Liuksila v. District of Columbia Rental Housing Commission
Liuksila v. District of Columbia Rental Housing Commission
Opinion of the Court
In this petition for review of an order issued by the District of Columbia Rental Housing Commission (RHC), Liuksi-la, a tenant, challenges the agency’s af-firmance of a hardship rental increase petition filed by the landlord’s agent, Watergate Management Corporation (Watergate), pursuant to the Rental Housing Act of 1980. See D.C. Code § 45-1501, et seq. (1981). Liuksila argues that the RHC erred in sustaining the Hearing Examiner’s allowance of the landlord’s ground lease expenditures in the calculation of both equity and net income deductible expense allowances to determine eligibility for a rent increase under D.C. Code § 45-1523 (1980).
I
The hardship petition in question was filed pursuant to D.C. Code §§ 45-1517(c), -1523 (1981), requesting a 50 percent upward adjustment of the rent ceiling for unit 417 at 700 New Hampshire Ave., N.W.
A. Calculation of Equity
In support of the hardship petition, Watergate contended before the Hearing Examiner that the total equity in the unit was $85,868.15. The equity figure was derived by first determining the current assessed value of the unit. This amount was calculated by multiplying the then current assessed value of the cooperative building as a whole, including the assessed value to the ground lessor of the leased land upon which the building was built, a total of $27,914,160, by the percentage of ownership attributable to the unit in the whole building, ,42480%.
B. Calculation of Deductible Expenses and Net Income
The net income on the unit at the time of the hardship petition was set forth by Watergate as follows: The maximum rental income (“gross income”) derived from the unit during the relevant reporting period was $13,455.12. Under § 45-1523(b)(l)(A), a landlord’s “operating expenses” may be deducted from the maximum rental income to determine current net income.
The Hearing Examiner issued an order granting a 47.67 percent rent increase to Watergate. The Hearing Examiner found that the gross income during the relevant reporting period for the unit was $13,-455.12. In reaching such a conclusion as to
Liuksila filed a motion for reconsideration of the Examiner’s decision; the motion was denied. Mr. Liuksila filed an appeal with the RHC pursuant to D.C. Code § 45-1527(g). A hearing was held before the RHC; it issued an order affirming the rent increase. Liuksila filed a motion for reconsideration; it was denied. This Petition for Review followed.
II
Where a landlord seeks to obtain a rent increase by a hardship petition pursuant to D.C. Code § 45-1517(c) (1981), the burden of proof rests upon the proponent of the petition. See D.C. Code § l-1509(b) (1981). The quantum of evidence produced must establish that the expense data (i.e., rate of return) cited in the petition is accurate. See Wire Properties v. District of Columbia Rental Housing Commission, 476 A.2d 679, 682 (D.C.App. 1984); Chapin Street Joint Venture v. District of Columbia Rental Housing Commission, 466 A.2d 414, 415 (D.C.App. 1983) (per curiam). The agency’s administrative factfinder (Hearing Examiner) is obligated to evaluate the proffered evidence and determine whether it is sufficient to support a rent adjustment. Our scope of review has been defined as follows:
[T]he function of the court in reviewing administrative action is to assure that the agency has given full and reasoned consideration to all material facts and issues. The court can only perform this function when the agency discloses the basis of its order by an articulation with reasonable clarity to its reasons for the decision. There must be a demonstration of a “rational connection between the facts found and the choice made.” ... The findings must support the end result in a discernible manner....
Tenants Council of Tiber Island-Carrollsburg Square v. District of Columbia Rental Accommodations Commission, 426 A.2d 868, 872 (D.C.App. 1981) (quoting Communications Workers of America, AFL-CIO v. District of Columbia Commission on Human Rights, 367 A.2d 149, 152 (D.C.App. 1976). See Liberty v. Police and Firemen’s Retirement and Relief Board, 410 A.2d 191, 192-93 (D.C.App. 1979) (citing Morgan v. District of Columbia Police and Firemen’s Retirement and Relief Board, 370 A.2d 1322, 1326 (D.C.
Based upon the administrative record in the present case, serious questions exist concerning the validity of the methods used by the RHC in calculating the current rate of return on property for which a rent adjustment is sought under D.C. Code § 45-1517(c) (1981).
Remanded for further proceedings not inconsistent with this opinion.
. Liuksila also contends that the RHC erroneously interpreted the hardship provision of § 45-1523 to include single co-op units, when the statute only contemplates “housing accommodations” which are defined by the code as "any structure or building in the District of Columbia containing 1 or more rental units and the land appurtenant thereto.” D.C. Code § 45-1503(8) (1980). We reject such a contention; the decision to apply the hardship provision to single unit landlords is not inconsistent with the purpose of rent control or this specific provision.
The scope of the hardship provision permits the RAO to allow an increase in rents such that a landlord receives a 10 percent rate of return on equity. For purposes of defining who is entitled to the benefits of this provision, we find that the RAC's flexible interpretation of the lan
Any person with an equity interest in a "building in the District of Columbia which contains one or more rental units ...” D.C. Code § 45-1503(8) (emphasis added), may qualify as a “landlord” for the purposes of the benefits under § 45-1523 of the Code. Furthermore, single unit landlords are expressly restricted from benefits in companion sections under Chapter 45, thereby suggesting that the drafters of § 1503(8) intended for single unit owners to be implicitly included despite the fact that no express reference is made to them therein.
. The unit is one of several cooperative units owned by Lionel C. Epstein, in the Watergate South Cooperative. Watergate Management Corporation (landlord-intervenor) manages these units for Mr. Epstein.
. D.C.Code § 45-1523(b) (1981) sets forth the formula to be used in determining the rent adjustment necessary to permit a landlord to receive an allowable rate of return. The rate of return generated by a given rent level is calculated by dividing a landlord’s net income, computed over a base period of the consecutive months within fifteen months preceding the filing of the petition, by the landlord’s equity in the property. The net income is derived by subtracting operating expenses, management fees, property taxes, depreciation expenses, vacancy losses, uncollected rents, and interest payments, from the landlord's maximum rental income and other income from the property. D.C. Code § 45-1523(b)(l)(A)-(G) (1981).
.Watergate explained that the percentage of ownership attributable to the unit is a number assigned by the Cooperative to the unit for use in the Cooperative’s internal affairs. It was calculated by comparing the unit’s original mortgage allocation, $41,300 (which is approximately one-half of the original purchase price of the unit), to the total of all other original mortgage allocations for the units and garage spaces in the Cooperative, which sum totalled $9,722,-200. After dividing each number by 100, the unit represents 413 shares of the total 97,222 shares in the Cooperative, or a .42480 percent share of the Cooperative. This figure determines the voting power represented by the unit
. As encumbrances, the landlord listed the principal balance outstanding on the mortgage of the unit. Although line 31 of the hardship petition states that the total encumbrances on the unit were $33,650.11, at the hearing landlord explained that the total encumbrances were actually $32,711.50, thus resulting in the equity figure of $85,867.85.
. There are several other categories of deductible items detailed in § 45-1523(b)(l)(A)-(G), see supra note 3; however, the present case involves only deductions taken under the "operating expense” category to derive net income.
. Under the total monthly assessment approach the landlord included in the total deduction [operating expenses] ($11,675.60) the sum of the: (1) management fee ($269.16); (2) insurance cost ($21.95); (3) Rental Accommodations Office Fee ($6.00); (4) repair costs ($8.40); (5) "miscellaneous expenses” ($9,335.40); and (6) mortgage interest payments ($2,034.69). The landlord explained that the owner of a unit in a cooperative association is not billed separately for items such as utilities, supplies, payroll taxes, license fees, ground leases, real estate taxes, security, and salaries and wages. Rather, the cooperative association is billed as a whole and pays these bills from the funds provided to it by unit owners through their monthly assessments; the "miscellaneous expenses” represented (12) times that portion of the monthly cooperative assessment not attributable to mortgage, principal or interest ($777.95). The landlord further explained that after subtracting the total operating expenses ($11,675.60) from the gross income ($13,455.12), the net income derived from the rental property during the reporting period of $1,779.52.
Under the percentage allocation approach the landlord’s total operating expenses ($11,896.71) included the sum of the: (1) management fee ($269.16); (2) insurance cost ($21.95); (3) Rental Accommodations Office Fee ($6.00); (4) repair costs ($8.40); (5) the unit's percentage share of the cooperative’s certified expenses ($8,225.60; (6) the unit’s percentage share of the cooperative’s real estate tax bill ($1,330.91); and (7) mortgage interest payments ($2,034.69). The landlord explained that after subtracting the total operating expenses ($11,896.71) from the gross income ($13,455.12 plus $422.42, which represents the unit’s percentage share of Cooperative’s miscellaneous income of $99,440), the net income from the rental property during the reporting period was $1,980.83. However, at the hearing, the examiner noted that the landlord incorrectly included the additional income of $422.42; therefore, after corrections, the net income under the percentage allocation approach was $1,558.41.
. Apparently there were no further deductions taken under any of the remaining categories of allowing deductions set forth in § 45-1523(b)(l)(A)-(G), and therefore the net income was derived by simply subtracting the total deductible operating expenses from gross income.
. The Hearing Examiner determined the assessed value of the unit by averaging the assessed value of the cooperative as a whole for the 1983 tax year ($27,914,160) and the value for the 1982 tax year ($26,088,000), and multiplying this average by the unit’s percentage share (.42480%).
. We do not independently question the inclusion of ground lease expenditures to determine the assessed value of the unit (equity). This court has expressly upheld the inclusion of leased land in the landlord’s value determination of equity in a Hardship Petition for rent increase as permissible, at least under a prior version of the law. See Tiber Island, supra, 426 A.2d at 871. However, there remains an unresolved question of whether ground lease expenditures may be included in both the calculation of equity and net income deductible [operating] expenses to determine a landlord's eligibility for a rent increase under the Code.
Reference
- Full Case Name
- Aarno LIUKSILA v. DISTRICT OF COLUMBIA RENTAL HOUSING COMMISSION, Watergate Management Corporation, Intervenor
- Status
- Published