Renters Likely Will Have to Pay Some of the Cost of Prepping Their Buildings for an Earthquake

Community meeting Wednesday night on seismic retrofit costs.

Renters likely will have to absorb some of the costs for earthquake retrofitting of their apartments. The questions still to be determined is how much of the costs tenants will have to pay and how those costs will be passed along.

That was the message coming out of a community meeting held Wednesday night to get feedback regarding West Hollywood’s new apartment earthquake retrofit law.

“There is no scenario where we have absolutely no potential for some form of an increase [in rent] to tenants,” said Peter Noonan, the city’s acting director of human services and rent stabilization.

However, Councilmember Lauren Meister assured attendees the city has not yet determined what percentage the city will require tenants to pay or how those costs will be passed along.

With a standing-room-only crowd of about 75 people attending, tenants and landlords alike were frustrated and confused. Several times, the meeting turned into a shouting match as people shared differing opinions.

The City Council recently passed a law requiring apartment owners to do the necessary upgrades to their buildings. The city commissioned a study in which 820 buildings were identified as being at potential risk for collapse when a major earthquake inevitably hits Southern California. Those buildings are primarily older “soft story” buildings that have ground-level parking with units above often held up by posts or poles.

The city’s Rent Stabilization Commission will make a recommendation regarding costs in late June or early July. Then the City Council will make a final decision, likely in August. Once the city sends out official notices to landlords that they need to do retrofits, landlords will have five years to complete the retrofits.

Kathleen Head, a managing principal with Keyser Marston Associates, the consulting firm the city has hired to help with this retrofit process, told attendees there are two different ways for handling the costs. One would be a rent increase that would be permanent with no hardship waivers allowed, but the increase with have to be justified. The other would be pass-through costs that would end after a specific period of time and would allow for hardship waivers, but no justification would be needed.

Head noted both Los Angeles and San Francisco have passed similar earthquake retrofit laws and both cities chose the pass-through cost option. Los Angeles limits pass-through costs to 50% of the retrofit costs, with a maximum increase of $38 a month for a period of no more than 10 years. San Francisco has a similar program that allows a building owner to pass through 100% of the retrofit costs over 20 years, with a limit set at 10% of the monthly rent or a maximum of $30.

Many tenants did not understand why they should pay any of the retrofit costs.

“You guys are asking for way too much pity from us for the landlord,” shouted one person attending. Others noted that their landlords won’t even pay for basic building maintenance or the required new carpeting every seven years.

However, several landlords at the meeting said that if the costs are too high, people will not buy buildings in West Hollywood or invest in upgrades.

Noonan explained the city’s rent stabilization ordinance allows apartment owners to make a reasonable return on their investment. Taking on all of the costs of the retrofits, which could range from $100,000 to possibly $1 million depending on the type and size of the building, could potentially put those owners in serious debt. With such debt, the owners might choose to Ellis the building [i.e., evict all the tenants and go out of the apartment rental business], or sell it to someone else who likely would also Ellis the building, tear it down and build more expensive, luxury apartments.

“This is to preserve our aging, rent-stabilized housing stock,” said Noonan. “If we put too much burden on landlords, they will choose to leave the rental market.”

About 80% of West Hollywood’s residents live in apartments. The vast majority of those buildings were built more than 40 years ago when there were less stringent earthquake building codes.

One person asked why earthquake insurance didn’t cover these retrofit costs. Noonan explained that earthquake insurance covers damages after an earthquake has happened. These retrofit costs are to help avoid damage beforehand and preserve the rent-control units. Noonan noted that about 5,000 rent-control units in the city are occupied by people with very-low income.

Noonan further explained that if a building is damaged in an earthquake, an owner might opt to tear it down and build a new building rather than do extensive repairs. Any new building would rent at market rates.

Several people feared this was a first step toward dismantling the city’s tough rent stabilization laws, which cover buildings erected before 1980. However, Rob Bergstein, one of five Rent Stabilization Commissioners attending the meeting, assured them it was not the case.

“There is no ending of rent control. It’s a bedrock that this city is founded upon. No one in any way is suggesting rent stabilization is going away,” said Bergstein. “Rent stabilization is here to stay.”

Resident Esther Baum suggested the pass-through costs should vary depending on the size of the apartment; someone living in a two-bedroom apartment should pay more than someone living in a studio apartment.

Noonan acknowledged that was a good point and something they should consider before making a final decision on the specifics of the law. City staffers kept detailed notes about concerns residents raised.

Kathleen Head of Keyser Marsten, right, speaking on retrofit pay options, with Rent Stabilization commissioners Rob Bergstein, far left, and Jpsh Kurpies.

Among other concerns:

Several people wanted to know if pass-through costs would go into effect immediately or only after the retrofitting had been completed. Noonan said that has not yet been determined.

Some people wanted to know if the cost of assessing a building for specific retrofit needs would also be passed on to tenants, or just the cost of the retrofit itself.

Along similar lines, some wondered if a landlord has to get a loan to pay for the retrofit costs, will the tenants also have to pay for the interest cost on the loan.

Someone else, fearful landlords might end up making a profit from the pass-through costs, demanded transparency about the costs. She wanted to know who would be policing the matter, keeping an eye on the books to guarantee tenants only pay for the exact costs associated with their building and nothing more.

Another attendee asked whether landlords would pay for relocation costs, such as a hotel room, while retrofitting is taking place. However, Meister told attendees that the vast majority of the retrofitting work will be external.

One person suggested rather than the City Council make the final decision about rent increases vs pass- through costs and the percentage, the city should hold a voter referendum to make the final decision. Josh Kurpies, one of the Rent Stabilization Commissioners in attendance, said that was an option they could explore.

After the meeting, Noonan told WEHOville he was happy with the discussion.

“I think there were a lot of concerns expressed and a lot of questions. But I come away from this believing that landlords and tenants both essentially want to find a good solution that works for both and want to maintain rent stabilization in the city,” Noonan said.

The city will hold another feedback meeting on earthquake retrofitting on Monday at 7 p.m. in Fiesta Hall in Plummer Park.

For more information about the seismic retrofit program, visit www.weho.org/seismic The city also has launched an online survey for tenants and landlords to offer feedback.


15 Comments
  1. I am opposed to rent control based on the FOUNDATION OF ECONOMICS … It is a Economic Model Universally Agreed and used as the Ultimate Example of how good intentions CAN’T OVERRIDE THE BASICS OF ECONOMICS. The Price will ALWAYS be where supply and demand meet (complicated what supply & demand means). But any attempt to “Fix” either Price or Supply, will result in a FAILURE of the natural status, and in the long run, there will be fewer apartments and the few left will be poorly maintained because the market will always adjust. You can’t tamper with fixed price. (as we know, after 30 years and post the State of CA changing State Law forbidding “Rent Control” we have a city with too few units, and the units existing are poorly maintained by landlords.
    BUT THE OWNER OF THE PROPERTY – IN THIS SITUATION – IS 100% RESPONSIBLE FOR EARTHQUAKE RETROFIT COSTS. THIS TIME, THE PROPERTY OWNERS WILL BEAR A COST THE RETROFIT LAW IMPOSES. A RENTER REAPS NO BENEFIT FROM THE PROPERTY VALUES GOING UP – BUT THEY ALSO HAVE NO LIABILITY TOWARDS PROPERTY OWNERS NEW COSTS IMPOSED BY A LAW, SUCH AS EARTHQUAKE RETROFIT.

    1. Refer to my comments below (and Josh’s). The owner of the property is not 100% responsible for retrofit costs, according to State law, if they can somehow prove that their net operating costs is greater than their net operating income. I’m not simply trying to take the side of landlords here, I’m defending the City’s legal obligation to enforce State law. Just as the cities of Los Angeles and San Francisco had to do (as stated in the article above).

      Even if the City of West Hollywood had not passed the earthquake retrofit law (which is in the interest of public safety, as well as for the protection of housing stock), if a landlord chose to, on their own, upgrade their building to make it safer, they could make a legal case that their net operating costs exceed their net operating income, as a result.

      I believe that people are directing their anger at the City somewhat unjustly, without acknowledging the State law behind this.

      1. That may be “in the law” but it does not necessarily mean it is enforceable.

        If they can’t meet the cost to retrofit (an easy claim to make & show some kind of accounting to ‘prove’ it.

        However, if there is such a high cost, the cost can pass through via basic economic principle. They can raise the rent if they have no means to pay the retrofit.

        Again, the housing market will self stabilize … Either renters can & are willing to pay the pass through via a rent increase, or choose to find a new rental based on the rent … In a building that didn’t raise rent to meet sizemic retrofits.

        Attempting to impose cost sharing by our local govt, will only worsen the effects of housing market price interference.

      2. For example, often Life Isn’t Fair to people running a business (which is what landlords do.)
        For very profitable businesses that are not on the stock exchange, they are classified a “family business’s for estate tax.
        Say a large car dealership such as Universal Nissan.
        Very profitable, but upon death of father, the inheriting children must pay the full estate tax immediately – before the next accounting yr.
        Owners of a legit business have to take out a mortgage (high interest) to pay estate tax, whereas normally estate taxes are lower & can be paid over time if not classified ‘family business’
        Apartment owners may have to take a second or third mortgage. Not the renter’s liability.
        Landloards can try raising rent, but individual decisions of renters will slowly leave for lower rents.

        WeHo spends hundreds of millions on absurd park projects (among others).
        If they meat a word about protecting renters, they would foregi the stupid park phase 2 and perhaps provide low or no interest loans to Landloards to meet the cost over time.

  2. I’ll take my chances. I’d rather play the over under odds of NOT investing in the capital improvements of my landlords building. I will live in squalor after the fact as I do now and continue to fight for every minor repair with the (landlord favorite) bureaucracy of Rent Control at City Hall to defend my rights as a tenant. Ha. Invest in my building without ownership? Heck no!!! I can’t get my walls painted, carpet changed, roof fixed without a judge’s order. These Slumlords are going to use this to their advantage and take advantage of hard working people and only make it harder to live here.

    1. It likely will. I believe the upgrades to the buildings will be considered a cost of doing business and that the landlords will be required to bear the cost. The city should consider helping some of the landlords by supplying some kind of safety improvement grant. Landlords with poor records of maintenance and treatment of tenants should be required to bear the cost on their own…

  3. Any amount of pass-through is WRONG! Helping to improve a building goes directly to the profit of the landowner, not the tenant. Meaning if I pay a portion to retrofit THEIR apartment that I am renting, when they sell the building…I’m entitled to a percentage of the profit (that I paid to improve) as that property has become more valuable.

    If a property needs a new roof do the renters pay? If there are termites am I required to fumigate the building? That would be considered a co-op or condo HOA situation because their is ownership. Not renting.

    City Council just has this completely wrong.

    1. You make a good point, but as I said below, if a major earthquake happens, you might be without a home, should the landlord choose to not fix the property, or Ellis the building. Termites aren’t going to bring the place to the ground, unless they go ignored for a very long time.

      As Josh pointed out below:

      “The State law allows a landlord to a reasonable rate of return on their property (reasonable profit) and if they are not making a reasonable return then there is a City process in which if they can provide the City proof their net operating cost is greater than their net operating income, they can increase the rent on all tenants.”

      What do you expect the city to do about this, if it is state law? Ignore the law?

      Maybe it isn’t the “City Council that is completely wrong.” Maybe it is the state?

      1. Thats irrelevant playing the “what if an earthquake destroys it and then I have no place to live”. Every person takes that chance as a renter. I might add…there is still no guarantee that retrofitting will save a building from damage.

        1. You might think that is “irrelevant,” but some consider it a valid question. And no, not everyone takes the same chance, when some live in buildings that have been flagged as more dangerous than others.

          People losing there homes is only one argument. The decimation of rent-controlled housing stock is another. People complain about rent-controlled housing stock fading, and a major earthquake could make a lot of it fade away. So other than safety, this is issue could affect the local economy, and the affordability of housing in this city.

          No, there’s no guarantee that retrofitting will save a building from damage, but do you not trust engineers’ opinions? If you ignore upgrading the tires on your car, there’s no guarantee you might not have a blow-out on the new tires, either. Does that stop you from getting new ones?

          Once again, what do you expect the city to do about this? Ignore state law?

  4. I understand some people’s outrage, especially if they have a landlord who doesn’t maintain their building currently, or follow city law. But people need to understand that if these retrofits aren’t put in place, the building could be seriously damaged in a major earthquake, and the landlord won’t be obligated to fix the building, and could take it off the rental market all-together, resulting in them losing their places to live. Not to mention lives could be lost.

    I don’t understand why the city passed a law giving landlords 5 years to complete this work. Why not 2? Or 3? 5 seems too long. Some of these buildings are like a ticking time bomb.

  5. If anyone walked who attended last night’s meeting left the meeting feeling “Renters Will Have to Pay Some of the Cost of Prepping Their Buildings for an Earthquake”, the City & Rent Stabilization Commission failed in our message.

    The quote of Peter Noonan, acting Director of Human Services & Rent Stabilization, being used to support the headline,“There is no scenario where we have absolutely no potential for some form of an increase [in rent] to tenants,” is being taken out of context.

    The State law allows a landlord to a reasonable rate of return on their property (reasonable profit) and if they are not making a reasonable return then there is a City process in which if they can provide the City proof their net operating cost is greater than their net operating income, they can increase the rent on all tenants. Under the existing process, there are several scenarios where landlords, due to vacancy decontrol (ability to set rent at market rate after a tenant moves out), it would be unlikely for a landlord to be able to show a net loss; however, having said that, the cost to retrofit a building will vary from building to building and the amount of rent collected from each unit in a building can vary from very low to very high, depending on the number of years the tenant has lived in the unit. Because those two variables will be different for every building in the City, Peter Noonan’s quote is accurate: “There is no scenario where we have absolutely no potential for some form of an increase [in rent] to tenants”

    Both Councilmember Meister and I said at different points in the meeting that no decision has been made as to any change in the existing cost recovery policy. The proposals on the table are proposals up for discussion and I encourage all interested parties to participate in the discussion by sharing your thoughts on the City’s current policy, your thoughts on the proposal of a cost-sharing pass through (and what a fair cost sharing pass through should look like: 50/50, 60/40, 75/25; with caps or without; spread over 10/20/30 years); and any ideas for another option not currently being considered.

    The next community meeting is Monday, May 14 at 7pm at Plummer Park. More info at http://www.weho.org/seismic

    1. Hank: Thank you for amending the original headline from “will’ to “likely”.

      In my opinion, “likely” still remains presumptuous, but considering we do not have a complete inventory of the existing annual operating costs, total amount of rental revenue, nor the exact cost of retrofitting for each of the 800 buildings potentially affected, it’s impossible to determine with confidence how many tenants will face a rental increase. So, given the existing policy and what has been proposed thus far as an alternative, choosing to use “likely” may indeed be an accurate statement.

      Personally, I am interested in exploring other opportunities to help property owners cover the burdensome cost of seismic retrofitting with less reliance on tenants being forced to invest in the building.

  6. Oh no, NOT a “voter referendum”!….Who volunteered that?!

    That’s a sure way to see all rent control buildings sold and torn down. Developers will move to West Hollywood just so they can vote NO on any rent increase and them buy up all the buildings, Ellis them out, and build new $3,500/month “luxury” one bedrooms or two million dollar condos.

    Be careful about pushing for a voter referendum folks…..No Bueno.

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