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Carillon House Tenants' Association v. District of Columbia Rental Housing Commission

March 14, 2002; as amended May 1, 2002.


Before Wagner, Chief Judge, and Farrell and Washington, Associate Judges.

The opinion of the court was delivered by: Farrell, Associate Judge

On Petition for Review of a Decision of the District of Columbia Rental Housing Commission

Argued December 13, 2001

Petitioner Carillon House Tenants' Association ("Tenants' Association") seeks review of a decision of the District of Columbia Rental Housing Commission ("RHC") authorizing a rent ceiling surcharge that would include three hundred months (or twenty-five years) of interest for recovery of the cost of a capital improvement loan obtained by intervenor Carillon House, L.P. ("Housing Provider"). The Tenants' Association contends that the statute in question, D.C. Code § 42-3502.10 (2001), formerly D.C. Code § 45-2520 (1996), allows only for recoupment of ninety-six months (or eight years) of interest on such loans. Because the plain language of the statute, together with corresponding regulations and the legislative history, provide for the recovery of total costs to include all interest specified by the terms of the capital improvement loan, we affirm.

I. Background

At issue are two competing interpretations of Section 210 of the Rental Housing Act, which governs the entitlement of a housing provider to recover funds expended for capital improvements made to rental housing, without permanently increasing the base rent paid by tenants. That section, codified at D.C. Code § 42-3502.10 (b)(2), requires that to receive approval for a rent ceiling surcharge, a housing provider must demonstrate to the Rent Administrator, inter alia,"[t]he amount and cost of the [capital] improvement including interest and service charges." *fn1 Once the housing provider has established the cost of the improvement, the Rent Administrator determines the rent ceiling surcharge, "[i]n the case of a building-wide improvement, by dividing the cost over a 96-month period of amortization and by dividing the result by the number of rental units in the housing accommodation," with no increase to exceed twenty percent of the current rent ceiling. D.C. Code § 42-3502.10 (c)(1). The result is a temporary rent increase for the tenants that expires once the housing provider has recouped the money spent on the capital improvement. See D.C. Code § 42-3502.10 (c)(3). The contested issue before us concerns whether the Rent Administrator must determine the rent ceiling surcharge based on the interest accrued during the life of the loan, or only during a ninety-six-month period.

In November of 1993 and March of 1994, the Housing Provider filed two separate Capital Improvement Petitions (CI 20,666 and CI 20,686) regarding the renovation, replacement and modernization of various fixtures of the Carillon House, a 488-unit rental apartment building located at 2500 Wisconsin Avenue, N.W. In anticipation of the capital improvements, the Housing Provider had secured a multi-purpose loan in the amount of $10,500,000.00 for a term of twenty-five years at an interest rate of 9.675%. It spent a portion of those funds, $131,375.10, to repair the building's chimney and to replace its oil tank (CI 20,666), while allocating an additional $587,240.00 *fn2 to modernize the building's elevator and common area air-conditioning systems, install a new trash compactor, upgrade the security system, and improve other equipment of the building (CI 20,686). Overall, the improvements would total $718,615.10 in expended principal.

In 1994, after the filing of the petitions, the District of Columbia Department of Consumer and Regulatory Affairs, Office of Adjudication ("OAD") held hearings to determine the rate of any rent ceiling surcharge. In CI 20,666, the hearing examiner totaled the cost of the capital improvement at $352,742.15, including $131,375.10 in principal, $218,082.67 in interest, and $3,284.38 in service charges. This calculation included the interest expected to accrue over the twenty-five-year loan term. As a result, the hearing examiner granted a monthly rent ceiling surcharge of $8.00 per unit. In CI 20,686, the examiner adopted the same calculation method with the resulting total cost of the capital improvements to be $1,576,996.84, including $587,240.00 in expended principal, $974,700.84 in accrued interest over twenty-five years, and $15,056.00 in service charges. The result was a monthly rent ceiling surcharge of $35.00 per unit. The Tenants' Association appealed both of these decisions to the RHC, challenging, inter alia, the calculation of interest included in the surcharge.

Although the RHC originally consolidated the petitions, an incomplete record required the remand of CI 20,666, leaving only CI 20,686 before the RHC. In its first decision and order, the RHC affirmed in part and reversed in part, holding that the Housing Provider could recover only the actual cost of the capital improvement, not the cost of the entire loan. In calculating the interest to determine the value of the actual cost, the RHC looked solely to the ninety-six-month period found in Section 42-3502.10 (c)(1). On the Housing Provider's motion for reconsideration, the RHC affirmed this position because it believed the regulations effectively treated the tenants' obligation as the repayment of an eight-year "loan" made to them by the Housing Provider. Thus the statute required repayment of only ninety-six months of interest, the time during which the tenants assumed the capital improvement surcharge. One commissioner dissented, believing the statute mandated the recoupment of all interest incurred by the Housing Provider for the term of the loan it had obtained for the capital improvement.

On remand, the hearing examiner recalculated the rent ceiling surcharge to include only interest accrued over the ninety-six-month period, $258,972.83 - a reduction of $715,728.01. This recalculation reduced the monthly surcharge to $18.00 per unit. The Housing Provider appealed to the RHC both this decision and the decision in CI 20,666, in which the hearing examiner had likewise calculated the rent ceiling surcharge by including eight years of interest, permitting recovery of approximately $57,840.00 in interest. That rent ceiling surcharge was therefore lowered to $4.00 per unit.

Before the RHC a second time, the parties contested only how much interest was properly included in the determination of the monthly surcharge. In this appeal, the RHC altered its interpretation of the statute and reversed the earlier decision, holding that the ninety-six-month provision had no bearing on the determination of total interest, but applied only when computing the monthly rent ceiling surcharge. The statute, according to the RHC, operates as a cost-recovery mechanism enabling a housing provider to recoup all costs, including all interest, associated with capital improvements. Accordingly, it restored the monthly rent ceiling surcharge to $8.00 in CI 20,666 and $34.00 *fn3 in CI 20,686. The chairperson, who had authored the RHC's first decision and order, dissented. This petition for review followed. See D.C. Code § 42-3502.19 (2001).

II. Discussion

"In reviewing the construction of a statute by the agency charged with its interpretation and enforcement, the agency's interpretation is controlling unless it is plainly erroneous or inconsistent with the statute." Slaby v. District of Columbia Rental Hous. Comm'n, 685 A.2d 1166, 1167 (D.C. 1996). Both the agency and the court must look first to the plain and ordinary meaning of the statute, because normally "that is the meaning intended by the legislature." Guerra v. District of Columbia Rental Hous. Comm'n, 501 A.2d 786, 789 (D.C. 1985). But "[w]hile statutory words are to be accorded their ordinary meaning absent indication of a contrary legislative intent[,] . . . statutory meaning is . . . to be derived, not from the reading of a single sentence or section, but from consideration of an entire enactment against the backdrop of its policies and objectives." Gondelman v. District of Columbia Dep't of Consumer & Regulatory Affairs, No. 00-AA-1531, slip op. at 12 (D.C. Jan. 17, 2002) (citation omitted).

According to the Housing Provider and the RHC, the proper calculation of the rent ceiling or capital improvement surcharge involves a two-step process. The first step, in accordance with Section 42-3502.10 (b)(2), is to determine the total cost of the improvements, comprising the actual principal expended on the capital improvement, the interest expected to accrue on that capital over the life of the loan, and any service fees charged to the housing provider. The second step, dictated by Section 42-3502.10 (c)(1), is ...

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