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The Rent Control Board has closed a loophole in rules that may have allowed some landlords to illegally raise rents on some tenants.

At their May meeting, the board changed the way the owner-occupied exemption is administered. In the past, the exemption was granted and then automatically renewed unless an owner notified the board of their departure from the unit. Officials said owners were vacating units without notifying the board.

“This causes problems for the affected tenants and landlords, as well as the community at large, because: tenants may be subject to unlawful rent increases; owners may be subject to substantial penalties for unpaid registration fees that became due when the exemption lapsed; other owners of non-exempt properties with three or fewer units are placed at a competitive disadvantage; and rent increases could lead to the tenant displacement that the rent control law was intended to avoid,” said the staff report.

Under the new rules, owners must apply for the exemption each year or their exemption will lapse.

According to the board’s most recent report, there are about 28,000 rent controlled units in the city. Owners of units that would be subject to rent control can obtain Use or Temporary exemptions provided they meet specific criteria. The owner-occupied exemption applies to properties with three or fewer units if the property owner occupies one. While rent control laws are not enforceable on these properties, eviction protections are in place per an amendment to the City Charter.

“The nature of the problem is we couldn’t really tell if owners were getting exemptions then moving off property,” said J. Stephen Lewis, General Counsel for the Rent Control Board.

The number of exemptions has declined over time. According to Rent Control Board staff, there was total of 586 properties receiving the owner-occupied exemptions covering a total of 1,408 units in 2014 compared to 1,038 properties (2,164 units) in 1994.

In 2012, 15 applications for exemptions were received, 12 were granted and 33 were verified to have lapsed. In 2013, 23 applications were received, 13 were granted and eight were found to have lapsed. In 2014, there were 16 applications, 12 were granted and 33 were found to have lapsed. So far, seven applications have been filed in 2015.

Of the 129 exemptions that were revoked in the last five years, 107 lapsed more than four years after the initial grant, 11 lapsed between two and four years after the initial grant and 11 lapsed in less than two years.

Commissioner Nicole Phillis said the board took action on the issue to protect renters but wants to operate in a way that is fair and equitable for owners.

“We could see displacement of people,” she said. “We heard testimony that the landlords were telling people what they will raise the rent to. People are responding to the concern about that and we’re trying to do it in a way that is fair to landlords.”

As part of their initial discussion, Phillis said the board also wanted to discuss increasing the amount of time an owner must live in a unit before applying for the exemption and clarify what constitutes a primary residence. That discussion did not happen in May and at the July 9 meeting, the board will discuss whether to agendize those items for a future meeting. The scope of the July 9 meeting will be limited to scheduling a future discussion and Phillis said public input is welcome when the items return for a full discussion.

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