Landlords, renters weigh in as rent control exemption moratorium reaches expiration

Carolyn Pulvino remembers the day the letter arrived. She came home from work and got the mail. Tucked behind the coupons and credit card offers was a manila envelope with a notice inside: Her landlord was seeking to exempt her building from rent control because of “substantial” renovations.

“I was like, ‘Fuck,’” said Pulvino. “It finally happened. I got the letter in the mail that’s going to force me to leave my apartment.”

At the time, Pulvino was paying $1,475 per month for her two-bedroom West Oakland unit, well below the $3,000 it would cost her at market rate. Pulvino’s rent is low not only because she moved in 2013, when housing prices in the area were cheaper, but because of Oakland’s rent control law. It limits the amount a landlord can raise a tenant’s rent in buildings built before 1983. The limit is based on inflation and is usually is no more than 1 to 3 percent annually. But with an exemption, that limit no longer applies. Pulvino’s landlord, Justin Wallway, could raise her rent to any price.

Wallway, the owner of property management company JDW Enterprises, Inc., was seeking a rent control exemption through what Oakland city officials call the “substantial rehabilitation rule.” Filed in May of 2017, it was one of the last requests for this type of exemption. That November, city council members placed a temporary moratorium on such exemptions, citing concerns landlords may be “abusing” the law to displace tenants. But now the moratorium is about to expire, and a city council committee will debate on Tuesday what to do next. Pulvino and housing advocates fear these notices will begin to pop up again in renters’ mailboxes again if the council allows the moratorium to expire in six weeks.

“If the city does nothing, there’s a lot to lose,” said Leah Simon-Weisberg, Pulvino’s attorney. But the tenants’ rights attorney believes the council will act before the moratorium expires on October 21, and is even optimistic that the substantial rehabilitation exemption will be eliminated.

Oakland North repeatedly tried to contact JDW Enterprises for comment, but no one returned our requests.

The “substantial rehabilitation rule” has been around since Oakland’s rent control laws were implemented in 1980. Before the moratorium went into effect, it allowed landlords to permanently exempt a building from rent control if they spent at least 50 percent of what it would cost to build a new unit on rehabbing one. The rule was meant to incentivize property owners to renovate rundown buildings.

According to Simon-Weisberg to get an exemption on Pulvino’s building, Wallway would have to prove to a hearing officer at Oakland’s Rent Adjustment Program, who handles rent control exemption cases, he spent $271,653 to substantially renovate the unit.

Sporting neon yellow hair and teal acrylic nails, Pulvino’s pulls a stack of documents, including pictures, receipts and invoices, and lays it on her kitchen table. All of this, she said, is her landlord’s documentation showing the work he’s done to the property since he bought the place in 2012. It includes new kitchen cabinets and countertops, new bathroom fixtures, and paint.

But Pulvino feels those were just ”necessary updates” to a building that’s more than 100 years old. And she doesn’t feel that making these kinds of improvements should reward the building’s owner with an indefinite rent control exemption. “The problem with that is like it takes it out of rent control forever,” said Pulvino. “If in 30 years all of this has fallen to shambles, [Wallway] can still charge market rate for it even though the building is still over 100 years old.”

Attorney Simon-Weisberg first got involved last spring. She was two months into her job at as the managing tenants’ rights attorney at Centro Legal de la Raza in Oakland when two JDW Enterprises tenants, neither of whom were Pulvino, showed up at her office with an exemption petition Wallway had filed.

After a quick records search, the tenants quickly learned they were not alone. Wallway had requested rent control exemptions for 16 properties scattered across the city, all based the substantial rehabilitation rule. Tenants from 14 buildings that were occupied formed an organization to fight the exemption requests together. Simon-Weisberg agreed to be their attorney. They called themselves the JDW Tenants Association.

“It was one of these situations where if you didn’t do it, the result would be so horrible,” said Simon-Weisberg. “So many tenants would be affected.”

Simon-Weisberg says Wallway wasn’t the only landlord seeking exemptions based on substantial rehab. City data shows dozens of petitions were filed in 2017. But Simon-Weisberg believes no other landlord filed more petitions.

She said these requests violate the spirit of the law. She believes the exemption is meant to incentivize investors to buy vacant, uninhabitable buildings and make them livable again. “It takes a certain kind of landlord to have the nerve to take away rent control from in-place tenants,” said Simon-Weisberg.

In many cases, landlords weren’t renovating rundown units to make them habitable. Simon-Weisberg said instead, they were taking already occupied properties with maintenance issues and turning them into more expensive properties with fewer maintenance issues.

Eliana Greenberg, a member of the tenants association, says her building falls into that category. She received her letter from JDW Enterprises at her Rockridge home in the spring of 2017. The 27-year-old says her unit is “nice, but no remodeled palace.” She’s paying more than $4,000 for a four-bedroom place she splits with roommates. With no rent control, that cost again could increase to any amount.

That’s why last year, Greenberg dedicated nearly 100 hours to fighting the exemption, arguing that her home had not been “substantially” upgraded. So did a number of other JDW Tenants Association members. And by and large, they got their way: Since the formation of the group, all 14 cases have been resolved. The exemption requests were either dismissed or denied by a Rent Adjustment Program hearing officer or dismissed dropped by Wallway himself.

Today, no one in the group is at risk of losing their apartment’s rent-controlled status, so it has become less active—Greenberg says it’s getting harder to get people to turn out to city council meetings. “People move, or they forget how it felt,” said Greenberg. “It’s hard to pull up the tears at every city council meeting to make this case. It really is.”

That’s why the Berkeley native wants the exemption eliminated now and is wholeheartedly opposed to extending the moratorium. She fears that three years from now, city officials will forget about the issue, the group that fought to eliminate the exemption will have moved on, and the moratorium will expire for good.

“No one’s going to be around to speak up for themselves and speak up for other tenants in three years,” said Greenberg.

Daniel Bornstein, the founding attorney at Bornstein Law who handles landlord-tenant disputes throughout the Bay Area, agrees that a moratorium extension would be “terrible public policy,” but for a different reason. He fears it would “mute upgrade”—in other words, landlords would stop putting money into improving aging rental units.

Bornstein argues that if rehabbing a building cannot lead to a rent control exemption, there will be a “class of buildings that continue to exist in a downward spiral of dilapidation” in Oakland which will ultimately provide “damage to the community.” He believes without this exemption, the city’s housing stock will deteriorate because landlords will not spend money to upgrade units because they cannot get a return on the investment.

He admits some people will “lose,” referring to tenants who may have to leave their homes because they can’t afford a higher rent. But there will also be those people who benefit, who want to move to Oakland and can afford market rate rent.

“It’s not a simple subtraction of one tenant. There’s another tenant who’s willing to pay that who is going to live there,” said Bornstein. “If you’re upset that there are people who have more wealth than others, who can afford an upgraded unit, I’ve got to tell you there are a lot of people who can afford very expensive cars and people that can afford less expensive cars. It’s the nature of life.”

And Bornstein points out that before the moratorium, the exemption affected only a small number of tenants. According to a report prepared by staff at Oakland’s housing department, since 2011, 35 exemptions for substantial rehabilitation have been granted for 197 units. San Francisco—the only other city in California with this type of rent control exemption—granted even fewer. According to the housing department’s report, San Francisco hasn’t granted one since 2006. San Francisco’s law is much more restrictive. To qualify for an exemption, a property owner’s building must be at least 50 years old, contain “uninhabitable units,” and have a rehab cost of at least 75 percent of what it would take to build new units.

Oakland’s housing department is suggesting councilmembers consider San Francisco’s law as a template for adjustments Oakland could make to its ordinance.

Councilmember at-large Rebecca Kaplan, who co-authored the initial moratorium, says she will be fighting to nix the exemption altogether. “It just invites too much abuse,” said Kaplan. “If we don’t simply get rid of it, then we’re potentially inviting more years of confusion and strife. My top choice is to just get rid of it.”

Kaplan is not a member of the committee discussing the issue Tuesday, but she said she plans to testify at the meeting.

Oakland North reached out to the committee’s members—Councilmembers Larry Reid, Noel Gallo, Annie Campbell Washington, and Lynette Gibson McElhaney—but only Gibson McElhaney’s office returned requests for comment. Her legislative and policy director, Alex Marqusee, said, “We don’t have a position at this point,” but added that he will be advising Gibson McElhaney to “make a decision now and move on” rather than extend the moratorium.

Pulvino wishes she could move on. She still lives in her beloved two-bedroom apartment near I-580. The back door doesn’t open when it gets cold, she said, and the sink really needs to be replaced, but it’s her home. She doesn’t want to leave, and right now she doesn’t have to. But she fears one day her landlord could find another way to exempt her unit from rent control, pricing her out of her perfect place. And it could all start with the delivery of another manila envelope.

“I’m always going to be worried about it. I think it’s just like a thing about renting in Oakland,” said Pulvino. “It’s like, what’s going to happen today?”

Updated September 11, 2018: The issue is now headed to the full Oakland City Council. The Community & Economic Development Committee passed the item out of committee. Councilmember Noel Gallo (District 5) and Councilmember Annie Campbell (District 4) recommended the council eliminate the substantial rehabilitation rule altogether. The only other councilmember in the meeting, Larry Reid (District 7), abstained. Councilmember Lynette Gibson McElhaney (District 3) was absent.  During the meeting Councilmember at-large Kaplan, who’s not a member of the committee, alerted the council during the public comment period that even if the council intends to eliminate the rule, the council will still need to extend the moratorium 180 days. She said city staff need time to implement the elimination beyond October 21 when the moratorium ends.

Updated September 17, 2018: The full Oakland City Council moved one step closer to getting rid of the substantial rehabilitation exemption Monday night, voting to direct city staff to prepare to eliminate the rule. Earlier in the meeting, the council voted to extend the moratorium 180 days, to allow staff time to phase out the exemption.