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SAN FRANCISCO-The San Francisco Rent Control Board this week denied an appeal by the owners of the Villas Parkmerced, affirming an Administrative Law Judge’s September decision that a rebate coupon incentive program used to attract tenants to the 3,456-unit apartment complex resulted in unlawful rent increases. The vote was 3 to 2, with the two landlord representatives on the board voting not to deny the appeal and the two tenant reps and the “neutral party” voting in favor of denying the appeal.

The owner of Parkmerced, a joint venture of New York City-based Stellar Management and Rockpoint Group, a Boston-based investment and management firm, inherited the rebate coupon incentive practice when it acquired the development one year ago from a joint venture of locally based Carmel Partners and JP Morgan of Boston for approximately $650 million. Stellar management principal Robert Rosania tells GlobeSt.com ownership will appeal the ruling in Superior Court.

Between the Administrative Law Judge’s decision and its affirmation by the Rent Control Board, attorney Peter Fredman of Brayton Purcell filed a lawsuiton behalf of two tenants of Villas Parkmerced that he hopes will gain class-action status. Similar to the petition filed with the Rent Control Board, the suit alleges that the operator of the 115-acre, 13-tower development “imposes rent increases that violate San Francisco’s Rent Control Ordinance” and asks for tenants’ rents to be restored to their legal maximums and for restitution of all monies unlawfully obtained.

San Francisco’s Rent Control Ordinance allows a landlord to raise the rent on a unit to market rate after the unit is vacated. Once this new rent is set, however, the rent is again controlled during this tenant’s occupancy, allowing the owner to raise rents based on 60% of the CPI, with a maximum annual increase of 7%.

The lawsuit alleges that when its plaintiff’s agreed to rent a unit (at Parkmerced) for $1,325 per month, the rental agreement stated a monthly rent of $1,675 per month subject to a contemporaneous addendum that issued coupons that deduct $350 per month. At the end of the lease term, however, the rent was raised by the amount allowed by the Rent Control Ordinance (which was 1.7% this year) based on the $1,675 ostensible base rent (as opposed to the $1,375 actual base rent) and without the issuance of corresponding rebate coupons, which resulted in an effective rent increase of 28%.

In a prepared statement, Fredman, the plaintiff’s attorney, says he was “not surprised” by the Rent Control Board’s decision because it made the same ruling on the same practice in April 2004. “…the Villas Parkmerced kept doing it because the Rent Board jurisdiction is very limited and only extends to the particular tenant who brings the petition,” Fredman says. “That’s why we brought this class action: to obtain relief for all tenants and former tenants who have been injured by this practice.”

Beyond confirming the planned appeal of the Rent Board’s decision, Rosania referred questions to his attorneys, David Wasserman and Daniel Stern of Wasserman Stern. Stern referred questions to a publicist who provided the following written statement:

“The incentive program was simple: it gave various amounts of “Bonus Bucks” to tenants as an incentive/reward for signing a lease. Bonus bucks could be applied as a rent credit in any manner the tenant saw fit. It was a variation of the industry’s standard “first month free with lease signing” offer, but with some added flexibility.

“Over the past year, the Rent Board has been reviewing this discontinued incentive program. Their review has determined that it was not fraudulent in any way. The decision to apply the incentive offer in the establishment of base rent, reducing the base rent contractually agreed to, is an unprecedented action that violates the constitution and will have a chilling effect on incentive programs in San Francisco.”

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