A painful experience of a botched DC Rent Control exemption is an important lesson for property owners
“So I’m fucked?”
“So I’m fucked.”
“So I’m FUCKED!”
“In so many words, yes, you’re fucked”
“I’m FUCKED, I’M FUCKED, IM FUCKIN’ FUCKED. WHATTHEFUCKMOTHERFUCKING FUCKING FUCK? What the fuck do I do now?”
“You pay the man”
“That’s fuckin’ easy for fuckin’ you to say, I’m the one takin’ it up the tailpipe” <spikes phone smashing it into a thousand pieces >
I will neither confirm nor deny whether this dialogue ever occurred. Especially in the conference room of my former office with obnoxious industrial chic painted concrete floors that now feature an iPhone sized chip.
However, what might have had this landlord so hot is a minor defect in his DC Rent Control exemption filing which had a major impact on a tenant dispute 3 years later.
A DC Rent Control exemption must be perfected, or it is invalid
The DC Rent Contol Law is actually a convoluted stew of esoteric code and regulation sections. If you are burdened by logic and reason, you have little hope of understanding this flaming trash heap of a statutory scheme. However, for all of its shortcomings, it is actually clear on one point. IF a landlord is eligible for a Rent Control exemption, he or she MUST, file the exemption AND serve the affected tenants SIMULTANEOUSLY with the filing. If the landlord fails to do this, the exemption is VOID. 14 DCMR § 4101.6; Levy v. District of Columbia Rental Housing Commission 126 A.3d 684 (D.C. 2015)
So what? Your exemption is void. What does that even mean?
Here is a quick and dirty oversimplified version of the DC Rent Control Law. Generally, residential rental units are subject to rent control. However, there are several types of exemptions, that would take a rental unit out from under. For example, small landlords (owning an interest in 4 or fewer units), new construction (units built after 1975), or units receiving District or Federal subsidies are all eligible for an exemption from rent control.
That means, provided the landlord perfects the exemption, rent increases are not regulated. Moreover, there are no filing or formal notice requirements prior to a rent increase.
By comparison, Rent Control limits the amount and frequency of rent increases. Additionally, landlords must comply with rigorous filing and notice requirements.
Consequently, if you are eligible for an exemption from rent control, but, fail to perfect it, your units are subject to rent control. If your units are subject to rent control, but, you implement rent increases more frequently or in an amount greater than rent control allows; or if you don’t comply with the formal filing or notice requirements, the increase is invalid.
The penalty for an illegal rent increase is severe.
Now, back to my fictional client. Generally, when not engaging in profanity-laced, phone obliterating tirades, he is a real sweetheart. But, this situation drove him over the edge.
Three (3) years ago he moves out of the District for a long-term job assignment. He decides to rent out his house until he returns. So he gets himself a business license and since he is a small landlord, he files the appropriate Rent Control exemption paperwork. He tthen goes forth and rents.
Problem: He never served the tenants with the exemption paperwork. Result: The exemption is void and the unit is subject to rent control.
Then, at the end of each lease year my unwitting client, raised the rent by 10%, a typical increase. The tenants, went along paying the rent at the higher rate…for a while.
Then, 30 months later, the tenant lost his job and could no longer afford the rent. So my client hired me to file an eviction case. The tenant, who freely admits he didn’t pay the rent, showed up in Court, with a legal services attorney in tow. The tenant’s free lawyer correctly claimed that the rent level is illegal, so the unpaid rent is not owed. It gets worse.
The tenant is going to win, because the Landlord failed to serve the Rent Control exemption when he filed it three (3) years ago. What is the tenant going to win? ALL of the illegal rent increases paid or demanded since the increase. That means, the tenant will be awarded a refund, even for the months, he didn’t pay the rent. Plus, the landlord will be required to pay interest and the attorney’s fees that the tenant would have incurred, even though the tenant’s lawyer is free!
For my Client, he could pay about $10,000 now, and resolve the case. However, if litigated, he would lose double or triple that amount in paying the tenant’s plus his own legal fees. Further, the Court could award additional damages if the Landlord acted in ‘bad faith.’ In short, he’s fucked.
What landlords must do to avoid my client’s fate
You might think that my Client’s situation is an absurd result for a minor mistake in paperwork by a landlord who made an honest effort to comply with the law. You might be right, but, that is the current state of the law.
The Rental Housing Commission has decided to place the high burden on landlords to strictly comply with technical filing requirements, even where noncompliance does not hurt the tenant. The penalty for making simple mistakes is nothing short of draconian. Smart landlords realize that the best course of action is to get your paperwork correct the first time by spending a little money and hiring a professional to ensure compliance.