St. Paul’s rent stabilization ordinance has been in effect for less than three months, but both tenant groups and landlords say many kinks still need smoothing out.
One area needing more clarity is the appeals process by which landlords can apply for an exception to the 3% rent increase cap. The first hearings on such appeals began in late June. St. Paul’s legislative hearings office has a full slate of upcoming hearings.
Here’s how the appeal process works and what landlords and tenant groups have to say about it:
The process
The rent control ordinance bars a landlord from increasing rent annually by more than 3%. But there are exceptions. If a landlord feels their circumstances meet the criteria, they can ask to raise rents beyond the 3% threshold.
The ordinance that was crafted by Housing Equity Now St. Paul (HENS), a coalition of affordable housing advocates, allows exceptions to the cap when a landlord anticipates they will not get a reasonable return on their housing investment.
The rent control ordinance lists seven instances that may hinder a landlord’s right to a reasonable return:
- Increases or decreases in property taxes.
- “Unavoidable” increases in maintenance and operating, such as if water rates tripled. A decrease in maintenance and operating expenses is also listed, but city officials said there are no examples yet of what that would look like.
- The cost of capital improvements that are necessary to make the building compliant with city health and safety codes but are not “ordinary” repairs.
- Increases or decreases in the number of tenants occupying a unit, or using building furnishings or housing services.
- “Substantial deterioration” of the unit beyond normal wear and tear.
- The landlord fails to provide adequate housing services or is out of compliance with state and local housing regulations. City officials, who also note that they are not exactly sure when this would be applicable and that this exception needs to be “road tested,” interpret this as an instance when a tenant petitions a district court to compel a landlord to increase or change rent, or refinance, in order to execute repairs that is causing the unit to be condemned and forcing the tenant to move.
- The pattern of recent rent increases or decreases.
Increases in property tax or maintenance cost are straightforward: If that cost goes up, so might rent, explained St. Paul’s legislative hearing officer Marcia Moermond. Some of the other situations haven’t come up yet.
If a landlord feels they fall under one of those categories, they can file an application for an exception to the rent cap rule with the city.
A landlord’s application for a 3% to 8% percent rent increase is a self-certified process and essentially automated, according to Moermond. If a landlord makes a request for such an increase, the city will grant it, Moermond said.
But requests to raise rent above 8% prompt the city to individually review a landlord’s submitted financial records. If denied, a landlord can appeal to the City Council.
There is no mechanism that notifies tenants that a landlord has applied for an exception to the rent increase cap. But the landlord and tenant both have the right to appeal City Council determinations on exceptions.
If, however, a tenant does catch wind of their landlord’s attempt to appeal the rent control ordinance, they can file an appeal with the city disputing the landlord’s claim that they are eligible for an exception, at which point a hearing will be conducted and the landlord’s exception application re-reviewed.
Tenant groups understand it’s early but have suggestions
Margaret Kaplan is president of the St. Paul nonprofit Housing Justice Center, one of the organizations that worked with HENS to push for the passing of the rent control ordinance.
She emphasized that city officials have been “responsive” and are sending information when it is requested regarding the landlord appeal or tenant complaint process.
“So that has been a positive thing and I would say, overall, all of this is a work in progress,” Kaplan said. “The ordinance just got off the ground.”
But Kaplan said her organization has observed “obstacles.”
One is cost: Filing any appeal with St. Paul codes comes with a $25 fee. If a tenant wants to dispute a landlord’s application for an exception, they have to pay the fee.
“That’s not so easy for everyone,” Kaplan said.
Another problem with the rent control appeal process, particularly when a landlord self-certifies documents for a 3% to 8% rent increase, is the lack of notification for tenants, Kaplan said. Tenants are unsure of exactly the right time to file a complaint, she added.
“We’ve been getting calls from tenants who are unaware that their landlord can self-certify an increase up to 8% percent,” said Eric Hauge, executive director of HOME Line, an organization that provides legal and advocacy resources to tenants.
Hauge, who said that St. Paul staffers have been “very open” about the entire appeals process, is also in favor of adding a way of notifying tenants that their landlord is attempting to appeal the rent stabilization ordinance. He added that the city could also take steps to make sure tenants are aware of every aspect of the ordinance and their rights.
Kaplan notes that the city is taking their suggestions “very, very seriously.” On St. Paul’s rules and process page for rent control, it points out that there is nothing in the ordinance that addresses tenant notification, but that notifying tenants is a “valuable step in the process,” and that the issue is a topic for discussion by the city’s Rent Stabilization Stakeholder Group.
Some landlords find the process to be overcomplicated, unfair
The group on July 13 told the St. Paul City Council that rules and processes need to be made more clear.
Cecil Smith, the president and CEO of the Minnesota Multi Housing Association (MHA), which is one of the largest nonprofit organizations representing property owners and managers in the state, agrees.
“It’s too complicated for renters and owners,” Smith said. He added that the city created rules that are “opaque” and “nobody understands.”
MHA members report that the time it takes to simply understand the rules — let alone pursue an appeal — adds cost to their business, thus adding costs to housing in St. Paul.
“It’s not a freebie asking accountants and regional managers to spend time working on this. That takes resources,” Smith said.
Some MHA landlords have looked at the process, found it too confusing, and decided against pursuing an appeal, Smith said. The appeals process is often too complicated for even MHA’s accountants.
Smith said the appeals process doesn’t conform to general accounting practice, which can cause a problem if a landlord makes an appeal that receives a review from the city. Once city staff dig into a landlord’s financial books, those records become public. This means anyone could look at the landlord’s financial records and find that their accounting does not follow general accounting practice. Smith said this exposes landlords to other liabilities and possibly impacts future sales prices, as well as tax increases from assessors.
Also, some landlords aren’t excited about having their records made public, to begin with.
Smith said the struggle to understand or attempt to make an appeal is inequitable because the burdensome process will most acutely affect smaller owners and owners of color.
Smith and MHA suggest simplifying the appeals process — which he notes may not be possible given the complexity of a rent control ordinance.
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