New tenants moving into rent-controlled buildings in Santa Monica will not have to pay surcharges on past bond measures, after the Rent Control Board voted 5-0 to end pass-throughs on local voted indebtedness. The surcharges will also end for new property owners, meaning they can no longer pass massive tax increases down to tenants when buildings turn over.

The decision is not retroactive, meaning tenants who are currently paying surcharges will continue to do so unless their building is sold to a new owner. The new policy for land owners will go into effect for sales after March 1. Boardmembers hope the new policy will help solve an unintended consequence of Proposition 13: massive tax increases passed down to tenants when their expensive real estate switches hands.

“There’s a lot of protection for existing property owners,” said Boardmember Nicole Phillis at the Jan. 25 meeting. “This was done with a lot of forethought because we don’t want to put mom and pop property owners out of business. Those are the types of landlords that we care a lot about. They develop relationships with their tenants. We acknowledge that on this board.”

San Francisco is the only other rent control jurisdiction in California that allows the pass-throughs, according to city staff. The surcharges were intended to equitably distribute voter approved tax increases by spreading out the costs among tenants. There are currently surcharges linked to Measures X, S, BB and AA. Landlords could also pass along a stormwater management user fee, the clean beaches and ocean parcel tax, and a 2008 School District Special Tax.

The median monthly surcharge is $20.73, however, some tenants have seen their bills skyrocket after their apartment building is sold and, thus, reassessed. For example, tenant Nani Granell, who lives at the corner of Montana and Ocean Avenue, says her surcharges reached $121 after her building on Ocean Avenue sold to new ownership for $22.5 million. More than 130 properties changed ownership in 2017 along, according to city staff.

Critics point out the end of surcharges comes too late for tenants like Granell.

“Unfortunately, it leaves more tenants exposed and doesn’t remedy the situation that was presented over the last two years and I think there are going to be a lot of unhappy tenants as a result,” said rent controlled tenant Bill Davis to the Board.

“It doesn’t solve the problem,” said landlord Michael Millman, who says low-income tenants should be able to apply for a hardship exemption. “The problem is there are some financially strapped tenants who need a lifeline, who need to be rescued.”

The Rent Control Board says they still plan to address the needs of those tenants at their Feb. 22 meeting. That night they will have a preliminary discussion of what process to use moving forward. Even short-term tenants have complained they were surprised to see surcharges added to their rents, which they assumed accounted for the owner’s overhead.

“We aren’t anywhere close to solving this issue tonight,” said Boardmember Todd Flora. He told nervous landlords to “take it easy” and current tenants to “be patient.”

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