrand@sanjoseca.gov>; Greene, Shasta <shasta.greene@sanjoseca.gov>; Lujano, Jose <jose.lujano@sanjoseca.gov>; Parra-Garcia, Sabrina <Sabrina.Parra-Garcia@sanjoseca.gov>; Castro, Fluascar <huascar.castro@sanjoseca.gov>j Shih, Stacie <stacie.shih@sanjoseca.gov> Cc: Kyra Kazantzis < >; Diana Castillo < > Subject: Item 4.3 Interim ARO Regulations Dear Mayor and City Councilmembers: The Law Foundation of Silicon Valley submits the following comments and recommendations regarding the regulations implementing the Interim Apartment Rent Ordinance. As you know, Council adopted interim regulations several weeks ago, and the proposed changes will amend those regulations. The regulations, in turn, implement the Interim Apartment Rent Ordinance that Council previously adopted in May. We appreciate the work that staffhas done to draft regulations and to solicit input from stakeholders. We are generally supportive of the draft regulations, including staffs recommended changes to the regulations that Council adopted on August 30, but we suggest further changes to strengthen the regulations and to make the petition process fairer to tenants. Section 9.02.03 Notice of Petition and Proposed Increase Any notices, attachments, or boilerplate language prepared by the City should be translated into at least Spanish and Vietnamese. Section 9.03.04 Opposition Statements Ten days will not, in most cases, be sufficient for tenants to submit all supporting documentation. Tenants have to obtain copies of the petition, analyze the petition, and collect relevant evidence, which may include requesting public records or other information from credible third parties. Additionally, 10 days is a very short period for a tenant to retain an attorney, and for the attorney to submit responsive documents to the petition. Tenants should have additional time to submit to the hearing officer (and to the landlord) supporting documents after they have filed their Opposition statements. 9.02.06 Acceptance of Filing; Completeness (F) we support the requirement for a city staff report. We believe the information in this report will help simplify the process for both landlords and tenants, and will help the City to collect useful data regarding fair return petitions. We note that the regulation does not authorize staff to make recommendations about whether to grant or deny a petition, only to provide an informational summary within defined parameters. 9.03 Scheduling and Appearance; Withdrawal 9.03.01 and 9.03.02 the regulation should give more time between the mailing ofthe hearing notice and the hearing, and it should require less advance notice for postponing the hearing. Under
existing regulations, if the healing notice is mailed only two weeks prior to the hearing, and if the tenant only has 7 days to request a postponement, then the tenant has at most 4 or 5 business days to request a postponement This timeline makes it incredibly difficult for tenants to retain attorneys, who will need time to review the case and collect evidence in order to represent their clients competently. Additionally, since the regulation does not require the landlord to send a copy of the petition to each tenant, tenants have to go to the City during business hours to review the petition no small feat for tenants who work lull time or lack adequate transportation. This process is extremely prejudicial to tenants, especially in light of the feet that landlords have what is, in essence, unlimited time to prepare their petitions before submitting them The regulation should make clear that every tenanthas the right to receive a copy of the lull petition. The regulations should either require the landlord to furnish every tenant with a copy of the petition or require the City to provide a copy immediately upon the tenant's filing of an Opposition Statement. Ensuring that tenants have access to petitions is an essential due process protection. Section 9.02.05 Supporting Evidence; Section 9/06.03 Reasonableness o We support the draft regulation's requirement that the landlord submit evidence to support the petition for an adjustment. The draft regulation indicates that "[rjeceipts, cancelled checks, and detailed invoices are the best documentation." This guidance to hearing officers in weighing the credibility of supporting evidence is an important element of the regulations and should be included in the final regulation o CAA's letter of September 22 implies that the draft regulation requires "an original invoice or cancelled check," and that it excludes evidence of electronic transactions. However, CAA misreads the regulation. While the regulation advises that "[ojriginal documents are the best evidence," it does not require original invoices. The draft regulation does not exclude records of electronic transactions as evidence of maintenance costs, o Landlords' ledgers in die absence of other documentary evidence should not be considered sufficient evidence of expenses because they can be easily falsified by landlords, and there is no way for the tenant or the hearing officer to evaluate the accuracy of what is contained in the ledger. If the City did not require submission of the most credible evidence available in support of landlords' petitions, it would be inviting abuse of the fail" return process by landlords, o It is reasonable to expect landlords to have documentary evidence of their expenses. Landlords who deduct their business expenses on their tax returns are required to maintain such documentation in the event they are audited by the IRS. According to IRS guidance, landlords "generally must have documentary evidence, such as receipts, canceled checks or bills, to support [their] expenses." nutps://www.irs.gov/businesses/small-businesses-self-emploved/tipson- rental- real- estate- income-deductions-and-recordkeep ingi Section 9.04.04 Speakers' Presentations o We support the addition of language regarding adjustments for translation and reasonable accommodations. However, since this subsection pertains to the oral presentations of parties, "translation," which is typically written, should be changed to "interpretation," which is typically oral Section 9.06.03 o CAA's statement that the draft regulation requires a petitioning landlord to have the private financial data of a neighboring property is inaccurate. The draft regulation states: 'Evidence that may tend to show that rents were unusually low for the quality, location, age, amenities and condition of the housing includes evidence of rents collected in comparable buildings located in
the same neighborhood." The regulation does not prohibit the hearing officer from considering other evidence. Additionally, the regulation's language allowing such information to be used as evidence in support of a base year adjustment is consistent with the Court of Appeal's holding in Vega v. City of West Hollywood (1990) 223 Cal App. 3d 1342, 1352-1353, which required a city's rent stabilization board "to set the base date rents consistent with the previously submitted evidence by the appraiser of rents lor comparable units and then to use the appropriate formula to establish the current maximum allowable rents" in the case of an individual landlord's petition for adjustment of the base rent. An operating expense ratio is not by itself probative of whether or not a landlord was making a lair return in a particular year. Thank you for considering these comments. Please contact me with any questions or concerns. Sincerely, Melissa A. Morris Senior Attorney Fair Housing Law Project Public Interest Law Firm p f Advancing Justice in Silicon Valley 152 North Third Street, 3 rd Floor San Jose, California 95112 www.lawfoundation.org OF SILICON: VALLEY no Mill: