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St. Paul rent control draft rules allow landlords to ‘self-certify’ increases over 3 percent rent cap, up to 8 percent

Frederick Melo, Pioneer Press
·5 min read

With a month to go before the city’s new rent control ordinance takes effect, St. Paul’s Department of Safety and Inspections on Friday published lengthy draft rules that would allow landlords seeking waivers to incorporate inflation and “self-certify” residential rent increases above the voter-approved 3 percent rent cap but below 8 percent.

A public comment period on the rules will run from April 7 to April 22.

“What we are looking for is a review and comment from the public, from all sectors, on everything that is presented — the rules, the process,” said Suzanne Donovan, spokesperson for the department.

The 17-page draft rules, published to the city’s rent control website, detail how a landlord can seek a hardship exemption to the new 3 percent cap on annual rent increases, which goes into effect May 1.

The ordinance crafted by housing advocates and approved by voters on the November ballot indicated in general terms that landlords have a “right to a reasonable return on investment,” but it left it to the city to flesh out the process.

That process, detailed for the first time on Friday, will be finalized on the city’s website on April 29. Intake forms for landlords will be available by May 1, when rent control becomes the law of the land.

WAIVERS

There is no provision in the ordinance that requires tenants be notified when a landlord seeks or receives a temporary waiver from rent control. If a tenant believes their landlord is not following the ordinance, they have the right to file a private legal action in court or file a complaint with the city seeking an investigation.

To calculate a reasonable return on investment, the new draft rules indicate the city will use the landlord’s “maintenance of net operating income,” or MNOI, and allow rent increases that cover increases to operating costs and allow for inflation-adjusted growth in net operating income over a proposed base year.

For most landlords, that base year will be 2019, according to the draft rules.

Under the draft rules, a reasonable return for landlords takes into account the Consumer Price Index: “A landlord has the right to obtain a net operating income equal to the base year net operating income adjusted by 100 percent of the percentage increase in the Consumer Price Index (CPI), since the base year. It shall be presumed this standard provides a reasonable return.”

According to Donovan: “Offering the inflation rate would only be one factor that might be considered under the proposal. All of the factors would have to be addressed.”

Landlords and tenants can make a case to the city that 2019 was an “exceptional” year at their property, and expenses were “unusually high or low in comparison to other years.” An exceptional circumstance might include maintenance and repairs, eviction or temporary reduced rent, among other considerations.

DEFINITIONS

Under the definitions, gross rental income does not include utility charges for sub-metered gas, electricity or water paid directly by the tenant, or charges for trash disposal, sewer service or other services provided to the tenant on a pass-through basis.

Operating expenses can include management and maintenance costs, property taxes, licensing and registration fees and landlord-performed labor with documentation of date, time and rate, among other expenses.

Landlords seeking rent increases between 3 and 8 percent can “self-certify,” meaning they simply fill out an intake form with the appropriate documentation and submit it to the city. There’s a worksheet they can fill out to help determine their maintenance of net operating income and costs of capital improvements. Those forms may be audited by the city.

After submitting the intake form, the landlord can expect to receive an email with a notification document they can forward to their residents indicating they’ve requested a rent increase using self-certification.

Landlords seeking to increase rents by more than 8 percent need to seek a determination from city staff. A negative determination can then be appealed to a legislative hearing officer.

Rent increases for unit-specific capital improvements can be allocated to a single unit, while rent increases for building-wide or common area improvements need to be allocated equally among all units. Other provisions explain how owner-occupied units, new units added to an existing dwelling and vacant units should be treated in the calculations, as well as “conditional rent increases” based on future expenses, including capital improvements.

MORE INFORMATION, HOW TO COMMENT

More information is online at stpaul.gov/rent-stabilization-rulemaking.

Residents can submit comments online, by email or by sending a written letter to DSI-Rent Stabilization, 375 Jackson Suite 220, St. Paul, 55101.

The new rules seek to clarify basic definitions and the application process for hardship exemptions, but additional changes are likely. At the request of St. Paul Mayor Melvin Carter, a 41-member stakeholder group is weighing potential amendments to the rent control ordinance. The mayor has already submitted a draft amendment to the city council that would exempt new housing construction from rent control for 15 years.

“That’s a whole separate and parallel process,” Donovan said. “They are looking at policy issues. This rent-stabilization rulemaking website is about how to implement the ordinance as it exists.”

In addition, the St. Paul City Council is scheduled to vote April 6 on some basic definitions of legal terms such as change of occupancy, rent and tenancy.

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