RULES & REGS: City Drops Lawsuit Against Page Mill Properties; Says Rent Increases are Legal

By Erika Schnitzer, Associate EditorEast Palo Alto, Calif.—The City of East Palo Alto has dropped its lawsuit against Page Mill Properties, which represent the owners and investors of over 1,700 apartments, or 53 properties, in East Palo Alto’s Woodland Park neighborhood, maintaining that rent increases for 1,000 of its units are legal after all.The debate is based on a rent control ordinance that includes a provision allowing owners to increase rents in line with increases in the cost of living index. “Under the ordinance, landlords were allowed to cumulate or ‘bank’ authorized cost-of-living rent increases that had not been charged by previous owners,” explains Jim Shore, general counsel of Page Mill Properties.Because of the complexity of the process, many previous property owners chose not to increase rents and consequently were forced into bankruptcy or saw their properties deteriorate.“We bought these properties and have set out to rehabilitate units that were deteriorating and had, in some cases, become uninhabitable because of landlord neglect,” says Shore. “Prior to the purchase, city officials had confirmed to the Page Mill owners its ability to recapture unused annual rent increases. Had the City held to its initial position, a great deal of confusion and litigation could have been avoided, since the courts have now affirmed the ability of the owners to pass through the increases.”Shore says that all of the more than $1 million in rent hikes are being used for property improvements, in addition to $10 million of investor money. Improvements include painting; repairing elevators and pools; upgrading parking and landscaping; paving alleys; installing security lighting; 24-hour security; video surveillance systems at larger sites; and providing gated access to most properties.The increases in the 1,000 rent-controlled units in question have been exaggerated, asserts Shore. Rent increases ranged from $32 to $336, or 2 percent to 38 percent. Approximately 62 percent of units saw rent increases. Shore adds, “California has ’vacancy decontrol.’ When a unit is vacated, the landlord is allowed to raise the rent to the market value at point when a new tenant moves in.”Page Mill Properties owners and investors have battled with the City of East Palo Alto on five other occasions, arguing that their rights under the local rent control ordinance, state law and California and United States Constitutions had been violated.