The Saint Paul ordinance passed by voters in November of 2021 prohibits a rent increase for a residential property of more than 3% each year. The ordinance also required the City of Saint Paul to establish procedures for landlords to request exceptions to the 3% limit based on their right to a reasonable return on their investment. The ordinance took effect on May 1, 2022, and Saint Paul issued final rules to accompany the ordinance on April 29, 2022.
They provide additional details on what will be considered by Saint Paul to allow rent increases or decreases under the following exceptions from the ordinance:
- Increases or decreases in property taxes
- Unavoidable increases or any decreases in maintenance and operating expenses
- The cost of planned or completed capital improvements to the rental unit (as distinguished from ordinary repair, replacement, and maintenance) where such capital improvements are necessary to bring the property into compliance or maintain compliance with applicable local code requirements affecting health and safety, and where such capital improvement costs are properly amortized over the life of the improvement
- Increases or decreases in the number of tenants occupying the rental unit, living space, furniture, furnishings; equipment, or other housing services provided, or occupancy rules
- Substantial deterioration of the rental unit other than because of normal wear and tear
- Failure on the part of the landlord to provide adequate housing services or to comply with applicable state & local rental housing laws, health and safety codes, or the rental agreement
- The pattern of recent rent increases or decreases
Excerpts From Chapter 193 of the Legislative Code (Title XIX)
The rules state that landlords have “the right to obtain a net operating income equal to the Base Year net operating income adjusted by 100% of the percentage increase in the Consumer Price Index.” The Base Year is either 2019 or the last year a petition under this ordinance was filed for the property. Either the tenant or the landlord may present evidence to show that the Base Year net operating income is not reflective of a reasonable return. This would include expenses in the Base Year being unusually high or low or other exceptional circumstances that caused the Base Year’s net operating income to be disproportionately low.
Rent Stabilization, Chapter 193 A: Standard for Reasonable Return
The rules provide details on what will and will not be included in the ordinance's net operating income. The rules also state that Saint Paul cannot apply the ordinance or rules in a manner that would inhibit the landlord’s constitutional right to a reasonable return. The increase in the maximum allowable rent based on net operating income shall not exceed 15% per year from the date the petition is filed. Any additional rent increase granted over 15% will be deferred to future periods.
Rent Stabilization, Sec B1: Standard for Capital Improvements
Saint Paul will consider capital improvements as operating expenses. The amortized cost of capital improvements plus an interest allowance (based on the rate published by Freddie Mac) is specifically included in operating expenses used to calculate the landlord's net operating income. Saint Paul’s rules define a capital improvement as “an improvement to a unit or property which materially adds to the value of the property, appreciably prolongs its useful life, or adapts it to a new use, and has a useful life of more than one year and a direct cost of $250.00 or more per unit affected.” Saint Paul’s rules establish a procedure for landlords to request a rent increase based on anticipated capital improvements. While the rent increase would be granted in anticipation of the improvements, the rent increase is postponed until the capital improvement is completed. [1]
Rent Stabilization, Sec. 193A.04: Occupancy Changes
Suppose the rules are implemented, and the number of tenants allowed to occupy a unit as their principal residence increases from the amount allowed on May 1, 2022. In that case, the rent for such a unit can increase by 15% per additional tenant allowed to occupy the unit as a principal residence. Any increases in rent due to additional occupancy are terminated if the allowed occupancy is reduced back to the original occupancy. [2]
Rent Stabilization, Sec. 193A.05: Changes in Space or Services
Adding space or services for the benefit of tenants can increase the maximum allowable rent under the ordinance with the tenant's written consent. As detailed above, the change in inhabitable space would be included as a capital improvement. The increase in services or an increase in non-habitable space would allow for a rent increase equal to the “commercially reasonable value” of the services or space.
Rent Stabilization, Sec. 193A.06: Decrease in Maximum Allowable Rent
If the landlord was aware of the changes, the rules would provide for downward adjustments for decreases in services or living spaces that were in place on May 1, 2022. The tenant cannot purposefully decrease the space or services for a maximum allowable rent reduction. Failure to comply with the code and the Warranty of Habitability will reduce the maximum allowable rent. The tenant would need to file a petition to request these decreases.
Requests for Exceptions
To implement a rent increase in St. Paul of more than 3%, a landlord needs to demonstrate that an exception is necessary for the landlord to get a reasonable return. If requesting an exception for an increase of rent between 3% to 8%, the landlord can use the self-certification process. Though, if requesting an exception for an increase of over 8%, the landlord needs to use the staff-determination process. The landlord will send in a completed Rent Increase Exemption request for the self-certification process. The landlord must retain all required records and worksheets to substantiate the request. The self-certification request could be subject to city audit; however, once the landlord receives confirmation that the city received their request, the request is considered approved. The city staff will review submissions for staff-determined requests and decide whether to approve or deny them. Landlords and tenants can appeal the city’s determination within 21 business days of the determination.
*This article is not legal advice.
If you have any questions on the Saint Paul Rent Stabilization Ordinance or wish to request an exception, you can contact the attorneys at Kennedy & Ruhsam Law Offices at (651) 369-7749.