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In their appeal to the full seven-member rent board, representatives for Cox argued that the ruling in which the hearing officer denied his rent increase was rife with legal errors. They said it denied Cox a fair return on his investment and put him in a "financially ruinous position." Their appeal correctly noted that city rent regulations neither include any requirement that a loan be "commercially reasonable" nor define what would constitute an "unreasonable" loan.
"The only thing Mr. Cox is 'guilty' of is complying with the letter of the law," the appeal said. "He read the debt-service regulation, took it at face value, relied on it in purchasing the property, and followed its plain and unequivocal terms afterward. To say that Mr. Cox, who followed the law, did so to evade the law, is nonsense. ... Mr. Cox was literally ambushed with new standards imposed after the fact."
Tenant Martin Greenman's brief on behalf of tenants urged the board to "make policy" that would prevent Cox and other landlords from undermining the intent of city rent controls. "Mr. Cox had choices about how to spend his money," Greenman wrote. "He made those choices. Instead of putting down 50 percent to buy the building, he found a 25 percent lender." In essence, Greenman argued that Cox should not be allowed to pass his debt-service costs on to tenants when he could have avoided a rent increase by making a higher down payment instead of buying another building in Pleasant Hill.
Other passages of Greenman's appeal seethed with the same contempt that the lawyer's clients had for their new landlord. The appeal accused Cox of lying during his earlier testimony, and essentially implied that he was also trying to charge residents of Monte Cresta for that building in Pleasant Hill. "Mr. Cox comes before the rent board with unclean hands, having committed perjury in an attempt to subvert the fact-finding in the hearing in this case," Greenman wrote.
At the February 21 hearing of the full Oakland rent board, Chairman Stephen Sanger, who was reappointed to the board by Mayor Dellums, admonished the tenants and their representative to keep such rhetoric in check. "I've never ever had more hyperbole or rhetoric in briefs," Sanger said. The chairman added that Greenman's allegations of perjury were not within the board's purview nor relevant to its hearing.
Landlord representative Gregory McConnell walked the board through the same points that he and a lawyer had made in their written appeal. He rejected Greenman's implication that Cox was trying to charge the residents of Monte Cresta for any other building, stating for the record that all the money Cox borrowed was used to purchase 138 Monte Cresta. In addition, he noted that Cox was investing more than one million dollars in renovations at 138 Monte Cresta. He warned the board to head off a lawsuit by reversing the hearing officer's decision. "You can't just ignore the fact that there's debt on this property because that won't be sustained in court."
After testimony from both sides, the board discussed the rent increases at 138 Monte Cresta in the context of several other cases in which landlords have sought outsized rent increases based on nonconventional financing. Board member Shelby Anguiano, another Dellums appointee, rejected Greenman's challenge to the propriety of the loan Cox obtained. "I don't think you can call this a bogus loan," she said. "We don't know what's appropriate for the time that we're in right now. We're seeing all kinds of new financing."
Alan Flatt, a landlord appointee to the board whose sympathies nonetheless lay with tenants at this hearing, suggested there should be a limit on the interest rate landlords are allowed to pass on to tenants. "Would a 15 percent loan be OK?" he asked. "Thirty percent? Fifty percent? If you're not going to read something like that into the law, where do we stop? ... This is why we need to have a cap on rents."
Consensus emerged that the board needed to devise a policy for dealing with such unconventional loans. The case of 138 Monte Cresta was sent back to the hearing officer for reconsideration once the board devised a new policy on such rent increases.
Oakland's rules allowing landlords to recover the costs of buying a building have been controversial ever since the first introduction of rent control in Oakland in 1980. The rules have changed several times, although the current scheme has been in place since 1994. The rent board's staff recommended disallowing this type of rent increase in 2004, but the board did not heed its advice.
On May 1, a three-member rent board committee met to consider a new policy for the city. The committee received a consultant's report that proposed changes that would probably preclude rent increase like the one Cox hopes to implement. Dave Kadlecek of the Oakland Tenants Union endorsed this approach.
Landlord representative Steve Edrington, executive director of the Rental Housing Association of Northern Alameda County, urged the board not to make changes that would depress the value of rental property in Oakland. Citing 138 Monte Cresta as an example, Edrington said it would be unfair to rental housing values to current rents. "If a landlord gives a tenant a deal because they're being a nice guy, should that landlord be punished later, when they go to sell that property?"
The committee discussed solutions ranging from a maximum annual cap on rent increases to eliminating such rent increases altogether. City Rent Adjustment Program Manager Rick Nemcik-Cruz said an outright ban on such rent increases would "seriously interfere with the sale of rent-controlled properties in Oakland."
The committee is likely to recommend changes to city policy at its May 29 meeting. "This was an issue before I came on the board, and people are kind of waiting for us to come up with a policy," said board member Anguiano.
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