Portland landlords, many of whom are seeing higher property taxes because of a recent revaluation, are at odds with the city over whether the new rent control ordinance allows them to increase rents this year without first getting permission from the city’s rent board.

A city attorney said last week that landlords could not increase rents to keep up with inflation or higher taxes until next year, even though landlords will be paying higher taxes for half of the current year. She also recommended that the newly established rent board, which is charged with granting additional rent increases, takes up such requests on a case-by-case basis, rather than offering a broad interpretation of the ordinance.

The city’s position is drawing criticism from landlords and one of the authors of the rent control bill, who says the board could grant a blanket increase to all landlords to help offset increased costs stemming from the revaluation.

As a result of Portland’s first revaluation in 15 years, assessed property values on the peninsula increased significantly, including for many multi-unit rental properties. Some owners saw their tax bills double and will have to pay their new assessments for the second half of the calendar year.

Randi Bollenbach owns and manages 59 apartment units in four buildings with her husband and other business partners. She’s read the ordinance, the city’s advice for landlords online and watched rent board and landlord association meetings, and she’s still confused about what she’s allowed to do.

“It’s really hard as a small-time operator to try to figure this stuff – it’s all new,” Bollenbach said. “We’re not lawyers, so I’m still pretty confused.”

Anne Torregrossa, associate corporation counsel for the city, told the rent board last week that the ordinance states that the city will publish the percentage increase for inflation and increased property taxes in September for the following year. That means this year, landlords can only increase rent by up to 5 percent if a unit turns over.

OPEN TO INTERPRETATION

“The only eligible rent increases for 2021 are a new tenant increase or an increase given by the rent board,” she said. 

Torregrossa acknowledged that the ordinance could be interpreted differently, but she discouraged the board from offering its own interpretation outside of a specific application.

A city spokesperson said the city has received “several” rent increase requests since the intake forms were finalized by the board in June. The rent board heard and approved its first rent increase request last week and has others scheduled for its next meeting.

The Housing Safety Office has investigated nine official complaints about illegal rent increases and has received “many calls” from tenants seeking information, said Jessica Grondin, the city’s communications director.

“So far the city has not had to issue any notices of violation,” she said. “We’ve made landlords aware of the ordinance provisions and we’ve received voluntary compliance in each case, some cases are still pending follow-up.”

Grondin said landlords can only be granted a rent increase this year for property taxes if they can prove that they are no longer able to receive a fair rate of return. Otherwise, they will have to wait until next year.

Sam Sherry, an attorney who represents landlords, said in an interview Wednesday that he has received calls from a few landlords about whether they are allowed to raise rents this year because of the increase in taxes. Sherry said the ordinance could be interpreted in several different ways, but he declined to offer his interpretation or disclose his advice to landlords.

“Most of the landlords I have spoken with would have monthly rent increases which fall under the 10 percent annual cap set out in the rent control ordinance,” Sherry said.

OPTIONS LIMITED

The rent control ordinance requires landlords to provide 75 days notice for any rent increase, which would prevent any rent increase granted by the board from taking effect until the end of the year. That alone limits how much landlords would be able to recoup.

However, securing a rent increase this year would leave landlords with more room to increase rents next year. Annual increases are capped at 10 percent a year. The rent board can grant landlords increases in excess of that amount, but the increase must be applied in future years and not exceed 10 percent in any year.

Based on a sample of known rents in several apartment buildings, tenants would see relatively minor rent increases if landlords were to evenly distribute the tax increase from the revaluation among apartment units. Tenants living in areas with the largest spike in values – the East End and West End – would see higher impacts, but still below the 10 percent cap in the ordinance.

For example, one West End apartment building faces a $2,667, or 35 percent, annual increase in property taxes. If that was split evenly among the four units, rents would increase by about $55.50 a month, or about 4 percent.

The impacts were less off the peninsula, where property values didn’t rise as much as on the peninsula.

Property taxes at an apartment building on Stevens Avenue increased by only 3.5 percent, or $287 a year or about $23 a month. If that was split evenly among the three units, rents would increase by less than $8, or nearly 3 percent.

But those tax increases can create a burden for landlords, if they are unable to spread the costs out among their units, especially those with multiple buildings and low rents.

‘A MESS’

Brit Vitalius, president of the Southern Maine Landlord Association said the rent control ordinance, compounded with the revaluation, is “a mess.” He believes the city’s interpretation is biased toward the group behind the ordinance, the Maine Democratic Socialists of America, at the expense of landlords.

The landlord association sought to invalidate the ordinance in court, arguing it was unconstitutional and vague. But the measure was upheld in Superior Court.

Vitalius estimated that his members have seen an average tax increase of 50-70 percent, but others have seen property taxes double. He said landlords are feeling “boxed in,” because the city says they can’t increase rents this year without board approval, annual increases are capped at 10 percent and they can only increase rents by 5 percent when a unit turns over.

“The landlords that are getting hit, and that are calling, are the ones who have the low rents – $700 and $800 – and their taxes just doubled,” he said. “The irony is, landlords never would have looked at their tax bill and gone up dollar for dollar on their tenants. That’s just not how we think.”

Jack O’Brien, a Brunswick resident who helped write the ordinance for People First Portland, the campaign run by the DSA, believes the rent board has the authority to grant a blanket increase for all landlords to help with the revaluation this year. But he believes the city is unnecessarily hamstringing the board’s authority by discouraging it from interpreting the ordinance and issuing rules.

BACKING A BLANKET APPROACH 

“Rather than make it piecemeal, where each landlord is figuring out how the law works for them, the rent board is charged with making sure there’s broad applicability across the city,” O’Brien said. 

O’Brien noted that the ordinance allows the board to grant any additional increase to allow a landlord to get a fair rate of return. Although the ordinance speaks only of a singular landlord who must “properly demonstrate” the need for an increase, he believes the recent court opinion allows the board to issue a rule applying to all landlords, with the citywide revaluation being the justification for that increase.

“It nowhere requires that each landlord make their own application in the sense of a hearing,” he said.

Some landlords are rethinking their business strategy.

Over the last 13 years, Bollenbach said she has tried to buy distressed buildings, improve the units as they turnover and gradually increase rents closer to — but remaining below — market rents. She said her rents range from $600 a month for a studio on Oak Street to $1,200 for a two-bedroom on Neal Street.

Before rent control, Bollenbach said she and her husband would sometimes lower rents for older and low-income tenants and might buy them turkeys around Thanksgiving. It was something they felt they could do, because when the unit turned over, they could improve it and fetch a higher rent.

The rent control ordinance only allows a landlord to increase rents 5 percent when they turnover. And under no circumstances can rents increase by more than 10 percent in one year. To recoup any renovation costs – which she said can approach $20,000 to $30,000 a unit – they would need to file a special request with the rent board.

Bollenbach is not sure how that process would play out.

RENT BOARD’S FIRST RULING  

Last week, the rent board heard and ruled on its first request for a rent increase from a landlord stemming from a capital improvement. The landlord asked to increase monthly rents on a vacant unit by about $26, or 3 percent, a month, so he could recover the costs of installing wall-to-wall carpet and padding over the next four years.

It took the board about 45 minutes to discuss the issue, including whether the landlord should instead look to recover his investment over a five-year period, as recommended by the Internal Revenue Service, a move that would shave $5 off the monthly increase. They also discussed whether the increase should go away after the investment was recovered – something they ultimately decided against.

The board ultimately approved the request to allow the $26 a month increase.

“My head was spinning at the end of that conversation” Bollenbach said. “Granted that was the first one and they were worried about setting a precedent, but I’m not optimistic.”

Ironically, Bollenbach said the rent control ordinance will likely prompt landlords to be more aggressive with annual rent increases.

“We used to not be very aggressive about rents,” she said. “We would raise the rents (now) if we could. That would be our strategy – get it while you can.”

Correction: This story was updated Friday, Aug. 6, 2021 to correct an error that misstated the status of the Southern Maine Landlords Association lawsuit challenging Portland’s rent control ordinance. The ordinance was upheld in Superior Court.

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