5.13.060 Capital improvements pass-through cost recovery.
(1) A landlord may pass through 50 percent of capital improvement costs to existing tenants in covered rental units in accordance with the provisions of this section.
(2) Capital improvements must be for the primary benefit, use and enjoyment of tenants, cost-factored, and amortized over a useful life of at least five years, and permanently fixed in place or relatively immobile and appropriate to the use of the rental property.
(3) Capital improvements eligible for pass-through cost recovery include, but are not limited to:
(a) The addition, but not the replacement, of the following improvements to a rental unit or common areas of the building in which the rental unit is located: air conditioning, security gates and other security items, swimming pool, sauna or hot tub, fencing, children’s play equipment permanently installed on the premises, and other similar improvements as determined by the department.
(b) Replacement or substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit pursuant to state or local law.
(c) Abatement of hazardous materials, such as lead-based paint, mold or asbestos, in accordance with applicable federal, state, and local laws.
(4) Capital improvements cannot include regular maintenance or repairs from wear and tear, or be the result of a landlord’s failure to perform regular maintenance and repairs, or repairs covered by insurance.
(5) Application Process.
(a) A landlord must apply to the department for recovery of capital improvement costs, on a form approved by the department, within 12 months from the date of completion of the capital improvement.
(b) The capital improvement cost recovery application must contain the following information, and be accompanied by copies of relevant supporting documentation:
(i) A description of the completed capital improvement;
(ii) A copy of all estimates, contracts, bills, invoices, and other documentation reasonably necessary to establish the cost of the capital improvement;
(iii) The proposed amortization period to be used based on the department’s procedures and guidelines, if the period differs from 60 months;
(iv) A list of tenants that will be affected by or benefit from the capital improvement;
(v) The formula used to calculate the pro rata share of each tenant;
(vi) The monthly cost to each affected or benefiting tenant;
(vii) The commencement and completion dates of the capital improvement; and
(viii) Such other information as the department may reasonably request.
(c) Within five calendar days after submission of the application with the department, the landlord shall serve each affected tenant with notice of the application via personal service or certified mail return receipt requested. The notice must include a copy of the application.
(d) Within 10 calendar days after submission of the application, the landlord shall file with the department a proof of service signed under penalty of perjury stating that a copy of the application was served upon the affected tenant(s). Such proof of notice is required before the application will be reviewed by the department.
(6) A landlord may not pass through costs of capital improvements to tenants until the department approves the landlord’s application and the landlord registers each affected rental unit and pays any required annual registration fees pursuant to CMC 5.13.100.
(7) No pass-through cost recovery shall be approved in an amount that would exceed five percent of the rent in effect at the time the pass-through application is filed with the department. If the total amount of calculated pass-through costs would result in an increase that exceeds five percent, the pass-through cost amortization period may be extended beyond the established amortization period to allow the landlord to recover eligible capital improvement costs while not exceeding the maximum increase authorized by this subsection.
(8) A landlord shall provide written notice of an approved pass-through cost to tenants in accordance with California Civil Code Section 827 and the notice shall be delivered at least 30 days before the approved pass-through cost takes effect.
(9) The approved pass-through cost should appear as a separate line item on a rent statement along with the end date of the amortization period and any remaining pass-through balance. An approved pass-through cost is not considered rent for purposes of this chapter.
(10) Pass-through cost recovery applications will be considered and determined by the director in accordance with guidelines and procedures established by the department; and the director’s determination may be appealed to a hearing officer in accordance with the procedures set forth in CMC 5.13.130. (Ord. 736 § 2 (Exh. A), 2023).