Wednesday, June 26, 2013

Oakland Landlords Can Still Pass Their Debt Onto Tenants, For Now

By Elly Schmidt-Hopper
Wed, Jun 26, 2013 at 12:05 PM

The Community and Economic Development Committee of the Oakland City Council failed yesterday to decide whether to reform or remove “debt services” as a justification to raise rent.

Oakland is one of only a few districts that allow landlords with a negative cash flow to pass that debt (typically the mortgage) onto tenants by increasing rent. The Oakland Rent Board is the only board in the state of California that allows the landlord to pass up to 95 percent of said debt onto renters.

Connie Taylor of the Housing, Residential Rent and Relocation Board recommended capping debt service at 7 percent and creating a grandfather amendment to exempt established landlords. Taylor also mentioned the option of removing the debt service provision entirely.

The issue is contentious and opinions varied widely during the meeting. Fifteen members of the public came forward to discuss debt services, and their arguments fell cleanly into two categories: tenant rights activists, and landlords/developers.

Activists from the Oakland Tenants Union (OTU), Tenants Together and Just Cause/Causa Justa spoke about the potential for egregious rent increases and unscrupulous landlords passing off the cost of investment onto their tenants.

As James Vann, co-founder of OTU, put it, “Debt service really means: have the tenants buy your business for you... debt service has no place in rent laws, and never has had any business being there.”

The argument against debt services is strengthened, in part, by a successful lawsuit filed by thirteen tenants against landlord Dennis Cox. In 2011, an Alameda County jury ruled that Cox had violated Oakland's rent control ordinance after he bought a thirty-unit apartment building in North Oakland and promptly increased monthly rents by $381.

Although the court did not directly cite debt service charges as a reason for the verdict, it did award the tenants $1.7 million in damages and set a precedent. (Cox and the tenants later settled out of court.)

On the other hand, however, Luke Blacklidge of the East Bay Rental Housing Association (EBRHA) argued that debt service is hardly a problem because the Rent Board has allowed only 48 debt service rent increases over the last six years (one of which was Cox's).

He also said that standard financing varies drastically these days, and a lot of people are going to see their loans increasing in the next few years. “[Debt services] will help landlords of larger properties avoid foreclosure,” he said.

Councilmember Libby Schaaf suggested that the debt service provision be removed because it has been used so infrequently. Council President Patricia Kernighan and Councilwoman Lynette Gibson McElhaney wanted more information before voting to adopt any amendment. They are rescheduling the discussion for this fall.

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