Section 7.12 Allocation of Cost of Improvements or Work to Individual Units

(Amended March 14, 1989; August 29, 1989; June 18, 1991; Subsection (b) amended October 20, 1998; Amended April 1, 2003)

(a) The cost of capital improvements, rehabilitation, and/or energy conservation work for which the landlord has not been compensated by insurance proceeds shall be allocated to each unit in the building. The method used for cost allocation shall be that which most reasonably takes into account the extent to which each unit benefits from the improvements or work. Methods which may be appropriate, depending on the circumstances, include allocation based on the square footage in each unit, allocation based on the rent paid for each unit, and equal division among all units. Where the improvements do not benefit all units, only those benefitted may be charged the additional rent. For example, if a new roof were installed, the rents of all units in the building may be raised to cover the cost. But if, in addition, a new floor had been installed in one unit, that unit would be charged its proportionate share of the roof cost plus the cost of the new floor. Costs attributable to units where the rent cannot be raised (because of a lease restriction, owner occupancy, or other reason) may not be allocated to the other units. Costs attributable to routine repair and maintenance shall not be certified but shall be considered part of the costs of operating and maintenance.

(b) Effect of Vacancy on Rent Increases Requested for Capital Improvements

If a unit becomes vacant and is rerented after completion of capital improvements, rehabilitation, and/or energy conservation work listed in a petition for certification, no additional rent will be allowed on the unit based on the improvements or work since the landlord has the opportunity to bring the unit up to market rent at the time the unit is rerented. This section also applies to those units rented during the construction period for the project of which the work is a part, as stated in the permit(s), contract document(s), and/or as shown by other relevant evidence, or rented within six months of the commencement of work for which a petition for certification is filed, provided that ownership has not changed in that period.

(c) Amortization Periods and Cost Allocation

The Board shall apply the amortization periods and cost allocation formulas as set forth below.

(1) Petitions Filed Before November 14, 2002. The following provisions shall apply to all petitions filed before November 14, 2002:

(A) Amortization Periods. Costs shall be amortized on a straight-line basis over a seven or ten-year period, depending upon which category described below most closely relates to the type of work or improvement and its estimated useful life.

(i) Schedule I - Seven-Year Amortization. The following shall be amortized over a seven-year period: Appliances, such as new stoves, disposals, washers, dryers and dishwashers; fixtures, such as garage door openers, locks, light fixtures, water heaters and blankets, shower heads, time clocks and hot water pumps; and other improvements, such as carpeting, linoleum, and exterior and interior painting of common areas. If the appliance is a replacement for which the tenant has already had the benefit, the cost will not be amortized as a capital improvement, but will be considered part of operating and maintenance expenses. Appliances may be amortized as capital improvements when: (1) part of a remodeled kitchen; (2) based upon an agreement between the tenant and landlord; and/or (3) it is a new service or appliance the tenant did not previously have.

(ii) Schedule II - Ten-Year Amortization. The following shall be amortized over a ten-year period: New foundation, new floor structure, new ceiling or walls - new sheetrock, new plumbing (new fixtures, or piping,) weather stripping, ceiling insulation, seals and caulking, new furnaces and heaters, refrigerators, new electrical wiring, new stairs, new roof structure, new roof cover, new window, fire escapes, central smoke detection system, new wood or tile floor cover, new sprinkler system, boiler replacement, air conditioning-central system, exterior siding or stucco, elevator rebuild, elevator cables, additions such as patios or decks, central security system, new doors, new mail boxes, new kitchen or bathroom cabinets, and sinks.

(B) Allowable Increase. One hundred percent (100%) of the certified costs of capital improvements, rehabilitation, and energy conservation improvements may be passed through to the tenants who benefit from such work and improvements. However no increase under this Subsection 7.12(c)(1) shall exceed, in a twelve-month period, ten percent (10%) of the tenant's base rent at the time the petition was filed or $30.00, whichever is greater. A landlord may accumulate any certified increase which exceeds this amount and impose the increase in subsequent years, subject to this 10% or $30.00 limitation.

(2) Petitions Filed On or After November 14, 2002 For Qualified Energy Conservation Improvements and Renewable Energy Improvements. For Petitions filed on or after November 14, 2002, the following provisions shall apply to certification of costs for qualified energy conservation improvements and renewable energy improvements:

(A) Amortization Periods and Allowable Costs. For purposes of this Subsection, qualified energy conservation improvements and renewable energy improvements are:

(i) 100% of new EPA Energy-Star-compliant refrigerators where the refrigerator replaced is more than five years old and where the unit has separate metering, which costs shall be amortized on straight-line basis over a ten-year period; and,

(ii) Other improvements as may be approved by the Board of Supervisors upon recommendation of the Rent Board, following hearings and development of an Energy Conservation Improvements and Renewable Energy Improvements List of energy conservation improvements and renewable energy improvements that demonstrably benefit tenants in units that have separate electrical and/or natural gas metering by the Commission on the Environment.

(3) Petitions Filed On or After November 14, 2002 For Seismic Work and Improvements Required by Law, and for Work and Improvements Required by Laws Enacted After November 14, 2002. For petitions filed on or after November 14, 2002, the following provisions shall apply to certification of costs for seismic work and improvements required by law and to costs for capital improvement, rehabilitation, energy conservation, and renewable energy work and improvements required by federal, state, or local laws enacted on or after November 14, 2002:

(A) Amortization Periods. Costs shall be amortized on a straight-line basis over a twenty-year period.

(B) Allowable Increase. One hundred percent (100%) of the certified costs of capital improvement, rehabilitation, energy conservation, and renewable energy work and improvements required by law may be passed through to the tenants who benefit from such work and improvements. Any rent increases under this Subsection 7.12(c)(3) shall not exceed, in a twelve-month period, a total of ten percent (10%) of the tenant's base rent at the time the petition was filed or $30.00, whichever is greater. A landlord may accumulate any certified increase which exceeds this amount and impose the increase in subsequent years, subject to this 10% or $30.00 limitation.

(4) Petitions Filed On or After November 14, 2002 for Other Work and Improvements On Properties With Five Residential Units or Less. For petitions filed on or after November 14, 2002, the following provisions shall apply to certification of all work and improvements for properties containing five residential units or less, with the exception of work and improvements costs certified for passthrough under Subsections 7.12(c)(2) or 7.12(c)(3):

(A) Amortization Periods. Costs shall be amortized on a straight-line basis over a ten, fifteen or twenty-year period, depending upon which category described below most closely relates to the type of work or improvement and its estimated useful life.

(i) Schedule I - Ten-Year Amortization. The following shall be amortized over a ten-year period: New roof structure, new roof cover, electrical heaters, central security system, telephone entry systems, new wood frame windows, new mailboxes, weather-stripping, ceiling insulation, seals and caulking, central smoke detection system, new doors and skylights; appliances, such as new stoves, disposals, refrigerators, washers, dryers and dishwashers; fixtures, such as garage door openers, locks, light fixtures, water heaters and blankets, shower heads, time clocks and hot water pumps; and other improvements, such as carpeting, linoleum, and exterior and interior painting of common areas. If the appliance is a replacement for which the tenant has already had the benefit, the cost will not be amortized as a capital improvement but will be considered part of operating and maintenance expenses. Appliances may be amortized as capital improvements when: (1) part of a remodeled kitchen; (2) based upon an agreement between the tenant and landlord; (3) it is a new service or appliance the tenant did not previously haveand/or (4) it is an appliance certified as a qualified energy conservation improvement or renewable energy improvement pursuant to Subsection 7.12(c)(2).

(ii) Schedule II - Fifteen-Year Amortization. The following shall be amortized over a fifteen-year period: New floor structure, new ceiling or walls - new sheetrock, wood decks, new stairs, new furnaces and gas heaters, new thermal pane windows, new wood or tile floor cover, new sprinkler systems, air conditioning-central system, exterior siding or stucco, elevator rebuild, elevator cables, new kitchen or bathroom cabinets, and sinks.

(iii) Schedule III - Twenty-Year Amortization. The following shall be amortized over a twenty-year period: New foundation, new plumbing (new fixtures or piping), boiler replacement, new electrical wiring, fire escapes, concrete patios, iron gates, sidewalk replacement and chimneys.

(B) Allowable Increase. One hundred percent (100%) of the certified costs of capital improvement, rehabilitation, and energy conservation work and improvements may be passed through to the tenants who benefit from such work and improvements. However, no increase under this Subsection 7.12(c)(4) shall exceed, in a twelve-month period, five percent (5%) of the tenant's base rent at the time the petition was filed or $30.00, whichever is greater. A landlord may accumulate any certified increase which exceeds this amount and impose the increase in subsequent years subject to this 5% or $30.00 limitation.

(5) For Petitions Filed On or After November 14, 2002 for Other Work and Improvements for Properties with Six or more Residential Units. For petitions filed on or after November 14, 2002, the following provisions shall apply to certification of all work and improvements for properties containing six residential units or more, with the exception of work and improvements certified under Subsections 7.12(c)(2) or 7.12(c)(3):

(A) Amortization Periods. Costs shall be amortized on a straight-line basis over a seven or ten-year period, depending upon which category described below most closely relates to the type of work or improvement and its estimated useful life.

(i) Schedule I - Seven-Year Amortization. The following shall be amortized over a seven-year period: Appliances, such as new stoves, disposals, washers, dryers and dishwashers; fixtures, such as garage door openers, locks, light fixtures, water heaters and blankets, shower heads, time clocks and hot water pumps; and other improvements, such as carpeting, linoleum, and exterior and interior painting of common areas. If the appliance is a replacement for which the tenant has already had the benefit, the cost will not be amortized as a capital improvement, but will be considered part of operating and maintenance expenses. Appliances may be amortized as capital improvements when: (1) part of a remodeled kitchen; (2) based upon an agreement between the tenant and landlord; (3) it is a new service or appliance the tenant did not previously haveand/or (4) it is an appliance certified as a qualified energy conservation improvement or renewable energy improvement pursuant to Subsection 7.12(c)(2).

(ii) Schedule II - Ten-Year Amortization. The following shall be amortized over a ten year period: New foundation, new floor structure, new ceiling or walls - new sheetrock, new plumbing (new fixtures, or piping) weather stripping, ceiling insulation, seals and caulking, new furnaces and heaters, refrigerators, new electrical wiring, new stairs, new roof structure, new roof cover, new window, fire escapes, central smoke detection system, new wood or tile floor cover, new sprinkler system, boiler replacement, air conditioning-central system, exterior siding or stucco, elevator rebuild, elevator cables, additions such as patios or decks, central security system, new doors, new mail boxes, new kitchen or bathroom cabinets, sinks, telephone entry system, skylights, iron gates, sidewalk replacement and chimneys. If the refrigerator is a replacement for which the tenant has already had the benefit, the cost will not be amortized as a capital improvement, but will be considered part of operating and maintenance expenses. Refrigerators may be amortized as capital improvements when: (1) part of a remodeled kitchen; (2) based upon an agreement between the tenant and landlord; (3) it is a new service or appliance the tenant did not previously have; and/or (4) it is an EPA Energy-Star-compliant refrigerator where the refrigerator replaced is more than five years old and where the unit has separate metering.

(B) Allowable Increase.

(i) Only fifty percent (50%) of the costs certified under this Subsection 7.12(c)(5) may be passed through to the tenants who benefit from such work and improvements. However, no increase under this Subsection 7.12(c)(5) shall exceed, in a twelve-month period, ten percent (10%) of the tenant's base rent at the time the petition was filed or $30.00, whichever is greater. A landlord may accumulate any certified increase which exceeds this amount and impose the increase in subsequent years, subject to this 10% or $30.00 limitation.

(ii) In the alternative, a tenant may elect to have one hundred percent (100%) of the costs certified under this Subsection 7.12(c)(5) passed through to the tenant. In that event no increase under this Subsection shall exceed, in a twelve-month period, five percent (5%) of the tenant's base rent at the time the petition was filed, and the total increase for capital improvements elected under this Subsection shall never exceed fifteen percent (15%) of the tenant's base rent. If the total increase for capital improvements elected under this Subsection is less than fifteen percent (15%) of the tenant's base rent at the time the petition was filed, the landlord may impose the remaining percentage in a subsequent petition where the tenant makes an election under this Subsection and the remaining percentage shall be calculated on the tenant’s base rent in effect at the time the new petition is filed. A tenant must elect this alternative by filing such an election with the Board on a form prescribed by the Board. An election may be filed at any time after the petition is filed but no later than fifteen (15) calendar days after the Administrative Law Judge's decision on the petition is mailed to the tenant. After a tenant files an election form, the tenant cannot rescind the election unless either party files an appeal and a new decision is subsequently issued that changes the amount certified for passthrough to the tenant. In that case the tenant will have fifteen (15) calendar days after the new decision is mailed to the tenant to rescind the previous election or to make a new election under this Subsection even if one had not been made after the first decision was issued. In a unit with multiple tenants, the election form must be signed by a majority (more than 50%) in order for the election to be accepted. If a timely election is made after a decision has been issued, an addendum to the decision will be issued reflecting the tenant's election. The addendum is not subject to appeal.