March 06, 2001

PROPOSED AMENDMENTS TO RENT BOARD RULES AND REGULATIONS §7.14 PURSUANT TO NOVEMBER 2000 PROPOSITION H, TO BE EFFECTIVE ONLY IF THE STAY OF IMPLEMENTATION OF PROPOSITION H ORDERED ON DECEMBER 20, 2000 IN QUIGG VS. CITY AND COUNTY OF SAN FRANCISCO, ET AL., SUPERIOR COURT CASE NUMBER 316928, IS NO LONGER IN EFFECT.

Section 7.14 Allowance of Interest

A landlord who expends funds for seismic retrofit capital improvement work or non-seismic capital improvements or rehabilitation work shall be entitled to a reasonable rate of interest. Any allowance of interest, whether imputed or real, in favor of a landlord pursuant to this section shall be limited to no more than ten (10) percent and shall be amortized over a period equal to the amortization period of the improvement, subject to the limitations contained in Section 7.12(d). The following rules shall apply to any request for the allowance of interest.

(a) Allowance of Actual Interest Incurred. The landlord has the burden of proof to establish the actual rate of interest. To meet this burden, the landlord must submit, at a minimum, either the applicable loan agreement, promissory note or other admissible documentary evidence substantiating the rate of interest. In addition, the landlord has the burden to show that the actual rate of interest for which an allowance is sought is reasonable under the circumstances.

(b) Allowance of Imputed Interest. In cases where the landlord does not incur or prove in accordance with subsection (a) any actual interest interest expense on funds used for seismic retrofit capital improvement work or non-seismic capital improvements or rehabilitation work, the landlord shall be entitled to an allowance of imputed interest. The rate of imputed interest shall be determined in accordance with the following rules:

(1) On March 1 of each year, in accordance with subparagraph (b)(2), the Board shall publish two three rates of imputed interest. Subject to the ten (10) percent limitation contained in the first paragraph of this rule, the published rates shall constitute the rates of imputed interest to be allowed on petitions filed on or after March 1 through February 28 (or February 29, as the case may be) of the following year.

(2) The first rate shall be the average of the twelve most recent monthly rates (rounded to the nearest tenth) as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for seven-year Treasury Securities and shall apply to certified non-seismic capital improvement costs amortized over a seven-year period in accordance with Section 7.12(c).

The second rate shall be the average of the twelve most recent monthly rates (rounded to the nearest tenth) as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for ten-year Treasury Securities and shall apply to certified capital improvement costs amortized over a ten-year period in accordance with Section 7.12(c) for non-seismic capital improvement work and for seismic retrofit capital improvement work which is included in petitions filed before December 21, 2000.

The third rate shall be the average of the twelve most recent monthly rates (rounded to the nearest tenth) as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for twenty-year Treasury Securities and shall apply to certified seismic retrofit capital improvement costs amortized over a twenty-year period in accordance with Section 7.12(c) for petitions filed on or after December 21, 2000.

(3) These rates shall be calculated by December 15th of each year using the average of the twelve most recent monthly rates posted by the Federal Reserve for seven, and ten and twenty-year maturity Treasury Securities as of this date.

(c) Government Subsidies or Guarantees. Notwithstanding subparagraphs (a) and (b) of this Section, if the interest is less than 10 percent due to governmental or any other subsidy or guarantee, the landlord shall only be entitled to the actual rate of interest incurred.

(d) This Section was amended on October 4, 1994 and is effective for petitions filed on or after October 18, 1994. The Board shall publish the applicable rate of interest for petitions filed between October 18, 1994 and February 28, 1995 before October 18, 1994.