Raising the Rent at 138 Monte Cresta
The landlord says he's just trying to recover his costs. The tenants say he's violating the spirit of rent control. Their dispute may affect all of Oakland.
By Jesse NathanArticle Tools
- Jared Gruenwald
- Lyta, Renee Dyer's dog, stands by a sign made by tenants of 138 Monte Cresta. The new owner banned all dogs from the building
The video begins with a long shot of a cement-gray apartment building. The sun is out, and a slight breeze sways the trees. Jerkily, the camera zooms in on a view of the thirty-unit North Oakland structure. The scene is a summertime yard sale, yet the blue skies and communal appearance are deceiving. Residents are selling their possessions, but not because they want to. People look tense, and as they're interviewed we learn they're angry too. One woman says she had to leave the Bay Area to find new housing. Another shakes his head at having to search for an apartment after thirty years in the same building.
Meet the tenants of 138 Monte Cresta Avenue. What are they so upset about? In two words: Dennis Cox. Shortly after buying their apartment in May of 2007, Cox notified them that he was increasing their rent by $381 a month. He probably didn't suspect he was about to unleash a storm likely to shape rental policies for the whole city.
Many residents of 138 Monte Cresta had lived there for decades, and enjoyed rents well below market rate. The videotaped interviews barely scratch the surface of their outrage. "My home is threatened by a landlord who's scheming to get people out," says tenant Amy Pierre, who chose to stay and fight for her $699-a-month rent. "It's extremely, extremely upsetting and unsettling."
Pierre and her neighbors are irate about many things. Most view the building's massive renovation as part of a sinister plan to drive them out. They also complained that Cox failed to promptly repair a leaking sewer. Others griped about the dismissal of the apartment's on-site manager. Some disliked the building's new ban on dogs. But the rent increase dominated their complaints.
Oakland's rent-control regulations say that landlords can raise rents to cover maintenance expenses plus 95 percent of the debt service on their mortgage. However, Cox took out an unconventional mortgage, and that's where the controversy began. As such loans have become more common in the tightening real estate market, there have been at least 58 separate disputes before Oakland's rent board.
Cox eventually told the rent board that he was unable to obtain a conventional loan because of the very low rents paid by tenants of 138 Monte Cresta. Based on the existing rents, his longtime banker would only loan him half the building's value. To purchase the apartment with such a loan, Cox would have needed to make a 50 percent down payment.
So instead, he chose instead to obtain an unconventional mortgage — an interest-only loan with a high 10.5 percent rate and a short, two-year repayment period. Cox put down a quarter of the purchase price, and his private lender demanded additional collateral beyond the building itself. So he secured the loan with a second piece of property, which some tenants would later cite as proof that he was trying to cheat them.
When Cox notified those tenants that he was increasing their rent to cover his borrowing costs, they balked. Residents took their complaints before a hearing officer of Oakland's Housing, Residential Rent and Relocation Board. In a showdown on September 19, 2007, the tenants' were represented by one of their own, lawyer Martin Greenman, a resident of 138 Monte Cresta. Cox was represented by Gregory McConnell, who is notorious among tenants-rights activists for his role in sculpting the anti-rent control Costa-Hawkins Rental Housing Act of 1995.
The tenants said their landlord's costly loan was an intentional effort to undermine Oakland's rent controls. They implied that Cox had taken out a larger loan than necessary to provide the legal justification to raise their rents by more than the city's 3.3 percent rent cap. "He wouldn't have been entitled under a regular principal-and-interest loan to any increase in rent at all," Greenman said in an interview.
When the hearing officer handed down her ruling in November, the tenants scored a huge victory. In what James Vann of the Oakland Tenants Union called "a watershed decision," the hearing officer concluded that Cox' loan was not "commercially reasonable" and froze building rents at their existing levels.
"It would be against the spirit and intent of the ordinance to allow an owner to simply pass on all debt-service costs without considering whether the transaction is a commercially reasonable loan," wrote hearing officer Barbara Kong-Brown. "It would allow an owner to engage in unfettered self dealing and structure any financing arrangement."
In essence, she argued that Cox had found a loophole that he and other landlords were using to skirt the city's rent controls. "It appears the owner's intent was to purchase the subject property for speculation purposes, raise the rents ... and to refinance the property after two years at a much lower interest rate, after the tenants have left or paid the new rents," she wrote. "This scenario evades the Rent Ordinance."
But despite the ruling, the dispute is far from resolved. Cox has appealed the decision to the full rent board, and it could well end up in court. In the meantime, reverberation from the case, and dozen of others like it, has prompted the board to reconsider rent increases of this type. Observers expect the matter to come before the Oakland city council this summer.
Welcome to 138 Monte Cresta, where the conflict between angry tenants, frustrated landlords, and confused regulators captures many of the passions of Oakland's raging gentrification debate.
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So the tenants complain about the previous landlord's lack of maintenance, but they liked their low rents. Now they complain about the maintenance and rehabbing of the building and their rent increases (which are still crazy low rents!!). Sorry but I can't sympathize much with the tenants in this case. Cox coulda been more inclusive and worked with the tenants, I'll give them that. Ultimately this is the reason it's so freakin' hard to find good apartments around here. You have to make it economically feasible to maintain and create places for people to live. Most apartments seem to be falling apart since there's no incentive to keep things up. Most areas of the country understand this, why is it so hard out here?
Hey - I moved to Berkeley from Minneapolis in January and got my first taste of the Bay Area apartment market. I am now against rent control and for increased density via weakening height restrictions and encouraging new construction.
Apartments here are the lowest quality and landlord/tenant relations are the most adversarial that I've seen. Also, as a recent transplant and postdoc, I am paying top dollar for my place and probably will not be around long enough for rent control to work for me.
I've heard many people say that rent control helps lower income people with housing. However, by its very nature, rent control benefits people who can stay in the same apartment for decades on end. These people are usually more financially secure than people who have to move around a lot or have just arrived on the job market and often didn't need the help in the first place.
I've also heard many people talk about the magical 'communities' that exist in the Bay Area that would be destroyed if rent control were abolished. Hate to break it to you, but any reasonably large/dense city/metro area has 'neighborhoods' and 'communities' and I really haven't noticed anything special here in this regard. And my interaction with the people in my building really hasn't changed from when I was in the Twin Cities.
Related to the above paragraph is the notion that increasing density or weakening height restrictions would 'ruin' the Bay Area somehow. Honestly, I don't see how adding a story or two on top of the average building would change the scenery much. You'd still have Marin County, Muir Woods, etc., and I really can't see the bay from my downtown Berk apartment as is.
Oh yeah, you people that say there's 'infinite demand' here because San Francisco is God's Own Paradise and everyone's just DYING to get a chance to move here...please. This is a reasonably dense metro area that's pretty. Boston, NYC, etc., kick its ass when it comes to public transit. And the weather places that have discovered insulation is just fine for the 98% of the time you're inside in the Winter (another reason to have more modern construction here). I moved here for a job at Berkeley. I'll probably leave when that's finished.
As a long time resident of the Bay Area, I have seen rents increase an average of 200-250% over the past 15 years. This hyper-inflation serves only to decrease the value of the American currency and to generate a climate of greed that borders on criminal.
With regard to rent control in Oakland, there is very little in the way of real protection for tenants - even though the law states that rents cannot be increased more than the CPI annually.
The truth is that unscrupulous landlords regularly take advantage of "opportunistic evictions" to get rid of long-term tenants so that their rent rolls can be brought up to "market rate" - the hyper-inflated figure landlords now feel entitled to charging.
Another tactic used by unscrupulous landlords is the "prompt payment discount" clause in some leases that states the rent to be much higher than the rate paid for "prompt payment". Potential tenants are hooked into the lower rate by "bait and switch" advertising stating the lower rent is the rent on the apartment. This is a slick way of getting around California laws that limit the amount that can be charged for late payments on rent, and to usuriously increase tenants' rent.
In on such case, rent was advertised on a studio apartment on Craigslist for $790 per month. The attorney / landlord's twisted logic stated that the rent was in fact $1399 per month. Added to this was a "prompt payment discount" clause that equalled the amount advertised on Craigslist, $790 per month. The draconian conditions stated that this "prompt payment discount" was earned only if rent was always received by the landlord on the 1st, regardless of whether or not this date fell on a holiday, or the rent was postmarked on the 1st. The penalty for slipping on these conditions, even once, was a permanent rent increase to the usurious $1399 a month, nearly twice the advertised rent.
The Just Cause Ordinance is being flagrantly violated, Criminal Codes are being broken - "bait and switch" is a misdemeanor, and the California Civil Code is being broken with regard to late penalties and legally defined timely rent payment. Yet, unscrupulous landlords are getting away with this flagrant abuse.
The net effect of landlords invoking "prompt payment discounts" and then illegally raising tenants' rents well beyond the annual CPI is the creeping erosion of affordability in rental housing. Increasing tolerance of this type of landlord abuse is ominous for the future of decent rental housing, but equally dangerous is the pattern of "opportunistic evictions" that permanently destroys affordable housing in the face of gentrification.
All tenants should be concerned about the erosion of tenant protections, hyper-inflation in rents, and the destruction of affordable housing by means of "opportunistic evictions". Greed is the driving force. Greed knows no bounds and cares nothing about the health of the community or the welfare of the members who compose it. The rope of affordability unravels from the poorest citizens in the community to the better off. It is just a matter of time and the advance of greed that facilitates the unravelling.
Buying a building then trying to justify raising rents to cover your cost is analogous to murdering your parents, then trying to throw yourself on the mercy of the courts because you are an orphan.
I don't get it. The landlord is spending a million dollars to fix up the building and he cant raise the rents by $381 a month? And the rents are still quite a bit under market? I guess the tenants have had a pretty good deal, but do they get to have it forever? Rent control should work to keep things reasonable, not to transfer a permanent right to reduced rent.
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