Opinion ID: 1937359
Heading Depth: 1
Heading Rank: 1

Heading: rent control background

Text: These consolidated cases came to this court on the threshold of yet another effort by the Council of the District of Columbia to enact a workable rent control law. Recognizing impending collapse of the rental housing market under the weight of nationwide inflation, the Congress and the Council initiated in 1974 the first of three rent control measures which share a critical objective. This objective, from the beginning, was to provide for the continuing availability of residential rental units at a stabilized rent sufficient to protect consumers from chimerical rent fluctuations and to ensure landlords a fair rate of return from their property. The difficulty of attaining this objective without significant rancor, frustration, and hardship speaks for itself. Predictably, the creation and administration of a mechanism to enforce rent control in such a way as to permit both a pass-through of landlord costs and a check on erratic rent increases has been chaotic. These four landlord petitions for hardship rent increases were first filed with the Rental Accommodations Office under the second rent control law in the twilight days of the life of that Act. The Rental Accommodations Act of 1975, D.C.Law No. 1-33, D.C.Code 1978 Supp., § 45-1631 et seq. The Rent Administrator granted these hardship increases but the Commission, on appeal, rejected the petitions, requiring the landlords to meet the less favorable conditions of the new law which was in effect at the time of the Commission's decision. The Rental Accommodations Act of 1977, D.C.Law No. 2-54, D.C.Code 1980 Supp., § 45-1681 et seq. The landlords' petitions to this court for review of the Commission decisions involve consideration of the four major elements of rent control which have been utilized in one fashion or another in all three acts: (1) the so-called automatic rent increase provided on a city-wide basis to counteract the general effects of inflation; (2) the hardship increase provided to individual landlords to pass through specific increased costs; (3) the formula assigned for computation of these landlord costs; and (4) the hearing procedures for hardship increases. Legal challenge to these elements of rent control is not unique in the history of the three acts. The first act, established by Regulation of the City Council on August 1, 1974, 21 D.C.Reg. 289 (1974), pursuant to the congressionally enacted Rent Control Act, D.C.Code 1974 Supp., § 45-1621 et seq., provided an automatic 12.3 percent across the board rent increase, a process for adjustments of rent based on landlord hardship, and a requirement that the Commission act upon these hardship petitions within sixty days. In Apartment and Office Building Association of Metropolitan Washington v. Washington, D.C.App., 343 A.2d 323 (1975), this court held that the statutory history of the enabling act mandated a viable procedure for cost pass-through to protect landlords from uncontrollable costs and the rental community from a housing shortage due to the withdrawal of rental property from the market. Furthermore, in the face of the Commission's inability to decide hardship petitions within sixty days, we ordered the government to fashion a method of vindicating the pass-through right within ninety days. Our order was based on the premise that statutory rights become totally illusory if the system charged with protecting them becomes so lethargic and cumbersome as to be inoperable. Id. at 331. This Regulation was succeeded by the Rental Accommodations Act of 1975, effective on November 1, 1975. Petitioners filed their hardship petitions under this Act (D.C. Code 1978 Supp., § 45-1644), seeking to take advantage of its salient elements. The Act provided an automatic rent increase up to a designated rent ceiling. Like the previous Regulation, the Act also provided that any landlord who had not obtained an 8% rate of return after an automatic rent increase could file a hardship petition to obtain an increase sufficient to raise his rate of return to the 8% level. D.C.Code 1978 Supp., § 45-1649. The amount of relief granted was within the discretion of the Administrator, giving due regard to the concomitant hardship the increase would place on the tenants. D.C.Code 1978 Supp., § 45-1649(a). A significant deduction permitted the landlord in computing his rate of return (and, hence, the amount of rent increase for which he qualified) was the straight-line depreciation of the building equal to 2% of the total assessed value of the property, or an even greater amount if the Rent Administrator found it justified. See Tenants of 3039 Q Street v. D. C. Rental Accommodations Commission, D.C. App., 391 A.2d 785 (1978). Although this hardship increase, once approved, could be taken in addition to the automatic increase without any waiting period, the Rent Administrator was authorized to dismiss hardship petitions filed within six months of an increase granted under another previous petition. D.C.Code 1978 Supp., § 45-1652(e). Finally, the Act required the Rent Administrator to render a decision on a petition within sixty days of its filing day. D.C. Code 1978 Supp., § 45-1652(a). The legislative history of this second act reveals that the Council was quite cognizant of our decision in Apartment and Office Building Association v. Washington, supra, 343 A.2d at 323, and was concerned that a serious effort to overcome the administrative deficiencies in the first rent control act was needed. In a second suit by the Apartment and Office Building Association, this court upheld the 1975 Act against constitutional attack. Apartment and Office Building Association of Metropolitan Washington v. Washington, D.C.App., 381 A.2d 588 (1977). There we held, inter alia, that landlords did not have a constitutional right to an immediate pass-through of increased costs, that the target of an 8% rate of return in the Act was not confiscatory, and that the administrative mechanism for processing of landlord petitions was not so inherently unworkable as to render the Act confiscatory. Despite our decision in Apartment and Office Building Association v. Washington, supra, 381 A.2d 588, subsequent events revealing the inadequacies of the 1975 Act and of its enforcement led to the passage of the present Act. For instance, the administrative problems continued, exacerbated by the failure to appoint a permanent Rent Administrator until April 11, 1977. Numerous petitions for hardship increases were backlogged in the Commission. In response, beginning in the summer of 1976, the City Council passed a series of virtually identical emergency acts designed to ameliorate some of the administrative difficulties of the Rental Accommodations Office. The legislative history of the present rent control law, the 1977 Act, indicates that one of the major objectives of the new legislation was to remedy these bureaucratic inefficiencies and develop a more streamlined, self-administering program. Thus, the present law which went into effect on March 16, 1978, succeeding D.C. Law No. 1-33 (the 1975 Act), contained several provisions which significantly altered the law. [1] The present Act retains the automatic increase provision and the hardship petition provision characteristic of the previous two acts, but now guarantees the landlord's increase of rent to the 8% rate of return level when he has filed a verified hardship petition. However, in the view of petitioners, another change in the law counteracts the benefit of this guaranteed increase. The Act requires that this increase to an 8% rate of return level be accomplished in one step. Thus, the landlord is required to elect between an automatic increase which is effected merely be issuing thirty days' notice to tenants and a hardship petition which would bring his rental income up to the guarantee level. [2] In an attempt to avoid the impact of this election requirement, petitioners seek their hardship increase under the 1975 Act, assuming that they may also take an automatic increase under the 1977 Act. Both an automatic and a hardship increase are forbidden under the new Act. This effort is the real crux of petitioners' complaint in the case. Further tightening of the Act, which petitioners wish to avoid, was accomplished by limiting the landlord's depreciation deduction used in computing his rate of return to no more than 2% of the assessed value of the building with no depreciation allowed for land. D.C.Code 1980 Supp., § 45-1693(b)(1)(A); cf. Tenants Council of Tiber Island v. Carrolsburg Square, D.C.App., 426 A.2d 868 (1981) (under the 1975 Act, the landlord has the option to take 2% of the assessed market value of the property and the land as depreciation expense). [3] For increased efficiency of administration, the new Act also provides that if the Rent Administrator does not act on a hardship petition within ninety days, it shall automatically be instituted by the landlord on a provisional basis, pending consideration by the Rent Administrator in the appropriate manner. D.C.Code 1980 Supp., § 45-1688(c). [4] Furthermore, petitions may be dismissed if filed within six months after a previous hardship increase, and no adjustments under the Act may be implemented within 180 days since any prior adjustment. Consequently, a landlord can file a hardship petition no more often than every six months. At the time the 1977 Act became effective, many landlord hardship petitions were before the Rental Accommodations Office for hearing or before the Commission on appeal. As to these hundreds of cases, the question necessarily arose whether they should be decided on the basis of the law in effect at the time they were filed, the 1975 Act, or on the basis of the law in effect at the time of decision by the agency, the 1977 Act. The initial position of the Commission on this crucial question was that all petitions filed under the 1975 Act were to be decided under the more favorable terms of that law. The Commission further concluded that the base rent for determination of rent increases under the 1977 Act would include any increase granted under the 1975 Act, whether issued before or after the expiration of the 1975 Act. Therefore, under the Commission's interpretation, landlords were well advised to file for the 1975 Act hardship before expiration of the Act to boost their base rent and thus their subsequent automatic increases under the 1977 Act. This tactic was encouraged by the Commission's interpretation of the interplay of the 1975 Act's hardship increase and the 1977 Act's automatic increase in light of the following language in the 1977 Act: No adjustment in rent under this subchapter may be implemented unless and until a full one hundred and eighty (180) days have elapsed since any prior adjustment. D.C. Code 1980 Supp., § 45-1689(h). The Commission concluded that this language permitted a landlord to take an automatic increase under the 1977 Act immediately followed by or simultaneously with a hardship increase under the 1975 Act if the petition was filed before the expiration of that Act. The rationale for the decision was that the 1975 hardship petition was not an increase under this subchapter and, thus, required no waiting period. The reverse order of rent increases, however, would not be permitted under the same reasoning, since the automatic increase was under the new Act and, thus, required a waiting period of 180 days subsequent to a 1975 Act hardship increase. [5] Petitioners contend that this interpretation was correct, permitting them a dip from the old Act and one from the new. The Corporation Counsel, however, responding to another request for an interpretation from the Rent Administrator, took a different position. It was his position that all pending petitions were governed by the 1977 Act and that landlords must follow a one step process, electing either to proceed with their hardship petitions under the new Act or to accept the automatic increase provided under that Act.