Reasonable Return on Investment
To enforce the Ordinance, rules have been designed to clarify how requests for an exception to the 3% rent cap will be considered, including the types of information needed to make a determination on a landlord’s request for an exception. The criteria seek to balance the interests of stabilizing residential rents while providing landlords the right to a reasonable profit. City Council also approved definitions for key words, to help clarify terms used in the Ordinance.
Section 193A.05 of Ordinance lays out seven factors that the City will consider when determining whether a landlord’s request should be granted.
The following rules specify how landlord requests will be evaluated. Landlords may apply for an exception under any one of the issues listed below; however, all factors must be considered when making a final determination.
All rental units must be considered safe and habitable in order to be considered for an exception for rent increase.
- Reasonable return standard: Maintenance of Net Operating Income (MNOI) will be used as the means to evaluate a reasonable return, considering increases in property taxes, insurance and operating costs, and other factors, relying upon a base year of 2019.
- Planned or completed capital improvements: Certain improvements add to a property’s value and prolong its useful life over more than one year. This includes costs beyond ordinary maintenance or repair but not repairs needed for the property to meet local property code standards. Amortized costs of capital improvements will be considered subject to certain conditions listed in the rule.
- Changes in the number of tenants: Increases or decreases in the number of people living in a rental unit, permitted by the rental agreement in effect on May 1, 2022, may affect the rent allowable for a unit. Grounds for tenant objections to the accuracy of the information submitted are also found in this rule.
- Changes in space or services: Clarifies how the City will evaluate requests when a landlord adds or reduces space or services; if the property has deteriorated; any failures to provide adequate services and more.
- Pattern of increases or decreases in rent: Consumer Price Index (CPI) as the basis for determining a pattern of rent increases or decreases. Learn how the Bureau of Labor Statistics makes this determination.