Kates v. RENTAL HOUSING COM'N

• Citation: 630 A.2d 1131
• Decision Date: 02 September 1993
• Docket Number: 90-AA-1509.,No. 90-AA-1270,90-AA-1270
• Parties: Sonna KATES, et al., Petitioners, v. DISTRICT OF COLUMBIA RENTAL HOUSING COMMISSION, Respondent. UNITED PROPERTY OWNERS, Petitioner, v. DISTRICT OF COLUMBIA RENTAL HOUSING COMMISSION, Respondent.
• Court: D.C. Court of Appeals

630 A.2d 1131

Sonna KATES, et al., Petitioners, v. DISTRICT OF COLUMBIA RENTAL HOUSING COMMISSION, Respondent.

UNITED PROPERTY OWNERS, Petitioner, v. DISTRICT OF COLUMBIA RENTAL HOUSING COMMISSION, Respondent.

Nos. 90-AA-1270, 90-AA-1509.

District of Columbia Court of Appeals.

Argued June 9, 1992.

Decided September 2, 1993.

Luis R. Mejia, Washington, DC, for petitioners, Sonna Kates and Mieczyslaw Saganowski, Personal Representative of the estate of Stanley Krzeczkowski, in No. 90-AA-1270.

Matthew J. Travers, Jr., Fairfax, VA, for petitioner, United Property Owners, in No. 90-AA-1509.

John Payton, Corp. Counsel, Charles L. Reischel, Deputy Corp. Counsel, and Susan S. McDonald, Asst. Corp. Counsel, Washington, DC, filed a statement in lieu of brief, for respondent.

Before TERRY and SULLIVAN, Associate Judges, and MACK, Senior Judge.

SULLIVAN, Associate Judge:

In these consolidated appeals, a property owner ("the landlord") and two tenants in possession of the premises in question ("the tenants") seek review of the Decision and Order of the District of Columbia Rental Housing Commission ("the Commission") which approved the landlord's hardship petition pursuant to D.C.Code § 45-2522 (1990) and increased the tenants' rent by 107 percent. The landlord contends that the Commission erred by affirming the Decision and Order dated April 7, 1989, of a Rental Accommodations and Conversion Division ("RACD") hearing examiner ("the examiner") which precluded consideration of the prior property owner's equity in the property in determining the landlord's rate of return on its investment. The tenants contend that the Commission erred by affirming the examiner's order because the Commission (1) failed to include an adjustment to the landlord's maximum possible rental income ("MPRI")¹ for the year 1985; (2) allowed credit for certain alleged unsubstantiated utility expenses and penalties; and (3) allowed a vacancy loss deduction from the MPRI for a rental unit ("unit # 1") which was undergoing renovation and which had not been offered for rent during the relevant reporting period for the landlord's rent increase petition. We agree with the tenants' first and third contentions and, accordingly, reverse the Commission's order authorizing a rent increase and remand the case for further proceedings. As to the parties' remaining contentions, we affirm.

I.

In January 1988, the landlord purchased the subject property, a five-unit, rent-controlled apartment building, for the total consideration of $225,000. To finance the purchase, a mortgage in the amount of $100,000 was placed against the property. On June 13, 1988, the landlord filed a hardship petition ("the petition") with RACD and sought a 244 percent increase in the tenants' rents, contending that it was not receiving a twelve percent rate of return on its equity in the rental property. A hearing was held before the examiner, who ordered an increase in the rent ceiling not to exceed 48.38 percent.

The examiner ruled that the landlord could not use the former property owner's equity for purposes of determining the landlord's rate of return. In support of his ruling, the examiner reasoned that:

With respect to the treatment of equity,... the "plain meaning" of equity or the treatment of equity in § 45-2522(b)(2) is controlling. Here, the drafters of the legislation, as well as the Rental Housing Commission ... in promulgating the regulations in 14 D.C.M.R. 4209.6 intended the equity to be used in determining the rate of return be that of the housing provider. A housing provider as defined means a landlord, an owner ... or any other person receiving or entitled to receive rents or benefits for the use or occupancy of any rental unit within a housing accommodation with the District of Columbia, see D.C.Code ... § 45-2503(15). Given this definition, a former owner's equity is clearly precluded in determining the rate of return for this housing accommodation.

The examiner also found that the landlord was entitled to a "vacancy loss"² in the amount of $2,748 to be deducted from the MPRI, notwithstanding his finding that:

Based on the fact that unit # 1 was being renovated in January and February 1988 ... one could reasonably assume, based on the nature of the renovation and cost, the unit was not habitable, thus not offered for rent.

(Emphasis added).

In its notice of appeal to the Commission, the landlord challenged the adverse equity ruling as well as four additional rulings of the examiner, relating to: the maximum rental income calculation; certain utility expenses claimed by the landlord but not credited by the examiner; mortgage interest claimed by the landlord but not credited by the examiner; and the examiner's ruling that the landlord had not met its burden of proof regarding expenses claimed for trash removal. The tenants' notice of appeal to the Commission challenged only the vacancy loss ruling. Specifically, the tenants' notice stated that "the tenants are submitting this appeal only with respect to the `Vacancy Losses' section in the Order.... Everything else in the Order of the RACD appears to be correct."

II.

Generally, when an agency interprets its own regulations or the statute which it administers, this court will defer to that interpretation as long as it is not inconsistent with the applicable statute. See Columbia Realty Venture v. District of Columbia Rental Hous. Comm'n, 590 A.2d 1043, 1046 (D.C.1991); McCulloch v. District of Columbia Rental Hous. Comm'n, 584 A.2d 1244, 1248 (D.C.1991); James Parreco & Son v. District of Columbia Rental Hous. Comm'n, 567 A.2d 43, 45-46 (D.C.1989) ("The intent of the legislature is to be found in the language which it has used.").

III. Landlord's Claim

The landlord's argument that the equity used in calculating the rate of return is based on the property, regardless of who owns it, was expressly rejected by the Commission in Liuksila v. Watergate Management Corp., HP 10,355 (RHC March 9, 1988). We find no basis for concluding that the Commission's interpretation of the statute is unreasonable, plainly wrong, or inconsistent with the statute's purposes. See D.C.Code § 45-2502 (1990); McCulloch, supra, 584 A.2d at 1248. Thus, in the present case, the Commission correctly held that the prior owner's equity in the property cannot be used to determine the current landlord's rate of return. See D.C.Code § 45-2522(b)(2) (1990); 14 DCMR § 4209.6 (1991).

IV. Tenants' Claims

A. Maximum Possible Rental Income

The parties agree that the MPRI should include all upward rent adjustments the landlord could have taken in prior years even if the landlord did not actually take them. See Owner of 1831 Belmont Rd., N.W. v. Tenants of 1831 Belmont Rd., N.W., HP 20,027 (RHC Feb. 20, 1987). Moreover, there is no dispute about the Commission's inclusion of the 1986 and 1987 adjustments or about its exclusion of the 1988 adjustment. The issue raised by the tenants is whether the Commission erred by not including the rent adjustment for 1985 in the MPRI.

The essence of the tenants' argument to this court is that:

D.C. law requires that adjustments should be included for each year beginning April 30, 1985, and ending in the year the Landlord elects to file a Hardship Petition. There is no dispute that there are three years at issue: May 1, 1985 to April 30, 1986; May 1, 1986 to April 30, 1987; and May 1, 1987 to April 30, 1988. The adjustments of general applicability for these years became effective on May 1, 1985, May 1, 1986 and May 1, 1987.

The landlord does not dispute the merits of the tenants' argument. It essentially argues, however, that the tenants did not raise this issue before the Commission and that the landlord's appeal of the examiner's MPRI ruling did not raise the issue of whether the MPRI should have included an adjustment for 1985. Thus, the landlord contends that since the 1985 rent adjustment issue was not properly before the Commission, the Commission's failure to consider it cannot be assigned as error in this court. As support for its position, the landlord relies on 14 DCMR § 3802.5 (1991), which provides that "the notice of appeal of an RACD decision shall contain... a clear and concise statement of the alleged error(s) in the decision of the Rent Administrator."

The landlord's notice of appeal to the Commission stated, however, that "the Rent Administrator committed reversible error when accepting tenants' argument and computations, to wit, the maximum rental income for the reporting period was $19,879.76. The correct computation of maximum rental income is $14,644.92." The landlord's essential argument in support of the difference was that only the 1986 and 1987 adjustments, and not the 1988 adjustment, should have been included. While the tenants' notice of appeal to the Commission stated that they were raising only the vacancy loss issue, they did specifically address the MPRI calculation issue raised by the landlord. In particular, their brief filed with the Commission stated the following:

The tenants used three automatic adjustments and not two as suggested by the landlord, because there are three years between the time the rent ceiling was set (April 1985) and the end of the petition period (April 1988). Therefore, because the regulations state that the increase should be equal to the CPI increase during the previous calendar year, and because there were three years of increases that could have been taken, the landlord may have taken the following increases:

(1) as of January 1, 1986—4.4 percent

(CPI increase for 1985)

(2) as of January 1, 1987—4.0 percent

(CPI increase for 1986)

(3) as of January 1, 1988—1.6 percent

(CPI

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