Washington D.C. Sues Landlord of Rent-Controlled Building

The District's top lawyer is challenging rent discounts used by certain property owners to entice tenants under allegedly false premises.

In a lawsuit filed on Wednesday, D.C. Attorney General Karl Racine says a landlord practice known as "rent concessions" is misleading renters about how much they should expect to pay when their leases come up for renewal. Chicago-based real estate company Equity Residential, which owns and manages 3003 Van Ness Apartments through affiliate Smith Company Holdings, has offered concessions to prospective tenants. But the discounts, per Racine's civil complaint, aren't clearly defined and ultimately may undermine rent control.

As City Paper reported last year, Equity advertises apartments in the roughly 600-unit Ward 3 complex at prices that are lower than what the company considers their true prices. The difference in those values-usually hundreds of dollars, depending on the unit-size and the current rental market-is the so-called concession.

The listed prices are what tenants would pay in rents for their first year. Many new tenants, however, don't realize that Equity will seek to raise their rents based on the higher prices the next year. For example, a one-bedroom apartment initially advertised as costing $1,800 per month will have a true $2,400 per month price, and a $600 discount will apply. Several weeks before a tenant's lease is up, Equity will inform them that their rent increase would be derived from the $2,400.

Often, this catches tenants off guard. Either they have to accept significantly higher rents with lower concessions, negotiate with Equity over prices, switch to month-to-month leases-at more expensive rates-or move out on short notice. Some tenants call the practice a bait-and-switch.

It also arguably subverts the District's rent-control laws, which apply to most properties built before 1975. In D.C., rent control generally restricts allowable raises in rent to 2 percent of a tenant's existing rent plus the Consumer Price Index, a measure of inflation (the CPI is 1.1 percent as of today). There are certain exemptions to these laws that let landlords increase rents beyond this amount.

In the case of the hypothetical $1,800 per month apartment, then, a tenant would reasonably expect to pay no more than $1,856 under a subsequent lease. Instead, Equity says the true rent the following year is $2,475 a month, and tenants may or may not get a discount.

Racine's office alleges that Equity has engaged in "unlawful trade practices" by failing to disclose to tenants what their true rents are and the fact that rent discounts change from year to year. It says Equity misleadingly suggests that D.C. sponsors such concessions.

In a statement, Racine says "landlords should clearly inform consumers up-front about the base rent from which subsequent increases will be calculated." His office is bringing the case under the District's consumer-protection laws and asking for rent restitution and fines.

A spokesman for Equity's corporate office did not respond to a request for comment. Equity manages over 45 residential communities in the D.C. area, more than a dozen of which are located in the city's Northwest quadrant. It oversees more than 300 properties nationally.

The case comes as the District faces an affordable housing crisis in which rent-controlled buildings are perceived as a bulwark against rising prices. A 2011 study by the Urban Institute found there were about 80,000 units in the District "potentially subject to rent control."

This is not the first time that rent concessions have faced litigation. Last summer, a former prospective tenant of another rent-controlled building in Ward 3 (not owned by Equity) suedthat building's owners and the property management companies they'd hired. This case is still pending and differs from Racine's lawsuit in that the plaintiff never moved in. But it also relies on consumer-protection arguments.

Meanwhile, District lawmakers could soon implement a legislative fix to the problems rent concessions pose by requiring greater clarity about when and how the concessions can be applied. The D.C. Council is considering a bill meant to do that, but it hasn't gone through committee.

"Dozens of tenants have come to me for help fighting the 'concessions' scam," says Harry Gural, the president of the tenant association at 3003 Van Ness Apartments. Gural has also established a nonprofit focused on this issue. "It has cost them a lot of anguish and a lot of money. I'd like to thank the Attorney General for taking on this case. But what we're seeing in my building is just the tip of the iceberg."

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If you are a landlord and is facing a similar problem, call the Nawash Law Office for representation.