March 06, 2001

PROPOSED AMENDMENTS TO NEW RENT BOARD RULES AND REGULATIONS §7.22 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 CITY AND COUNTY OF SAN FRANCISCO, ET AL., SUPERIOR COURT CASE NUMBER 316928, IS NO LONGER IN EFFECT.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 7.22 Determination of Net Operating Income

(a) To determine the Net Operating Income during the Base Year, the actual Operating Expenses for the Base Year shall be deducted from the Gross Income for the Base Year. To determine the Net Operating Income during the Current Year, the actual Operating Expenses for the Current Year shall be deducted from the Gross Income for the Current Year.

(b) Operating expenses and/or Gross Income in the Base year may be adjusted as follows:

(1) If a landlord's Operating Expenses in the Base Year were unusually high or low in comparison to other years, adjustments may be made in calculating such expenses so the Base Year Operating Expenses reflect average expenses for the property over a reasonable period of time. In determining whether to adjust Operating Expenses in the Base Year, the Administrative Law Judge shall consider the following factors:

(i) Whether the landlord made substantial capital improvements in the Base Year, which were not reflected in the rent levels;

(ii) Whether substantial repairs were made in the Base Year due to damage caused by natural disaster or vandalism;

(iii) Whether maintenance and repairs in the Base Year were below accepted standards so as to cause significant deterioration in the qualify of housing services; and

(iv) Whether other expenses were unreasonably high or low in the Base Year notwithstanding the following of prudent business practice.

(2) If the Base Year rent for any unit was significantly below the rents of comparable units in the same general area due to extraordinary circumstances such as a special relationship between the landlord and tenant, fraud, mental incompetency, or some other reason, adjustments may be made in calculating the Gross Income to reflect rents for comparable units. The length of occupancy of the current tenant, size and physical condition of the unit and building, and services paid for by the tenant are important factors (though not the exclusive ones) in determining whether or not a unit is comparable. Evidence of reasonably comparable units is required, but perfect comparability is not required.

(3) Where Net Operating Income is less than 50% of Gross Income in the Base Year, after making adjustments as permitted by subsections (1) and (2) of this Section, Gross Income shall be adjusted upward to twice the amount of adjusted Base Year Operating Expenses for purposes of determining Base Year Net Operating Income.