Proposition H Implementation Advisory #1- 11/8/00
Proposition H Implementation Advisory-11/8/00
On November 7, 2000 the voters of San Francisco passed Proposition H. Proposition H will have a major impact on allowable rent increases for capital improvement costs in San Francisco once it is effective. Proposition H basically prohibits most capital improvement rent increases unless they are necessary to provide the landlord with a constitutionally required fair return. The measure provides in relevant part:
"(3) Capital Improvements, Rehabilitation, and Energy Conservation Measures. For any petitions filed after April 10, 2000 or pending petitions where no final decision has been issued by April 10, 2000, a landlord may not impose rent increases based upon the cost of capital improvements, rehabilitation or energy conservation, except as provided in this section. A landlord who has performed seismic strengthening in accordance with Building Code Chapters 14 and 15 may impose rent increases for seismic retrofit in an amount not to exceed 5% of the tenant’s base rent in any twelve (12) month period.
(a) However, in no event shall denial of a rent increase for capital improvements, rehabilitation or energy conservation measures deny the landlord a constitutionally required fair return on the property under the maintenance of net operating income standard of fair return. In determining such return, the landlord’s net operating income, exclusive of mortgage principal and interest, in the base year before enactment of rent control limitations shall be increased at the rate of 40% of the increase in the CPI since the base year.
(b) All rent increases for capital improvement, rehabilitation or energy conservation measures which were approved after April 10, 2000 and paid by the tenant, and were not for seismic retrofit, shall be refunded to the tenant no later than December 31, 2000. If the landlord fails to refund the excess rent by December 31, 2000, the tenant may deduct the amount of the refund from future rent payments, or bring a civil action under Section 37.11A, or exercise any other existing remedy. Where a rent increase included costs for seismic retrofit, the landlord or tenant may file a request to the Board to calculate the amount of the allowable rent increase.
The proposition becomes effective about thirty (30) days after the election result is certified. The effective date of Proposition H will therefore be sometime in December 2000.
Prior to the effective date, the Rent Board will continue to hold hearings and issue decisions on capital improvement petitions without a fair return analysis. The Rent Board will also accept filings of new capital improvement petitions without a fair return analysis until the effective date. On the effective date, however, the Rent Board will process pending capital improvement petitions and accept new filings of capital improvement petitions without a fair return analysis only for seismic strengthening work for Unreinforced Masonry Buildings (UMBs) under Building Code Chapters 14 and 15. All other capital improvement petitions that are pending on the effective date or filed after the effective date must include a fair return analysis as required by Proposition H. The Rent Board will develop a fair return analysis form prior to the effective date of Proposition H.
Proposition H applies to all capital improvement petitions filed after April 10, 2000 or where no final decision was issued by April 10, 2000. There are approximately 500 capital improvement decisions issued since April 10, 2000. Proposition H requires that the rent increases certified in those decisions be set aside unless the landlord can prove the increase is necessary in order to provide a constitutionally required fair return. The Rent Board will establish procedures for implementing this requirement prior to the effective date of Proposition H. In no event, however, may tenants deduct any payments for capital improvements certified in these decisions from the rent prior to January 1, 2001.
Up-to-Date Information on Implementation of Proposition H
Information concerning the Rent Board’s development of forms and procedures, as well as the status of any legal actions that may be filed to challenge or to stay implementation of Proposition H, may be obtained from the Rent Board in the following ways:
- Website: http://sfrb.org under "What’s New"
- 24-Hour Recorded Information Line—415.252.4600, Menu No. 46 "Proposition H—Current Status"
- Fax Back—415.252.4660, Document Number 014, "What’s New/Amended"
We will keep the information available from these resources current. Should you have questions that may not be answered in these resources, you can also call our counseling staff at 415.252.4602 between 9-12 and 1 to 4 each workday.