A. Pass-through amount. Fifty percent of the approved cost of an eligible capital improvement may be passed-through to the tenant in accordance with the provisions of this § 15.09.225.
B. Eligible capital improvements. Capital improvements include, but are not limited to:
1. The addition, but not the replacement, of the following improvements to a covered rental unit or common areas of the building in which the covered rental unit is located, provided such improvement has a useful life of five years or more: air conditioning, security gates and other security items, swimming pool, sauna or hot tub, fencing, garbage disposal, washing machine or clothes dryer, dishwasher, major appliances, meter conversions, children's play equipment permanently installed on the premises, and other similar improvements as determined by the housing division.
2. Substantial improvements to, but not the renovation or replacement of, any structural, electrical, plumbing, or mechanical system that requires a permit pursuant to State or local law, such as a required seismic retrofit.
3. Abatement of hazardous materials, such as lead-based paint or asbestos, in accordance with applicable federal, State, and local laws.
4. Capital improvements cannot include regular maintenance or repairs from wear and tear, or be the result of a landlord's failure to perform regular maintenance and repairs.
C. Application process. A landlord may not pass-through approved costs of capital improvements to tenants in covered rental units until the housing division approves the landlord's pass-through cost recovery application and the landlord registers each covered rental unit pursuant to § 15.09.230.
1. A landlord must submit a pass-through cost recovery application pursuant to this § 15.09.225 within 120 days of completion of an eligible capital improvement.
2. The landlord shall mail a copy of the pass-through cost recovery application by first class mail, postage prepaid, to all tenants whose rents would be subject to an increase within five calendar days after the date the application is filed with the housing division. Within ten calendar days after the date the application is filed, the landlord shall file a proof of service signed under penalty of perjury stating that a copy of the application was mailed to all such tenants.
3. The following shall be established by housing division guidelines:
(a) The cost recovery calculations, amortization period and depreciation schedules for the capital improvement pass-through cost for each covered rental unit;
(b) Criteria upon which the housing division will evaluate a landlord's pass-through cost recovery application, including, but not limited to, whether the work was necessary to bring the property into compliance or maintain compliance with code requirements affecting health and safety; and
(c) Procedures for a low-income tenant to file a request for a hardship waiver of the pass-through cost (low-income tenant means a household whose income does not exceed the qualifying limits for lower income families as established and amended from time to time pursuant to Section 8 of the United States Housing Act of 1937, or as otherwise defined in Cal. Health and Safety Code § 50079.5).
4. If the capital improvement benefitted the entire building in which the covered rental units are located, the pass-through costs shall be prorated among all the tenants' rents on a square footage basis of each covered rental unit, but annualized in accordance with depreciation schedules set forth in the housing division's guidelines.
5. If the capital improvement inures solely to the benefit of one or more of the covered rental units, but to less than all of the rental units located in the building, the pass-through cost shall be annualized in accordance with depreciation schedules set forth in the housing division's guidelines, but shall be applied and/or prorated only with respect to the covered rental unit or units directly benefitted.
6. No capital improvement pass-through cost shall be allowed which exceeds 3% of rent in place at the time the pass-through cost recovery application is filed with the housing division. For the purposes of such computation, the base rent level for any time period shall not include any previously imposed pass-through cost for capital improvement. If the total amount of calculated pass-through costs exceeds 3%, the pass-through cost amortization period may be extended beyond the established amortization period to allow the landlord to recover capital improvement costs while not exceeding the 3% maximum increase in rent.
7. Pass-through cost recovery applications will be considered and determined by the Director in accordance with housing division guidelines; and the Director's determination may be appealed to a hearing officer in accordance with the procedures set forth in § 15.09.240.
D. Tenant consent. Except where capital improvements are required by law, any capital improvement to the interior of any covered rental unit shall only be performed with the written consent of the tenant, which shall not be unreasonably withheld, or the landlord shall not be entitled to add to the rent the pass-through cost for such expenditure.
E. No collusion. No landlord shall be entitled to recover from a tenant any pass-through cost based upon any capital improvement expense, the computation or representation of which has been inflated in collusion between the landlord and a contractor or other person.
F. Landlord's collection process.
1. A landlord shall provide written notice of a pass-through cost to tenants in accordance with Cal. Civil Code § 827.
2. An approved pass-through cost is not considered rent. The approved pass-through cost should appear as a separate line item on the rent statement along with the end date of the amortization period.
3. A landlord must cease collecting the monthly pass-through cost when the landlord has recovered the total pass-through costs approved by the housing division pursuant to this § 15.09.225.
4. If an existing tenant who is paying a pass-through cost vacates the unit, and the landlord is authorized to set an initial rent for a covered rental unit without restriction at the commencement of a new tenancy vacancy in compliance with § 15.09.215.D, then landlord may not collect pass-through costs from a new tenant of the rental unit, but must recover the balance of the capital improvement costs through the new rent.
5. In the event a tenant paid pass-through costs in excess of the amount approved by the housing division, or continued payments beyond the date of expiration of the pass-through, the landlord shall reimburse the tenant for the amount of the overpayment. The landlord may elect to either: (a) pay the tenant the amount of the overpayment directly in one lump sum; or (b) give the tenant a credit against the rent otherwise due from the tenant over a period not longer than six months.
(Ord. No. 2020-014 § 2)