Can the landlord “bank” the utility passthrough?

Yes. In order to bank a utility passthrough, the landlord must have filed a timely Petition for Approval of Utility Passthrough or Utility Passthrough Calculation Worksheet with the Rent Board. In such case, the landlord may “bank” all or a portion of the utility passthrough and impose it at a later date, so long as it is imposed at the time of an annual rent increase (i.e. on the tenant’s anniversary date) and after service of proper written notice. [R&R §5.13(b) and §6.16(m)] Thus, more than one utility passthrough may be imposed at the same time. The notice of rent increase must specify the dollar amount of each utility passthrough. Each utility passthrough must be discontinued 12 months after it is imposed.

 

Does a utility passthrough become part of a tenant’s base rent?

No. A utility passthrough may not be included in the tenant’s base rent for purposes of calculating any rent increase allowable under the Ordinance or Rules and Regulations (such as an annual and/or banked rent increase or an operating and maintenance increase). [R&R §6.16(o)]

 

Does a rental agreement or lease affect a utility passthrough?

Maybe. If otherwise justified based on the landlord’s increased utility costs, the landlord is entitled to a utility passthrough regardless of the existence of a rental agreement or lease, unless the landlord and the tenant specifically agree at the inception of the tenancy that the landlord will not pass through any utility increases, in which case such agreement will be binding on the landlord and on any successor owner of the property. [R&R §6.16(p)] If the lease merely provides that the landlord will pay for gas and electricity, the landlord may be entitled to a utility passthrough if the cost of gas and electricity increases after the tenant’s base year. Where a utility passthrough has been lawfully imposed, a change in ownership of the property in which the tenant’s unit is located will not affect the tenant’s obligation to pay the utility passthrough. [R&R §6.16(q)]

 

What can a tenant do if the tenant believes a utility passthrough is improper?

·       Where a worksheet is required instead of a petition, a tenant may petition for an arbitration hearing if the landlord (1) imposed a utility passthrough but did not file a Utility Passthrough Calculation Worksheet with the Rent Board; or (2) did not give the tenant a copy of the two-page worksheet with the notice of increase for the utility passthrough; or (3) did not discontinue the utility passthrough after twelve months. Such petitions can be filed at any time. The tenant may also file a petition within one year of the effective date of the passthrough if the landlord did not properly calculate the utility passthrough or used an incorrect room count. [Ordinance §37.8(d)(1) and R&R §10.13(b)]

·       Where a petition is required, the Rent Board will mail a copy of the petition to the tenant. The tenant will be given 14 days to submit written objections to the petition. An Administrative Law Judge will review all timely tenant submissions before issuing a decision on the landlord’s petition. Sometimes the Administrative Law Judge will decide that a hearing is required, but usually the petition will be decided without a hearing. If the landlord imposed a utility passthrough but did not file a petition, or did not discontinue the utility passthrough after twelve months, the tenant may petition for an arbitration hearing.

 

At the hearing on a tenant’s petition challenging the utility passthrough, the landlord shall have the burden of proving that the utility passthrough was approved or imposed in accordance with R&R §6.16. [R&R §10.13(b) & §11.18] The tenant should continue to pay the disputed amount pending a decision from the Rent Board. If, after a hearing, the Administrative Law Judge grants the tenant’s petition, the Administrative Law Judge will order the landlord to refund to the tenant the unjustified amounts paid by the tenant within fifteen (15) days of the mailing of the decision or the tenant may offset the amount against future rents. [Ordinance §37.8(e)(7)]

 

How is a utility passthrough calculated?

Step 1: Determine the Tenant’s Base Year

The utility passthrough is calculated by comparing the landlord’s utility costs in the tenant’s “base year” to last year’s utility costs (the “comparison year”). Different tenants in the same property may have different base years depending on when they moved into the property. Base years are re-set every 5 years and are determined as follows:

·       For all tenancies that commenced before January 1, 2004, the initial base year is calendar year 2002. [R&R §6.16(b)(i)] In 2009, the base year for these tenancies is re-set to 2007. [R&R §6.16(c)]

·       For tenancies that commenced before January 1, 2004, where the Rent Board previously approved use of an earlier base year (e.g.1980-2001), the base year in 2009 is 2003 and not the earlier base year. [R&R §6.16(b)(i)(B)] In 2010, the base year for these tenancies is re-set to 2008. [R&R §6.16(c)]

·       For all new tenancies commencing after December 31, 2003, the initial base year is the calendar year immediately preceding the year in which the tenancy began. [R&R §6.16(b)(ii)]

Examples:

ü     If the tenancy began on February 1, 2005, the tenant’s initial base year is 2004.

ü     Likewise, if the tenancy began on December 31, 2005, the tenant’s initial base year is 2004.

ü     If the tenancy began in 2006, the tenant’s initial base year is 2005; if the tenancy began in 2007, the tenant’s initial base year is 2006; if the tenancy began in 2008, the tenant’s initial base year is 2007, and so on.

·       Exception:  Where the landlord became an owner of record after December 31, 2002 and, despite demonstrable good faith efforts, cannot obtain the utility bills from the former landlord and/or the utility company that are necessary to establish the utility costs for the tenant’s proper base year, the landlord may request approval to use an alternate base year for which documentation is available, which should usually be the landlord’s first full calendar year of ownership. [R&R §6.16(b)(iii)]

 

Step 2: Determine the Tenant’s Comparison Year

·       For all tenancies, the comparison year is the calendar year immediately preceding the filing of the landlord’s Utility Passthrough Calculation Worksheet or Petition for Approval of the Utility passthrough. [R&R §6.16(d)]

Examples:

ü     If the petition is filed on December 31, 2009, the comparison year is 2008.

ü     If the petition is filed on January 1, 2010, the comparison year is 2009.

 

Step 3: Determine whether to file a Worksheet or a Petition

·       The landlord is required to file only one Petition for Approval of Utility Passthrough per year, and that is only when comparing utility costs for the prior two calendar years.

Examples:

ü     In 2009, the landlord must file a petition when comparing 2007 base year costs to 2008 comparison year costs.

ü     In 2010, the landlord must file a petition when comparing 2008 base year costs to 2009 comparison year costs.

ü     In 2011, the landlord must file a petition when comparing 2009 base year costs to 2010 comparison year costs, and so on.

·       The landlord is required to file a Utility Passthrough Calculation Worksheet for all other base years.

Examples:

ü     In 2009, the landlord must file a worksheet when comparing 2003, 2004, 2005 or 2006 base year costs to 2008 comparison year costs.

ü     In 2010, the landlord must file a worksheet when comparing 2004, 2005, 2006 or 2007 base year costs to 2009 comparison year costs.

ü     In 2011, the landlord must file a worksheet when comparing 2005, 2006, 2007 or 2008 base year costs to 2010 comparison year costs, and so on.

 

Step 4: Determine Utility Costs for Laundry Facilities

·       If there are no laundry facilities on the property, skip Step 4.

·       If the landlord does not charge a user fee for the laundry facilities, skip Step 4.

·       If the laundry facilities are separately metered in both the base year and comparison year, the landlord shall simply not include the utility costs for the laundry facilities in the utility passthrough calculation. [R&R §6.16(h)(i)] Skip Step 4.

·       If the landlord’s utility bills include the cost of gas and/or electricity for laundry facilities and the laundry facilities are not separately metered in both the base year and comparison year AND the laundry facilities are not available to or operated for the benefit of the tenant, the landlord may not impose a utility passthrough. [R&R §6.16(i)] The petition will be denied.

·       If the landlord’s utility bills include the cost of gas and/or electricity for laundry facilities and the laundry facilities are not separately metered in both the base year and comparison year and the landlord charges a user fee for the laundry facilities, the landlord may not impose a utility passthrough unless utility costs for the laundry facilities are deducted from the total utility costs for the building. [R&R §6.16(h)] The cost of utilities for the laundry facilities can be determined in one of three ways:

ü     Where there is a third party vendor that collects the user fees from the laundry facilities, the income actually received by the landlord from the third party vendor for laundry use during the base year and comparison year is considered the cost of utilities for the laundry facilities. [R&R §6.16(h)(ii)]

ü     Where there is not a third party vendor that collects the user fees from the laundry facilities, fifty percent (50%) of the user fees actually collected by the landlord for laundry use during the base year and comparison year is considered the cost of utilities for the laundry facilities. [R&R §6.16(h)(iii)]

ü     Regardless of whether or not there is a third party vendor that collects the user fees for the laundry facilities, the landlord can offer evidence of the actual utility costs for the laundry facilities in the base year and comparison year. [R&R §6.16(h)(iv)]

·       If the Rent Board has already issued a decision in a prior year determining the utility costs for the laundry facilities in the tenant’s initial base year, it is not necessary to submit evidence of utility costs for the laundry facilities for the tenant’s base year again. The landlord may attach a copy of Table 1 from the prior decision instead.

 

Step 5: Compile Utility Bills for the Base Year and Comparison Year

·       Gather all utility bills (and proof of payment, if not shown on the bills) for utility costs incurred during the tenant’s initial base year and the current comparison year. The utility passthrough shall be based on actual costs incurred by the landlord during the relevant calendar years, regardless of when the utility bill was received or paid. [R&R §6.16(j)(i)] If the landlord does not have 12 consecutive monthly utility bills that cover an exact calendar year from January 1 to December 31, the landlord may use the 12 bills that most closely approximate the calendar years selected for the base year and comparison year. It is not necessary to pro-rate the utility bills to determine costs for an exact calendar year from January 1 to December 31.

·       Where a worksheet is required instead of a petition, it is not necessary to attach copies of the utility bills to the worksheet.

·       Where a petition is required, copies of all relevant utility bills must be attached to the petition. Where utility bills are unavailable, the landlord may offer other reliable evidence to prove utility costs, such as a printout of the account’s billing/payment history for the relevant period, which can usually be obtained from PG&E or its website (www.pge.com). Even where the utility bills are available, the landlord can submit such printouts in lieu of utility bills if the billing/payment history on the printout is clear and unambiguous, i.e., the payment amounts correspond directly to the billed amounts. Use of alternative evidence to establish utility costs and payment, such as a billing/payment history printout, is subject to the approval of an Administrative Law Judge. A list of payments made to PG&E prepared by the landlord or the landlord’s predecessor is not sufficient proof of cost or payment.

·       If the Rent Board has already issued a decision in a prior year approving the tenant’s initial base year utility costs, it is not necessary to compile utility bills for the tenant’s base year again. The landlord may attach a copy of Table 1 from the prior decision instead.

 

Step 6: Calculate Utility Costs for the Base Year and Comparison Year

·       If the Rent Board has already issued a decision in a prior year determining the tenant’s initial base year utility cost, use the approved figure. If not, proceed with the following steps to determine the base year utility costs.

·       Calculate the sum of all utility bills for costs incurred during the tenant’s initial base year to get the total base year utility cost. [R&R §6.16(j)(ii)]

·       Where applicable, determine the utility costs incurred for the laundry facilities during the tenant’s initial base year. [R&R §6.16(j)(iii]

·       Subtract the base year’s utility costs for the laundry facilities from the total base year utility cost, to get the allowable base year utility cost. [R&R §6.16(j)(iv)] (Where there is no deduction for the laundry facilities, the total base year utility cost is the same as the allowable base year utility cost.)

·       Calculate the sum of all utility bills for costs incurred during the comparison year to get the total comparison year utility cost. [R&R §6.16(j)(ii)]

·       Where applicable, determine the utility costs incurred for the laundry facilities during the comparison year. [R&R §6.16(j)(iii)]

·       Subtract the comparison year’s utility costs for the laundry facilities from the total comparison year utility cost, to get the allowable comparison year utility cost. [R&R §6.16(j)(iv)] (Where there is no deduction for the laundry facilities, the total comparison year utility cost is the same as the allowable comparison year utility cost.)

 

Step 7: Calculate the Monthly Utility Cost Increase for the Property

·       Subtract the allowable base year utility cost from the allowable comparison year utility cost to get the utility cost increase. [R&R §6.16(j)(v)]

·       If there is no increase in utility costs or if there is a decrease, no utility passthrough is allowed. [R&R §6.16(j)(v)] Skip the remaining steps.

·       If there is an increase in utility costs, divide the utility cost increase by twelve (12) to determine the average monthly utility cost increase for the entire property. [R&R §6.16(j)(vi)]

 

Step 8: Determine the Number of Rooms in the Property

·       Single rooms without kitchens are one room units; studios are two room units; one bedroom units without a separate dining room are three room units; and so on. [R&R §6.16(j)(vii)] Bathrooms are not counted as rooms for purposes of the room count. Kitchens are counted as one room.

·       Each parking space and garage space in the building which is included in a tenant’s rental or for which a user fee is charged (to a tenant or non-tenant) is counted as one room. [R&R §6.16(j)(vii)]

·       Areas used for commercial purposes but for which no user fee is charged to the tenants, including but not limited to management offices and retail space, shall be included in the room count in a manner that most reasonably takes into account the size of the space and its utility usage. [R&R §6.16(j)(vii)]

·       Add up the number of rooms in the various tenants’ units. Count the number of parking and garage spaces that are either included in a tenant’s rental or for which a user fee is charged. Determine a reasonable room count for all commercial areas on the property. [R&R §6.16(j)(vii)] Add these figures together to get the total number of rooms.

 

Step 9: Determine the Monthly Utility Cost Increase Per Room

·       Divide the average monthly utility increase (from Step 7) by the total number of rooms (from Step 8) to get the amount of the monthly utility cost increase per room. [R&R §6.16(j)(vii)]

 

Step 10: Calculate the Monthly Utility Passthrough for the Tenant’s Unit

·       Add the number of rooms in the tenant’s unit to the number of rooms for parking and/or garage spaces included in the tenant’s rental or for which a user fee is paid by the tenant.

·       Multiply the number of rooms (including parking/garage spaces) by the monthly utility increase per room (from Step 9) to get the monthly utility passthrough for the tenant’s unit. [R&R §6.16(j)(viii)]

 

August 2009