Rent Concessions To Be Outlawed

In Legislation, Real Estate by Richard Bianco

*** UPDATE: As of December 14, 2017, the proposed law on discounted rent has not been moved forward by the Council and remains in committee. However, the Attorney General has filed a civil lawsuit against a NW D.C. landlord, which alleges that the landlord is committing consumer fraud by offering new tenants reduced or discounted rent as an inducement to move-in. If you are offering rent concessions as a move-in incentive, call now or book an appointment.

On September 9 Council-member Cheh proposed an amendment to the Rent Stabilization provisions of the Rental Housing Act. That is just a complicated way of saying that the Council-member is seeking to change the “Rent Control” Law to make it more difficult for landlords to raise the rent.

The proposed legislation, called The Discounted Rent Clarification Amendment Act of 2017, (B-22-048) is intended to close a longstanding loophole (or perceived loophole as the case may be) in the Rent Control Law. The practice that the new law seeks to address is where owners enter into a lease with a tenant which calls for rent in an amount higher than the landlord intends to charge, provided, however, that the tenant actually pays a lesser amount or “discounted” rent until the lease expires. Upon expiration of the lease, the discount is removed, and the tenant becomes liable for the higher amount of the lease. Technically, this is not a “rent increase” under the Rent Control Law, because the rent was originally set at the higher level in the Lease.

The practice of “discounted” rent is not always used as a vehicle to charge tenants more after the expiration of an initial lease term. In DC, when a residential lease expires, as a matter of law, it automatically becomes month-to-month tenancy, which a landlord does not have the right to terminate simply because the lease is over. This puts landlords in a precarious position at the end of a lease.

As a result of the protections of the Rental Housing Act, a tenant has few, if any, reasons to enter into a new lease with the landlord since they can stay in the unit as long as they wish, provided they continue to comply with the terms of the expired lease. (There are limited exceptions to this general rule such as if the landlord wants to recover the unit for personal use as a principal residence, but those exceptions are beyond the scope of this post).

As such, landlords have used the “carrot” of continued discounted rent at lease expiration (or the “stick” of a higher rent as the case may be), to negotiate an additional one year lease. This gave a landlord some reasonable assurance that the unit would continue to produce rental income for the year without incurring marketing or turnover expenses and vacancy loss.

The proposed legislation amends the Rent Control Law to remove this landlord benefit. If passed, B-22-048 will define the discounted rent as the “rent charged” for Rent Control purposes and an upward departure from that would be subject to the rent control regulations. That means, even if a landlord is simply removing a discount as opposed to implementing a rent increase, the landlord must be appropriately registered, must provide to the tenant and properly file with the Rent Administrator the correct forms, as they would with any rent increase under Rent Control. The proposed law is currently “under consideration” by the Council and on September 29, a notice of intent that the Council intended to act on the measure was published in the DC Register.

The proposed legislation will not affect units that have perfected an exemption from the Rent Control Law. I emphasize perfected, because many, many landlords who are eligible to be exempt from the Rent Control Law have not taken the steps they need to in order to make their exemption official (or have not taken them properly). You do not want to find yourself liable to your tenant for a rent refund not to mention fines and penalties because you thought you were exempt from Rent Control.

If you have questions about how the proposed legislation might affect your business, or if you simply are not sure that you are in compliance with the current law or if you have perfected an exemption, and we would be happy to discuss it with you.