Opinion ID: 2424222
Heading Depth: 1
Heading Rank: 2

Heading: The Commission's Denial of the Petition

Text: In the petition for review before us, Loney challenges the Commission's holding that the hearing examiner's finding that [Loney] submitted a detailed list of renovation costs is inaccurate, incomplete, conclusory and not supported by substantial evidence in the record and that the Hearing Examiner erred in concluding that the renovation is in the interest of the tenants[.] We sustain this determination by the Commission for the reasons stated below. In reviewing a decision of an administrative agency, this court considers whether there is substantial evidence in the record to support each of the findings, and whether the decision is in any way arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. See D.C.Code § 2-510 (2001); Cohen v. Rental Hous. Comm'n, 496 A.2d 603, 605 (D.C.1985). This court gives great deference to the agency's interpretation of statutes and regulations which it administers, and will reject the agency's interpretation only if it is plainly wrong or incompatible with the statutory purposes. See Tenants of 738 Longfellow St., N.W. v. District of Columbia Rental Hous. Comm'n, 575 A.2d 1205, 1213 (D.C.1990). The statute that allows for substantial rehabilitation petitions provides, in part: (a) If the Rent Administrator determines that (1) a rental unit is to be substantially rehabilitated, and (2) the rehabilitation is in the interest of the tenants of the unit and the housing accommodation in which the unit is located, the Rent Administrator may approve, contingent upon completion of the substantial rehabilitation, an increase in the rent charged for the rental unit, if the rent increase is no greater than the equivalent of 125% of the rent charged applicable to the rental unit prior to substantial rehabilitation. D.C.Code § 42-3502.14(a). The D.C. Municipal Regulations detail what information a housing provider shall include with the petition: (a) Detailed plans, specifications and projected cost of the proposed rehabilitation; (b) Documentation of the assessed value of the housing accommodation as determined by the D.C. Department of Finance and Revenue for real estate taxation purposes for the tax year beginning no later than sixty (60) days after the date on which the petition is filed; and (c) A schedule showing all rental units in the housing accommodation to be rehabilitated showing whether the rental unit is vacant or occupied and, if vacant, the date and cause of its vacation. 14 DCMR § 4212.2. The regulation details the supporting documentation a housing provider must provide and what standards must be met for a petition to be approved. [2] The purpose of requiring supporting documentation is to allow the hearing examiner to carefully consider whether the requirements of the statute are met: in particular that the proposed renovations amount to at least 50% of the assessed value of the housing accommodation and the rehabilitation is in the interest of the tenants. See 14 DCMR § 4212.8. In support of his claim, Loney provided the hearing examiner with a memorandum from an architect, Mr. Jordan, that itemized the proposed rehabilitation as follows: replacing all existing electrical fixtures and replacing the electrical system in the building; replacing all bedroom, bathroom, and closet doors; replacing entrance doors to units as needed; replacing all door locks; repairing all walls and ceilings as needed; sanding and re-finishing all hardwood floors; installing ceramic tile floors in kitchen and bathroom; replacing all kitchen appliances (and specifying stoves and refrigerators); replacing all window air conditioner units; replacing all kitchen cabinets, sinks, and faucets; replacing bathroom vanity sinks and faucets; replacing bathroom medicine cabinets; painting the apartments; and replacing the roof of the building. Jordan's memorandum estimated that the work would cost: $18,000 for a new roof, $44,000 to upgrade the electrical system, and $5,700 to renovate each apartment. Jordan did not testify; however, Loney testified that he did not itemize renovation costs for each apartment unit, and the cost of $5,700 per apartment represented the average cost of materials and labor required by the scope of the work, and that his cost estimates were based on wholesale prices from different vendors and his professional experience as a construction and home improvement specialist. Loney submitted an exhibit similar to Jordan's memorandum that calculated the cost of construction would total $141,800, consisting of: $18,000 for a new roof, $44,000 to upgrade the electrical service, and $79,800 for renovation of the apartments ($5,700 for each of fourteen apartments). The total amount of $141,800 exceeded 50% of the 2004 tax assessment of $226,780. Loney also introduced testimony from a roofing consultant and an electrical contractor. The roofing consultant testified that the roof, roof deck, and support framing of the building were in sufficiently poor condition that they required replacement rather than continuing repair. The electrician testified that the electrical system of the building was outdated and unsafe for the tenants and required upgrading, and also provided a written estimate of the cost of the work: $44,500 for installation of meters, switches, panels, lighting, wiring, outlets, and fixtures throughout the apartment building. Ten tenants testified in opposition to the petition that the rental units shared varying degrees of the problems included in Loney's proposal. They disputed Loney's claims that all of the apartments contained the same types of physical deterioration and required the same comprehensive scope of work, and that substantial rehabilitation of each unit would more effectively address the problems than individualized repair and maintenance of each unit. An expert witness for the tenants testified that further testing of the roof was required in order to make the decision regarding replacement or repair, and that the roofing report provided by Loney was general in scope and lacked the technical data needed to determine the specifications and cost of roofing materials. In 738 Longfellow St., we addressed in some detail the requirement that the proposed substantial rehabilitation be in the interest of the tenants. See Longfellow, 575 A.2d 1205. In that case, we considered the 1986 regulation, the literal interpretation of which would have required a finding that the present conditions of the dwelling in fact endanger the health, welfare and safety of the tenants and that such conditions cannot be corrected by maintenance or capital improvements. Id. at 1213 (emphasis in original). We held instead that this language was a factor  indeed one of the Rent Administrator's principal areas of inquiry  when considering a petition, but not an absolute requirement. Id. The amended (1989) version of the regulation is in effect today, and, like our reading of the 1986 regulation in 738 Longfellow St., it states that the test is whether a proposed substantial rehabilitation is in the interest of the tenant, and that the rent administrator may consider the following: (a) The existing physical condition of the rental unit or housing accommodation as shown by reports or testimony of D.C. housing inspectors, licensed engineers, architects and contractors, or other qualified experts; (b) Whether the existing physical condition impairs or tends to impair the health, safety or welfare of any tenant; (c) Whether the existing physical conditions can be corrected by improved maintenance, repair or capital improvement; and (d) The impact of the proposed rehabilitation on the tenant or tenants in terms of proposed financial cost, inconvenience or relocation. 14 DCMR § 4212.9. Because the court in 738 Longfellow St. interpreted the standard set forth in the 1986 regulation to be virtually the same as that of the 1989 regulation, we conclude that the reasoning of the previous case is applicable to the standard set forth in the 1989 regulation. In particular, we observed in 738 Longfellow St. that Although a showing of present danger to health, safety and welfare, not remediable by lesser measures, is not indispensable to the owner's case, the statute does not authorize substantial rehabilitation leading to higher rents for optional or cosmetic changes which will render the property more attractive, but which will ultimately result in the replacement of tenants of low or moderate income by a more affluent clientele. 575 A.2d at 1214. The agency has followed this guideline in determining what proposed rehabilitation is merely cosmetic or necessary. For instance, in another case, an administrative law judge found that such proposed improvements as replacing deteriorated carpentry, installing new windows and doors, repainting, and replacing plumbing and bathroom fixtures was not necessary for tenant health and safety but would provide significant benefits to the tenants. See Sister Rule Properties v. Tenants of 1940 Biltmore St., N.W., RHSR-07-20110, 2008 D.C. Off. Adj. Hear. LEXIS 27 at 6-7 (Jan. 11, 2008). In contrast, the ALJ also found in that case that the installation of wine coolers, decorating the lobby, and installing additional baths in some units would not provide a significant benefit for the tenants. Id. at 7-8. The ALJ noted that the wine coolers are luxury item[s] inconsistent with the needs or expectations of the majority of tenants in the Building. Id. at 7. After considering whether each of the proposed renovations was in the interest of the tenants, the ALJ calculated the total cost of renovations that were in the tenants' interest, and determined that this total exceeded 50% of the value of the property. See id. at 11; 14 DCMR § 4212.8(b). Our case law and prior decisions of the agency make clear that the hearing examiner must carefully consider each proposed improvement and must determine whether it is in the interest of the tenants. Focusing on the proposed improvements to the individual units, the Commission concluded that the hearing examiner failed to meet that standard. As discussed supra, Loney provided documentation that specified the average cost of renovating the rental units, but he did not provide evidence of the specific problems, if any, existing in each unit in order to disprove the tenants' contention that much of the proposed work was not needed. The Commission found that the record included considerable conflicting testimony on whether the proposed renovations were necessary for, and applicable to, every rental unit, whether major items were required by the physical deterioration of each unit or were merely optional for each unit, whether the housing provider had already completed a permanent repair of some of the items or whether such repairs were merely temporary fixes, and whether the documentation addressed the claims raised by the tenants at the hearing that many of the items were optional. On this record, we cannot say that the Commission erred in concluding that Loney failed to provide adequate documentation, with respect to the improvement to the individual units, to meet his burden under the statute. Because the Commission disallowed the proposed expenditure for the individual units, the total cost of construction fell well short of the 50% threshold. We are satisfied that the Commission did not err in concluding that the decision of the hearing examiner was not supported by substantial evidence, and that these conclusions warranted the denial of the petition for substantial rehabilitation.