5. any rental unit in an owner or renter occupied residence containing not more than two rental units; (to eliminate small units which are generally not primarily operated as a housing business)

6. units in housing accommodations which have been vacant and unoccupied for two years preceding the enactment date if such accommodation is in compliance with the housing regulations; (to encourage the utilization of boarded up housing in increasing the rental housing stock).

Additionally, the Council intended that administrative workload of the Rental Accommodations Office would be significantly reduced by these aforementioned exclusions.

Subsection 202(b) requires registration of unregistered accommodations within 90 days after the effective date of the act.

A registration statement is required to be filed for every housing accommodation within the District of Columbia irrespective of the applicability of any other provision of the Act to the housing accommodation.

Paragraph one (1) requires a complete description of property along with the housing business license and occupancy permit numbers and dates.

Paragraph two (2) requires a description of the utilities including air conditioning and heating fuel.

Paragraph three (3) requires rental information (local occupancy fee charged, amount of security deposit, related service included and related facilities and charges) that obtained on the base rent date. Paragraph four (4) requires the information required in paragraph 3 that obtains on the registration date.

Paragraph fire (5) requires information on rental units that have been substantially rehabilitated (market value prior to rehabilitation, method of market value computation, description of rehabilitation and an itemized list of expenditures).

Paragraph six (6) requires the same information as stated in paragraph (5) on rental units for which substantial rehabilitation is planned. Additionally, it requires a description of the proposed rehabilitation.

Paragraph seven (7) requires information on the market value prior to capital improvement, a list of capital improvements and an itemized list of expenditures for all capital improvements allowed under section 205 of this act.

Paragraph eight (8) requires a list of outstanding violations of the housing regulations applicable to the registered accommodation. Paragraph nine (9) requires inclusion of the name and address of the owner and, when applicable, the resident agent.

Paragraph ten (10) requires the information necessary for the Rent Administrator to easily and accurately compute the rate of return according to subsection 204 (a).

Paragraph eleven (11) requires the rate of return for that housing accommodation as computed by the landlord according to the formula in subsection 204 (a).

Subsection 202 (c) requires landlords to certify that there have been no changes in the information required on the previous registration statements or, when applicable, to correct such statements quarterly by sworn addendum. Upon the occurrence of any change which would

affect the rent, the landlord would have to submit a new statement prior to filing for an increase.

Subsection 202(d) provides for public inspection of registration forms and requires landlords to post a copy in public place on the premises of the housing accommodation to which the registration Statement applies, have such available at the Rental Accommodations Office and nail duplicate copies to each tenant.

The Council felt that it was imperative that the data on registration forms be readily accessible to tenants on the premise and at the office in order to facilitate their decisions relating to filing petitions and to provide this pertinent data to all parties concerned.

Subsection 202(e) requires the Administrator to assign each registration form a registration number.

The Council added this provision in order to aid in the management of registration information.

Subsection 202(f) requires that the registration number be placed on each housing business license and each certificate of occupancy issued after the effective date of the act.

The Council intended that this section would encourage landlords to register promptly and properly, since they will not be able to get a license until they get a registration number.

SECTION 203-REGISTRATION FEE

Section 203 establishes an annual registration fee of $2.00 per rental unit to be paid at the same time and place that one applies for their housing business license or their renewal or files their registration form.

These fees are to be paid into the Treasury of the United States and credited to the General Fund of the District of Columbia. There was substantial testimony to the Council supporting the concept that the Rental Accommodations Office should be self-sustaining. The Council felt that the two dollar fee was not burdensome and would produce approximately $375,000 annually to support the staff necessary to administer the program.

SECTION 204-RENT CEILING

Subsection 204(a) provides the formula for computing the rent ceiling (or maximum allowable rent for rental unit). Landlords will only be able to add to the current rent ceiling applicable to their units, an amount up to 5 percent of the current rent ceiling. This amount may only be added if the rate of return of that particular housing accommodation is less than eight percent (as computed according to the formula). Then the landlord may only increase rents on a pro rata basis by an amount sufficient to generate a rate of return no greater than 8 percent. The aforementioned rate of return formula includes the normal elements of income and operating expenses of the housing industry. The maximum possible rental income plus all other related income from the property are added together. From this sum is subtracted operating expenses, property taxes, management fees, depreciation expense, and the amortized cost of capital improvements (where allowed). The result of this computation produces a

net income figure. This net income figure is divided by the assessed market value of the property to provide a percentage rate of return. It is the conviction of the majority of the Council that the rent increase formula described above is the most equitable method to allow for increased costs of landlords without placing the entire burden of such costs on the shoulders of tenants. Specifically, it is the contention of the Council that the increased operating costs will be equitably shared by landlords and tenants. Hopefully, such a measure will encourage conservation of energy and better management of declining resources by both landlords and tenants.

The Committee chose to adapt the approach of Regulation 74-20 of automatic increases rather than a cost justification approach because it felt that the latter approach would result in a flood of petitions by landlords and tenants. Even if the cost justification approach were tied to a reasonable rate of return formula there could be no guarantee that the tenants would be protected from excessive rents or that the landlords were doing their best to maximize efficiency, cut wastes, eliminate mismanagement and the like.

The testimony at the hearings revealed a deep gulf between the opinions of landlords and those of the tenants. Generally, landlords argued that 10% increase would be needed as a minimum to allow an adequate reasonable rate of return on their investment which they contend should be around 10%, using the market value of the property as the denominator. Tenants argued that no increases should be allowed.

The act would allow 5 percent increase over a two year period to cover the cost of increasing taxes, maintenance, labor, trash removal services and other operating costs. The Council finds that such an increase is justifiable to protect the interests of both landlords and

tenants.

The derived formula resulted from combining features of two different approaches, neither of which in and of itself was thought to be acceptable or sufficient. The first approach, known as the automaticincrease-approach, was the thrust of the prior regulation (74-20) which allowed all landlords to automatically increase their rents to a level 12.32 percent higher than that which they received on February 1, 1973. Although further increases required the scrutiny of the Commission, many tenants were forced to pay higher rents even though they may have been paying their own utility bills. The ceiling of 12.32 percent was arbitrary and in some cases much too high, in others too low. The second approach, or cost-justification-approach was the method envisioned in the Congressional enabling legislation. Landlords should have been able to raise their rents as their costs increased. Irrespective of a landlords profit levels, a strict passthrough-of-costs provision would have placed the burden of inflation on tenants alone.

The Committee recognized some very basic facts: (1) declining profits encourage investment disincentives; (2) negative cash flows can lead to reduction in housing stock; (3) across-the-board automatic percentage increases in rent levels are in and of themselves inflationary; (4) any percentage increase figure would rely on guesswork (of such exogenous factors as oil import tariffs, consumer conservation

efforts, coal production levels, etc.); and (5) rent controls are necessary to protect tenants from excessive rent increases during periods of critical housing shortages. In an attempt to preserve the housing stock while protecting tenants from needless rent increases, the Committee decided to allow automatic increases only in those situations where a landlord is experiencing a rate of return (discounting debt service) of less than eight percent and only to the extent that any tenant does not receive an increase of more than 5 percent. Thus, the Committee established a minimum standard for a landlord's obtaining an automatic increase.

The rate-of-return computation method was chosen basically because it was a means of instituting a cost-justification approach and because its use was already being employed by the hearing examiners at the Commission. The Committee could thereby insure, although it felt no compulsion to do so, that the intent of the original Congressional enabling legislation which sought to provide landlords with a reasonable rate of return could be carried out, and thereby assuage the apprehensions of many landlords who, because of the enabling legislation, had expected a reasonable rate of return. The benefits of this method to the tenants was not overlooked, for they too now had a means of checking the reasonableness of any increase.

The adoption of the eight (8 percent) percent floor was reached after negotiations with the Mayor, and his representatives. This decision was predicated upon the constitutional concepts that the Council should adopt a measure which provided a flcor no lower than the prevailing interest rates or that which has been prescribed by the Commission after the courts request to develop a rate of return formula. Both sides did agree that a higher rate would serve as an incentive to keep money invested in rental housing. The Committee, however, wished to make it clear that the formula adopted is a rate of return on total assets rather than a rate of return on equity which in reality would be a rate of return on investment formula. It should also be noted that the Commission itself adopted a formula, under court order. essentially identical to the one in the measure.

It is the Committee's belief that some landlords need rent increases. and are entitled to such increases without combersome delays or procedures. It has provided a mechanism to accomplish that goal.

The Committee also intended to protect tenants against unnecessary or excessive rent increases. It believes that the 5% limit and future scrutiny by the Administrator and Commission will fulfill that aim. Thus, it is the Committee's conviction that an allowance of automatic increases within cost-justification guidelines and percentage increase restraints serves as the best method of providing landlords with a reasonable return and tenants with protection.

Subsection 204(b) specifies that rent ceilings may be increased or decreased in accordance with section 206 (to allow for increases or decreases in related services or facilities); section 210 (to allow for the cost of substantial rehabilitation); and section 208 (to allow for adjustments for vacant accommodations). These allowances were deemed necessary by the Council to provide a flexible adjustment process in specifically defined situations where tenants or landlords were experiencing inequities as determined by the act or the Rent Administrator.

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Subsection 204 (c) gives landlords and tenants the right to apply for a hardship adjustment for reasons other than those specified in 204(b).

Subsection 204 (d) establishes the rent ceiling and specifies the conditions under which there may be increases for properties exempted under section 202 after the initial leasing period or the first year of tenancy has expired. The Council included this provision to prevent landlords whose rent ceiling was set at the initial leasing period or first tenancy period rent from using step 1 and step 2 of the formula in 204(a).

Subsection 204(e) specifically prohibits any increase above the base rent unless the housing accommodation is in compliance with the housing regulations and such non-compliance is not the fault of the tenant. There was strong support in the Council that any rental accommodation made available must first conform to the housing regulation, that this was a prime responsibility of the landlord and it would be grossly inequitable to any tenant to increase rents while that rental unit and related facilities and services were not safe, sanitary, etc. as prescribed by the housing regulations.

Additionally, the subsection prohibits increases above the base rent whenever the accommodation is not registered in accordance with provisions of the act or is not licensed. This registration also applies to the manager when such is not the landlord.

Subsection 204 (f) requires rent roll backs for those units charging in excess of the allowable rent ceiling on effective date of act. Tenants will be notified in writing prior to the effective date of such decreases. This subsection would not apply to any rent approved previously by the Housing Rent Commission under Regulation 74-20 or any court of competent jurisdiction.

Subsection 204 (g) prohibits increases for rental units with valid written leases or rental agreements until the terms of such agreement have expired.

Subsection 204 (h) (1) requires a landlord to immediately notify a tenant of an increase by certified mail prior to that increase. It also requires specific information as listed in substcetion (i) to be included, plus a copy of that portion of the registration statement which shows the computation of the rate of return. (It also authorizes the Commission to prescribe the wording of the statement.) Such notice must inform the tenants of their right to request an audit, have a hearing on the audit and provide the tenant with the address and time limitations for the process. The Council was unanimous in their support of these provisions for complete and timely disclosure to the tenant, thus expediting and facilitating the petition filing procedures.

Subsection 204 (h) (2) specifies that the first due date for any increased rent cannot be prior to 30 days after such notice is mailed to the tenant who must immediately begin paying the increased rental amount on the prescribed date. If the tenant requests an audit during this 30 day period, the Rent Administrator must notify the landlord and he must place the increment of increase into an interest bearing escrow account (earning a minimum of 54 percent). The landlord or tenant may request a hearing on the audit and the escrow amount will be disbursed by the Rent Administrator when and in accordance with the final decision of the hearing.