Controversial ‘Rent Concessions’ Go to Court in D.C.

When Matthew Pfaff was looking for a rent-controlled apartment in D.C. last year, he thought he could find one within his budget and in a convenient location—without much ado.

But more than a year and a half later, Pfaff is reflecting on how much of a headache that process became. After applying for a one-bedroom unit at the historic South Cathedral Mansions apartment building in Woodley Park, property management staff repeatedly delayed his move-in date and made conflicting statements about what his rent would be, according to a lawsuit Pfaff’s attorney Aaron Arce Stark filed in D.C. Superior Court this summer. The Silver Spring resident is suing for damages he allegedly suffered because he had to go month-to-month on his existing lease at a higher rate, hired movers, and sold some furniture.

“I didn’t want to move every year to stay in an affordable unit,” says Pfaff, who remains in the same apartment he was living in when he applied. “I’m not entirely sure what my next step is. I’m back to that problem where D.C. units are so incredibly expensive that it’s hard to find one.”

The case is significant because it’s one of the first in local civil court to directly address the issue of so-called “rent concessions.” The practice goes like this: A landlord of a rent-controlled building offers an applicant a discount on monthly rent as an incentive for that person to move in. That landlord registers a higher rent amount with the city, even though the tenant usually has no idea there’s a second value in play. (Or if they do, they don’t know what it means.) When the lease comes up for renewal, the landlord raises the rent based on that higher number.

The surprise rate is almost always greater than the rent the tenant reasonably would have expected to pay under D.C.’s rent-control laws. So the tenant must decide whether to move out or try and negotiate down.

The District’s laws generally restrict annual rent increases in rent-controlled buildings to 2 percent plus the Consumer Price Index, which measures inflation and is currently set at 1.1 percent. A typical rent-control tenant who pays $2,000 a month would therefore anticipate paying no more than $2,062 a month—or a 3.1 percent increase over their initial rent—upon renewing their lease. But with rent concessions, such an increase may derive from a figure hundreds of dollars higher.

Pfaff’s case is different from the vast majority of those where tenants deal with rent concessions in that he became aware of the practice before signing a lease. Nonetheless, it illustrates how a practice critics call a “bait-and-switch” works and how it dilutes D.C.’s rent control policy.

A joint venture between Commonwealth Residential and CAS Riegler owns South Cathedral Mansions, and Kettler Management is the management company. When Pfaff first applied for a unit there, Oculus Realty managed it.

Pfaff’s lawsuit names the joint venture and both management companies as defendants. The complaint states that Pfaff was originally offered a monthly rent of $2,500 and told that the historic building—then undergoing renovations worth over $20 million—was subject to rent control. He did not move onto the property in 2016 due to the construction and an ultimately unsuccessful attempt by the owners to sell the building, yet was not contacted about his application during the latter half of that year.

In April 2017, Pfaff received a lease agreement showing the registered monthly rent as $3,822, with a concession addendum showing the monthly rent Pfaff would pay as the agreed-upon $2,500. But at the end of April, after not getting a clear response from Kettler about what his rent would be if he were to renew the lease, Pfaff rejected the proposal.

In a phone call a few days later, a Kettler regional manager told Pfaff that the original lease deal “would not be honored because it had been made with a [previous management] company and that rents registered with D.C. are 20 to 30 percent higher than fair market value,” the lawsuit says.

So Pfaff and his attorney are bringing the case under D.C.’s consumer protection laws. They argue that the owner and management of South Cathedral Mansions misrepresented facts and misled him. A scheduling conference in the case has been set for September.

Employees of three defendant companies didn’t return requests for comment, and a fourth  wouldn’t speak on the record. An attorney for the law firm representing the companies declined to comment because the litigation is pending.

“In a market where the terms of agreements are not being represented accurately or honestly, I don’t think anyone wins,” Pfaff says, noting that landlords incur costs due to tenant turnover. He adds that an “asymmetry of information” makes rent concessions pernicious.

Rent concessions are not explicitly illegal in the District and have become more prevalent since local officials reformed rent-control laws a decade ago.

Yet it’s impossible to say how common concessions are because D.C. doesn’t even know how many rent-controlled units exist, relying on a 2011 study by the Urban Institute that estimated there were almost 80,000 units “potentially subject to rent control” here. The council has mandated the creation of a rent-control database, and D.C.’s Department of Housing and Community Development currently monitors rent control.

But DHCD does not review rent adjustment filings for accuracy in the calculated rent. While the agency investigates allegations of a landlord misrepresenting rent levels on official paperwork, it typically advises tenants of their right to complain in administrative court, believing this to be a relatively expedient option. (Renters can also seek help from D.C.’s Office of the Tenant Advocate.)

Officials are starting to show interest in investigating and clarifying the practice. Last year, Ward 3 Councilmember Mary Cheh proposed a bill designed to regulate rent concessions and require better disclosure of the rents tenants actually have to pay over time. (A hearingon the bill was held in October, but it did not advance to a committee vote.) And a spokeswoman for District Attorney General Karl Racine, who has eagerly pursued consumer protection issues, says his office is keen to explore the impact of rent concessions and to do so with the D.C. Council. But she wouldn’t say whether the office is weighing any potential litigation on the issue.

In the meantime, hundreds of residents may be paying more than they should for rent-controlled units. For Harry Gural, the tenant association president of the 3003 Van Ness Apartments, also located in Ward 3 and known for rent concessions, the problem appears to be a District-wide one.

“Even if it’s less than half the rent-control market, that’s a lot of people who year after year are paying hundreds of dollars more than they should be,” says Gural, who has led a campaign to raise awareness about rent concessions and is organizing a nonprofit to address the practice. “There are easily tens of millions of dollars involved in this, and the city is looking the other way.”

 

As featured in Washington City Paper 

Photo by Darrow Montgomery

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