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Class Action Filed Against San Francisco's Largest Apartment Development

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Case ID: 4930 | Family | 10/12/2006

A class-action lawsuit was filed on behalf of a tenant of Villas Parkmerced, San Francisco's largest apartment development with 3,456 units.

The suit alleges that the operator of the 115-acre, 13-tower development “routinely 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. Attorneys for the current owner of the property claim that their client is not engaging in any illegal activity and that Parkmerced's incentive program is under review by the Rent Control Board.

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 complaint alleges that Villas Parkmerced management uses rebate coupons “to obscure the true base rent charged tenants upon initial occupancy.” An example in the filing states that “when tenants agree to rent a unit for $1325 per month, the rental agreement states a monthly rent of $1675 per month subject to an addendum that issues coupons that deduct $350 per month. At the end of the lease term, however, the rent is raised by the amount allowed by the Rent Control Ordinance (which was 1.7% in 2006) based on the $1675 ostensible base rent (as opposed to the $1375 actual base rent) and without the issuance of corresponding rebate coupons,” which in this example results in an actual rent increase of 28%.

“I don’t think you can contract around rent control like that,” the lawyer behind the lawsuit, “I believe if you look at the definition of rent and rent increases in the ordinances you will see that if one uses the plain meaning of the language, I win" says the lawyer that filed the lawsuit.

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 a price believed to be approximately $650 million. Alliance Residential is the property manager.

The lawsuit seeks to represent residents of Villas Parkmerced Apartments located in San Francisco.


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