Petition for Review of a Decision of the District of Columbia Rental Housing Commission
Rogers, Chief Judge, Schwelb and Farrell, Associate Judges. Opinion for the court by Associate Judge Schwelb. Dissenting opinion by Chief Judge Rogers.
The opinion of the court was delivered by: Schwelb
This is a case in which, at first blush, the posture and rhetoric of the parties appear to be the reverse of what conventionally occurs in disputes between landlords and tenants. The owner of an apartment complex insists that his property is old and decayed and in poor condition and must be substantially overhauled. His tenants say in effect that the place is not so bad at all and that less work needs to be done than the owner claims is required. *fn1
The explanation for this intriguing variation from the more usual state of affairs is that the owner proposes to "substantially rehabilitate" the property and, in connection with this proposal, seeks to obtain leave to increase the rent ceiling by more than a smidgen. In order to persuade the Rental Housing Commission that the property requires substantial rehabilitation, the owner must show that it is not in the best of shape. Although the tenants agree that some of the renovation contemplated by the landlord needs to be done, they have little enthusiasm for what they regard as largely cosmetic changes which will bring about higher rents which they may not be able to afford to pay. They understandably view parts of the proposed rehabilitation as unnecessary and the owner's professed concern that the expenditures are in the tenants' interest as little more than feigned solicitude.
The Rental Housing Commission granted the owner's petition for substantial rehabilitation and approved a 50% increase in the rent ceiling. We agree that the owner has established his right to substantially rehabilitate the building and to raise the rent ceiling accordingly, but remand for further proceedings With respect to the amount of increase in the rent ceiling.
The tenants of 738 Longfellow Street, N.W. seek review of a decision of the District of Columbia Rental Housing Commission. The Commission granted a substantial rehabilitation rent ceiling increase *fn2 to the owner of the apartment building located at that address, based on the proposed substantial rehabilitation of the premises, and held that each tenant's rent ceiling could be increased by 50%. The tenants maintain that the Commission erred in finding that the renovations proposed by the owner are "in the interest of the tenants" as required by D.C. Code 45-2524(a) (1986). *fn3 The tenants also contend that even if substantial rehabilitation is appropriate, the 50% increase approved by the Commission is excessive.
The locale of this controversy is a four-story building with sixty-six apartments. It was constructed in 1950, and most of its major components have not been replaced during its forty-year history. The average monthly rent per apartment is under $300.00. The property has an assessed market value of $488,075.00.
The owner of the property, the Estate of James Vito, filed a petition for substantial rehabilitation, seeking approval of $337,521.00 in renovations *fn4 and a 75% upward adjustment in the rent ceiling. Under the owner's renovation plan, the rent ceiling increase was to be gradually phased in over a period of three years. A hearing was held on the owner's petition before one of the Commission's hearing examiners. The owner maintained that the extensive renovations proposed were necessary in order to prevent further deterioration of the building.
Johnny Litman, counsel for the tenants, who is a resident of the building, presented the tenants' concerns to the hearing examiner. The thrust of the tenants' position can be characterized in pithy vernacular as "if it ain't broke, don't fix it." The tenants divided the proposed renovations into three categories: those which they found acceptable; those which they thought were needed in some apartments, but not in others; and the remainder, which they flatly rejected as unnecessary and "purely cosmetic" -- a phrase that may mean the kiss of death in "substantial rehabilitation" cases.
Following the hearing, the examiner issued an order granting the owner's petition for substantial rehabilitation but limited the increase in the rent ceiling to 60%. The tenants appealed to the Commission, which remanded the case to the hearing examiner, because he had "failed to make the necessary resolution of contested factual issues to support his Conclusion that the substantial rehabilitation is in the interest of the tenants or his Conclusion that a 60% increase is necessary."
On remand, a second hearing examiner, without holding another hearing, ruled that the owner's petition should be granted. The second examiner' concluded, however, that the rent ceiling increase should be reduced to 52%. The tenants appealed for a second time to the Rental Housing Commission. The Commission upheld the decision of the second examiner, but slightly reduced the allowable rent ceiling increase to 50%. *fn5 The tenants have petitioned this court to review the Commission's order.
THE STATUTORY AND REGULATORY FRAMEWORK
A. The statute and the former regulation.
The tenants first argue that the petition for substantial rehabilitation should have been denied because the Commission did not make findings said to be required by the applicable regulation then in effect. To evaluate the force of this contention, we must compare the former regulation with the statute pursuant to which it was promulgated.
Before a petition for substantial rehabilitation may be approved, the Rent Administrator must find, among other things, that it is "in the interest of the tenants of the unit and the housing accommodation in which the unit is located . . ." D.C. Code § 45-2524(a)(2) (1986). Section 45-2524(c) provides that
In determining whether substantial rehabilitation of a housing accommodation is in keeping with the interests of the tenants, the Rent Administrator shall consider, among other relevant factors:
(1) The impact of the rehabilitation on the tenants of the unit or housing accommodation; and
(2) The existing condition of the rental unit or housing accommodation and the degree to which any violations of the housing regulations in the rental unit . . . constitute an impairment of the health, welfare, and safety of the tenants.
The statute thus makes the existence of any sub-standard conditions in the unit one of the factors which the agency must consider in determining whether a petition for substantial rehabilitation may be granted. It does not, at least by its terms, make the existence of such conditions an indispensable element of the owner's case.
The regulation in effect when the landlord's petition was filed, on the other hand, provided that
the hearing examiner shall approve the petition for substantial rehabilitation and authorize an increase for each affected rental unit if the following fact's are determined:
(a) The existing conditions in the subject housing accommodation endanger the health, welfare, and safety of the tenants;
(b) The conditions cannot adequately be corrected by improved maintenance and repair or limited capital improvements . . .;
(c) The substantial rehabilitation of the housing accommodation is in the best interests of the tenants; and
(d) The proposed expenditures equal or exceed fifty percent (50%) of the assessed market value of the housing accommodation.
14 D.C.M.R. § 3511.8 (June 1986). *fn6 Literally construed, the former regulation would make the existence of substandard conditions which cannot be corrected by less drastic means a precondition for the granting of a petition for substantial rehabilitation.
The agency's findings in this case meet the requirements of sub-paragraphs (c) and (d) of the former regulation, but neither the hearing examiner nor the Commission made the kinds of specific determinations contemplated by sub-paragraphs (a) and (b). *fn7 The Commission held that findings on sub-paragraphs (a) and (b) were not required ...