D.C. Council to Address Rent Stabilization Program Reform and Expansion Amendment

Expanding and preserving affordable housing continues to be a top priority for the District of Columbia Council (D.C. Council) at the beginning of the new year. The impacts of COVID-19, particularly the associated job losses and prolonged unemployment rates, and the residual effects on rental housing helped to spur the introduction of the Rent Stabilization Program Reform and Expansion Amendment of 2020 (B23-0873) (Rent Stabilization and Expansion Bill). The legislation was introduced by Councilmembers Trayon White and Brianne Nadeau on July 27, 2020. If passed, the bill would make substantial changes to the Rental Housing Act of 1985, D.C. Official Code §42-3502.01 et seq., as amended (Rental Housing Act). As a result of the significant interest in the landlord, developer and tenant communities, two public hearings were held, the first on Nov. 9, 2020, and a second on Nov. 16, 2020, for government witnesses. A vote on the Rent Stabilization and Expansion Bill was not held before the end of Council Period 23 (2019-2020). However, the bill is expected to be reintroduced in early 2021 during the current Council Period 24 (2021 -2022).

One major impact of the Rent Stabilization and Expansion Bill would be to the District of Columbia's rent control laws (Rent Control). The Rental Housing Act applies to all housing accommodations, commonly referred to as apartment buildings, and rental units in the District, even if the apartment building is exempt from Rent Control. All apartment buildings in the District must be registered with the Rental Accommodations Division (RAD), which is part of the DC Department of Housing and Community Development's (DHCD) Housing Regulation Administration, the agency that administers the Rental Housing Act. One penalty for failing to register an apartment building with RAD is that Rent Control will automatically apply to rental units in the building.

Common Rent Control Exemptions

Currently, the most common exemptions from Rent Control under the Rental Housing Act are the following:

• Federally or District-subsidized rental units
• Rental units built after Dec. 31, 1975
• Rental units (including condominium or cooperative units) owned by a natural person (i.e., not a corporation) who owns no more than four rental units and is registered with RAD
• Rental units that were vacant when the Rental Housing Act took effect
• Housing accommodations under a building improvement plan and receiving rehabilitation assistance through DHCD

Rent Stabilization and Expansion Bill Changes

Some of the major changes that would take place under the Rent Stabilization and Expansion Bill include:

• Limit exemption to Rent Control for newly constructed rental units to those built in the prior 15 years. Rent Control would automatically apply to rental units 15 years after construction.
• Rent Control would apply to apartment buildings with four rental units. Apartment buildings with three or fewer rental units would be exempt.
• Rent increases could only occur once every 12 months (one year) from the prior rent increase. The rent increase restrictions would apply to all rental units in the District, regardless of whether or not Rent Control is imposed on the unit.
• Rent increase percentages would be capped at the Consumer Price Index (CPI) for all tenants.
• Rent increases or adjustment that occur when a rental unit becomes vacant would be eliminated.
• Eliminates Voluntary Agreements currently allowed under D.C. Official Code 42-3502.15.

Other notable proposed changes within the bill apply to petitions made by housing providers (or owners) of apartment buildings under the Rental Housing Act include:

• Capital Improvement Petitions: Clarifies that a proposed capital improvement must be depreciable under Internal Revenue Service (IRS) standards and clarifies that the cost of a proposed capital improvement must be recoverable over the useful life of the proposed improvement under IRS standards.
• Hardship Petitions: Changes the formula for a hardship petition to ensure that a housing provider recovers a minimum profit rate based on the current yield rate for 10-year U.S. Treasury notes and caps hardship rent surcharges at 5 percent per year.
• Substantial Rehabilitation Petitions: Clarifies that a proposed substantial rehabilitation must be depreciable under IRS standards and clarifies that the cost of a proposed substantial rehabilitation must be recoverable over the useful life of the proposed improvement under IRS standards.
• A housing provider seeking a rent adjustment by petition must establish that they 1) are in compliance with District housing code regulations, 2) have established and maintained a replacement reserve account for the apartment building for at least three years, and 3) provide accounting and other records as part of the petition review process.

Holland & Knight will continue to monitor the progress of the bill and will provide updates as they become available. If you have any questions or need any assistance navigating D.C. rental housing laws, please contact Senior Counsel June L. Marshall.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.