Most rental properties in San Francisco are generally older homes or apartment buildings, which oftentimes entails a certain amount of regular upkeep to maintain the asset. With restrictions in rent due to the San Francisco Rent Control Ordinance, owners are limited in the amount they may increase a tenant’s rent, which making necessary improvements over time tend to be altogether costly for the owner. As a way to help curb these expenses, the San Francisco Rent Control Ordinance allows property owners to pass through a certain amount of the cost to tenants for capital improvements made to the building. Luckily, with the help of a San Francisco property management company, the process can be simplified and managed for you.
What is a capital improvement?
According to the Rent Board, a capital improvement is one that materially adds to the value of the property, appreciably prolongs its useful life, or adapts it to new uses, and which may be amortized over the useful life of the improvements of the building. Capital improvements may include a new roof, paint to the exterior of the property, new water heater, new windows, etc. Any regular repairs or maintenance made to the building do not constitute as a capital improvement.
How do you start the capital improvement petition?
To first begin the process, you must file a Capital Improvements Passthrough Petition with the San Francisco Rent Board before serving your tenant with a notice of the increase. A petition cannot be filed until the work is completed and must be done within the five years of completion. Additionally, make sure that all invoices from vendors, documents, and proof of payments are submitted with the petition. Lastly, if your improvements exceed $25,000, you must show that you have a competitive bid for the work as well.
How much of the cost may be passed through to your tenant?
Cost is dependent on the size of your building, type of work done, and the amount of time taken for the work to be completed. For buildings with one to five units, the owner is entitled to pass through 100 percent of the cost onto tenants. For buildings with over six units, the owner is entitled to pass through 50 percent of the cost. For both scenarios, depending upon the type of work, the cost is passed through a certain period of amortization. For example, an exterior paint job to a building with six or more units will be amortized over seven years. Thus, an owner will get back an imputed interest rate of .00975 in 2012 and be able to pass through the cost to their tenants over a seven year period.
Filing a Capital Improvements Passthrough Petition with the San Francisco Rent Board is a great way to help you save on cost. San Francisco already has so many limitations for landlords, so why not take advantage of an opportunity to put some of that money back into your pocket.