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Recent Developments in PA Rental Registration and Inspection Cases

By: Bradley S. Dornish, Esquire

The last few months have seen several important developments in rental registration litigation in Pennsylvania. The most recent development was a series of Commonwealth Court decisions on May 17th, which will have a significant impact on the pending rental registration cases challenging Pittsburgh’s rental registration ordinance. Those cases, Building Owners and Managers Association of Pittsburgh v. City of Pittsburgh et. al., at No. 100 C.D. 2016 and No. 102 C.D. 2016, and Pennsylvania Restaurant and Lodging Association, et.al. v. City of Pittsburgh, at No. 79 C.D. 2016 and No. 101 C. D. 2016, were both appeals of decisions by Allegheny County Court of Common Pleas Judge Joseph James, in which Judge James had found city ordinances, one requiring City employers to give all employees sick time off under a specific set of rules, and the other ordinance requiring security guards and building service employees in Pittsburgh buildings to receive training on emergency response to exceed the City’s authority to regulate employers under its Home Rule Charter.

In both cases the Commonwealth Court en banc , meaning seven of the judges of that court together, rather than a panel of three, affirmed Judge James’ decision that the ordinances exceeded the City’s authority under its Home Rule Charter to regulate employers. These decisions are very positive signs for the rental registration cases against the City, which are now pending in front of the same Judge James in the Court of Common Pleas of Allegheny County.  That is because the landlords’ and real estate agents’ attorneys in the rental registration cases made the same argument that the rental registration ordinance exceeded the City’s authority under the Home Rule Charter.

Not only are those arguments made in briefs which we filed with the court many months ago, but Judge James had also stayed further proceedings in the rental registration cases while waiting for the Commonwealth Court rulings on the cases above. When he did that, he indicated that he preferred to wait to see what the Commonwealth Court decided in those cases, so he would not be reversed on three similar cases. This suggests that the Judge is inclined to rule that the Pittsburgh rental registration ordinance likewise exceeds the City’s authority under its Home Rule Charter.

On May 30th, Judge James advised that he is now ready to move forward on the rental registration case, with additional briefs and argument by the attorneys to take into account the recent decisions of the Commonwealth Court.  We expect to get dates for those briefs and argument in June, and could get the court’s decision on the Home Rule Charter issue this Summer.  Even if the decision is in our favor, and the ordinance is invalidated by Judge James, the City could still appeal, and the case could go until well into 2018.

Unfortunately, a decision invalidating the City of Pittsburgh’s rental registration ordinance on the basis of exceeding its authority under its Home Rule Charter will not invalidate all other such ordinances, even if the decision is appealed to Commonwealth Court and affirmed there. That is because most PA municipalities are not home rule municipalities, so the decision on that basis would have no bearing on their ordinances.

The other rental registration case we are following is now pending in Pennsylvania appellate courts. The case of Costa, et. al v. City of Allentown, was decided in the Commonwealth Court at No. 826 C.D. 2016, with an opinion filed January 12, 2017. That decision does affect all other rental registration ordinances in Pennsylvania, and the cases pending in the courts to challenge those ordinances, such as the cases against the Erie and Pittston ordinances.

In the Allentown case, there was a non-jury trial in the Court of Common Pleas of Lehigh County, and the primary issue in that trial was whether the $75.00 annual fee for rental registration in Allentown was an amount which covered the City’s costs of administering the registration program, and therefore a legal and proper fee, or whether that amount was substantially in excess of the costs of the registration program, and therefore an illegal tax on residential rental properties in violation of the Local Tax Enabling Act, 53 P.S. Section 6901 et. seq.

The Local Tax Enabling Act (LTEA) is the PA state law keeping control of the power to tax in the state legislature, except for certain specific types of taxes which the legislature has specifically authorized municipalities and school districts to charge.  For example, a few years ago when the City of Pittsburgh tried to fill a budget shortfall by raising its occupational privilege tax on those who work in the City from $10.00 per year to over $50.00 per year, the City had to go to the State Legislature and get the legislature to amend the LTEA to allow the City to impose that exact tax on those who worked there. The legislature amended the LTEA, and Pittsburgh has collected the extra tax ever since.

In Allentown, the City had imposed rental registration, with inspection every five years, beginning in 1999. The original license fee was $11.00 per year per residential rental unit, and climbed to $21.00 per unit by 2009. In 2010, the City more than tripled its annual license fee to $75.00 per unit per year, and landlords in the City thereafter filed suit seeking a declaration that the $75.00 annual fee was an unlawful special tax, an injunction against the collection of the fee, and a refund of the fee paid by all landlords in the City since 2010.

At trial, the landlords and the City each had accountants as expert witnesses. The landlords’ accountant, Robert Boland analyzed the amount of revenue collected by the City from the $75.00 fee, looked only at the direct costs to the City associated with the registration and licensure of rental units and inspections, and testified that the revenue generated by the $75.00 annual fee on 24,000 units, roughly $1,800,000.00 per year, grossly exceeded the costs of the program and therefore constituted an illegal tax. Boland looked at the city’s personnel costs related to the rental registration, licensing and inspections, and certain direct costs like vehicle maintenance, vehicle insurance and fuel, cell phones for inspectors, and increased computer costs of the City.

The City’s expert accountant, Trevor Knox did a different analysis of the costs of the rental registration and licensing, called a “full cost” approach. In his analysis, Knox considered the rental program as a comprehensive program regulating all activities of the City related to residential rental units. Knox more broadly allocated personnel costs to the program, including $223,000.00 per year for wages of City personnel who performed general services not specific to rental registration, and $165, 566.00 in general City overhead. He also allocated $482,285.00, a substantial amount of the City’s police budget, to the rental program based on a finding that there had been a disproportionate number of police calls to residential rental units, as opposed to commercial properties and owner occupied homes.

Even with these allocations of additional costs over $900,000.00,constituting over half of the total revenue collected by the City, and additional allocation by Knox of the cost of certain code enforcement functions like boarding up vacant properties, complaint inspections, emergency sewer issue responses and social services to tenants living in substandard conditions, Knox concluded that the total costs which he allocated to the rental program were about 15% below the revenue generated by the $75.00 fee per unit, resulting in general revenue to the City of over $250,000.00 per year.

The trial judge rejected Boland’s testimony, accepted Knox’s testimony, and concluded that for all practical purposes, the costs of the Rental Program equaled the revenues generated by the $75.00 annual fee.

On appeal to the Commonwealth Court, the landlords made the argument that only the direct costs associated with the registration of each unit, the inspection of each unit, and disruptive conduct reporting costs should have been considered by the trial court, since those were the only costs which were created by the ordinance, and which would disappear if the Rental Program created by the ordinance ended.  The Commonwealth Court rejected the landlords’ argument, and affirmed the trial court decision in favor of the City.

The Commonwealth Court explained its decision by finding that the landlords’ attempt to limit the calculation of the City’s costs to direct costs was too narrow.  Judge Brobson, writing an opinion in which Judges Wojcik and Pellegrini joined, explained the Court’s decision that the City was allowed to add some indirect costs related to the Rental Program to its calculation of cost of the program, including some pre-existing budget items which were redirected to the Rental Program.  Judge Brobson stated” In essence, the governmental unit is permitted to reallocate or redirect existing costs to a newly established program if additional burdens are placed on such governmental unit’s existing services.”

In applying the “additional burdens” standard to Allentown’s allocation of costs to the Rental Program, Judge Brobson explained that some costs like the time police took to track and report disruptive conduct of tenants, and some part of the salaries and benefits of City employees who worked in other departments but spent some of their time performing functions for the Rental Program, were reasonable to allocate as costs of the program. However, the judge also explained that certain other indirect costs included by the City’s expert would not be properly attributable to the Rental Program. Those costs included general administrative overhead supporting the City as a whole, and any code enforcement functions not related specifically to the Rental Program, such as costs to board up vacant properties, responding to emergency sewer issues, or assisting social services agencies with conditions at residential rental properties.

Judge Brobson’s opinion thus gave a good bit of guidance on how to analyze allocation of indirect costs in rental registration cases under his “additional burdens” standard. In the Allentown case, however, the Commonwealth Court did not go through each allocation of indirect costs made by the City. Instead, the court stopped its analysis once it found that the landlords had taken an all or nothing approach, arguing that only direct costs of the program could be allocated by the City. The court found that the landlords had the burden of proof of showing which indirect costs were not reasonable to allocate to the program, and by not getting into the details of those costs, did not meet their burden.

To be fair, the landlords not knowing the standard the Commonwealth Court, or even the trial court would apply at the time they engaged in discovery, it would have been extremely difficult to anticipate correctly. And since the Allentown decision has been appealed to the PA Supreme Court, and is awaiting its decision whether to allow the appeal, we can’t presume that the additional burdens standard will remain the law in Pennsylvania. Landlords would certainly prefer a direct costs analysis like that presented by the landlords in Allentown.

If the PA Supreme Court allows the appeal and reverses the Commonwealth Court, we could get a better standard against which to hold ordinances in future cases. For the time being, however, the standard explained by Judge Brobson in his Allentown decision is the current law in Pennsylvania. That means we have changed our approach to arguing the reasonableness of rental fees in other pending cases. In cases from Erie to Pittston, we are developing through additional discovery whether there are indirect costs which those cities can show they reasonably allocate as costs of their rental programs, as creating additional burdens on existing city services. We will also have our expert witnesses analyze the direct costs of such programs separately from the indirect costs, so that we can be prepared if the PA Supreme Court reverses the Commonwealth Court decision in the Allentown case on appeal while our other cases are still pending.  It is likely to be a very interesting year for rental registration cases in PA. Look for more updates to come!

The author, Bradley S. Dornish is a licensed attorney, title insurance agent and real estate instructor in Pennsylvania.  He can be reached at bdornish@dornish.net.

June 2017

Use of Criminal History to Deny Rental Applicants and Fair Housing

By Bradley S. Dornish, Esq.

For many years I have used criminal records histories to screen applicants for my own rental properties, and taught others how to search online for PA criminal records histories of their own rental applicants. I have done this without considering the race, national origin, religion, sex or familial status of the applicants. I have had and helped others develop policies to apply only convictions of significant crimes, such as felonies, crimes involving violence, drug dealing, domestic abuse, forgery, theft by deception and extortion as litmus tests to deny an applicant the opportunity to rent housing. I have always told my clients that one being convicted of a crime does not make one a member of a protected class, and that fair and uniform application of non-discriminatory criteria for tenant screening is appropriate and legal.

I have counselled against using mere arrest records without conviction, except if the arrest is recent and a case involving potential incarceration of the applicant. The exception is based on the risk they will not be able to continue employment and pay the rent, or occupy the property, if incarcerated during the lease term.

Growing up, I remember well when my parents rented to a nice, normal appearing family of four without running a criminal check, only to learn later that the husband was on probation following conviction and incarceration for burglary. They learned this after other apartments in the building were broken into several times, with no apparent forced entry to the building, and missing furniture, TV sets and small appliances were all found in the new tenants’ apartment.

My practices in tenant screening and those I advise clients to follow are changing, based on a developing line of cases and the guidance on fair housing recently issued by HUD’s Office of General Counsel.

The “Disparate Impact” cases find employers and housing providers liable for discrimination without the need for any intent, if the practices they follow which are not otherwise discriminatory cause a disparate impact on a protected class. The logic is that if reading the entrails of sacrificed animals is an important religious practice of Zoroastrians, and you restrict the practice without showing a legally sufficient justification for the restriction, you are liable for discriminating against Zoroastrians.

On April 4th, 2016, the office of General Counsel of the U.S. Department of Housing and Urban Development, HUD’s legal department, issued its “Guidance on Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate Related Transactions”. Basically, this guidance is a ten page explanation of how use of criminal conviction histories has discriminatory effects on African Americans and Hispanics because there are higher rates of convictions and incarceration among those populations then the average for the entire population.

The first step outlined by HUD in its guidance is determining whether the landlord’s criminal history practice has a discriminatory effect. HUD’s guidance quotes studies showing nearly one third of the population of the U.S. has a criminal record. For 2013, HUD cites statistics that African Americans were arrested at a rate more than double the population as a whole, and make up 36% of the prison population, but only 12% of the U.S. population.  HUD further cites data that Hispanics make up 22% of the prison population, but only 17% of the total U.S. population. By contrast, non-Hispanic Whites comprised 62% of the population, but only 34% of the prison population. Thus, the imprisonment rate for African American males is almost six times that for White males, and the rate for Hispanic males is over twice that for non-Hispanic White males.

HUD concludes that although these are national statistics and state and local statistics may be relevant to show differing conclusions, in the absence of different statistics, these statistics show reasonable cause to believe blanket use of conviction records would have a disparate impact on African American and Hispanic populations, and therefore have a discriminatory effect.

The second step of HUD’s analysis is evaluating whether the landlord’s criminal records policy is necessary to achieve a substantial, legitimate, nondiscriminatory interest.  If HUD has found the discriminatory effect in step one, the burden in step two shifts to the landlord to prove that the challenged policy or practice is justified. That means the landlord has to provide evidence that the landlord has a substantial, legitimate, nondiscriminatory interest in using the criminal records policy it has, AND evidence that the policy is successful in achieving that interest or result. Blanket statements that “we do this to protect other residents’ will not cut it. You have to show evidence that your policy works.

In this part of its analysis, HUD comments that exclusion because of prior arrests not resulting in conviction will certainly fail to meet the landlord’s burden. Further, exclusions based on prior conviction without considering the nature of the conviction, the length of time since the conviction, and what the person has done since will also most likely fail.  In order to successfully exclude persons from tenancy based on prior convictions, HUD directs that the landlord must show that the way it uses conviction records accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or criminal conduct that does not.

No more rejection of convicted embezzlers, forgers and tax evaders would appear to be available under this standard.  As I recall, the only significant thing Al Capone, the notorious Chicago gangster was convicted of was income tax evasion. He never had a conviction for his role in the St. Valentine’s Day massacre. A policy as directed by HUD would appear to mean Al Capone would qualify to rent your property.

The third step is evaluating whether there is a less discriminatory alternative to achieve the same result. Even if a landlord proves its policy of using conviction records actually works to provide a safer place for its tenants to live, HUD gives the prospective tenant an opportunity in its third step to show the landlord’s goal could be met by a different screening process which would not prevent the applicant convicted of the crime which would pose a risk to tenant safety from being approved as a tenant. HUD suggests the tenant can show the facts or circumstances surrounding the criminal conduct, such as age at the time of the crime, evidence of being a good tenant before and/or after the conviction, and evidence of rehabilitation.

HUD also suggests that a landlord delay consideration of criminal history until after financial (credit and employment) requirements are met, to minimize the costs to the landlord associated  with a more thorough and individualized review of the tenant’s criminal history. All this time, I thought I was doing tenants a favor by screening criminal records first, and refunding their fee for a credit report if I rejected on criminal history first.

One type of criminal conviction can absolutely still be a bar to tenancy, without violating the Fair Housing Act. Section 807(b)(4) of the Act provides that  refusing rental to one convicted of “illegal manufacture or distribution of a controlled substance” does not violate the Act. Note that conviction is required, and it must be for drug trafficking, not possession.

So, what is a landlord to do? Stop automatic litmus tests for conviction records as a bar to tenancy, except for drug trafficking convictions.  Consider the length of time since the conviction, the nature of the specific offense and its relation to the safety of other residents, and consider what the prospective tenant has done both before the conviction and rehabilitation since the conviction before rejecting the applicant. Maybe it is easier to run the credit report and verify employment first!

The author, Bradley S. Dornish is a licensed attorney, title insurance agent and real estate instructor in Pennsylvania.  He can be reached at bdornish@dornish.net.


May 2016

Facts and Figures about Pittsburgh’s anticipated 2016 Rental Registration Ordinance

By Bradley S. Dornish, Esquire

In November of 2014, the Pittsburgh City Council had a public hearing on Ordinance 2014-1020, the Residential Rental Housing Registration Ordinance which would impose on each residential rental unit in the city a $65.00 per year registration fee. That hearing was well attended by landlords and others who objected to the ordinance as an attempt to impose a new tax only on residential rental units.

The proposed ordinance 2014-1020 is based on the draft ordinance negotiated between the city and groups which sued the City over the last attempted rental registration, but eliminates any inspections, removes the escrow of funds collected and other key terms of that draft ordinance, and leaves only a $65.00 per unit per year registration fee, increased from $12.00 per year in the prior draft ordinance, with exemption for hotels, motels, bed and breakfast establishments expanded to include public housing units, dormitories, certified rehabilitation facilities and long term medical care facilities. The ordinance proposed also allows owners who do not reside in Allegheny County to designate a responsible local agent for acceptance of legal notices, or to accept certified mail of legal notices at the owner’s address.

The ordinance was deferred for one year, and is now pending in the Council’s Public Safety Services Standing Committee, where it can be voted into law at any Standing Committee meeting or regular Council Meeting. No further public hearings are anticipated, and the revenue from the ordinance, anticipated to be $1,620,000 per year, is reflected as Account #42339 in the pending City Budget.

On November 18th, I attended the Standing Committee meeting, and was given five minutes to address the members of council present. I advised council that I was a City building owner, landlord, director of ACRE and Chairman of the board of PROA. I also advised council that I was a lawyer who represented plaintiff organizations against the City in 2007 and 2008 when we fought against the registration. I told them I strongly believed the proposed ordinance would raise revenue beyond the cost of registration, and therefore constitute a tax passed in violation of the Local Tax Enabling Act.

I reminded council members present that Act required state legislative approval of the increase in Pittsburgh’s Occupational Privilege tax just a few years ago, and the same would be required of any new type of tax. I also reminded them that we had received information from former City Solicitor George Specter just a few years ago that the cost to the city then of rental registration was between six and twelve dollars per year.

More than one member of council was supportive of my position, but a vote is anticipated and it will likely pass before the end of 2015. Contact the members of City Council where you own properties to express your objection to this proposed illegal tax, and your willingness to support Acre’s and other landlord groups’ fight against this tax once again.

PROA Regroups for the Long Haul on Student Housing Legislation

By Bradley S. Dornish, Esquire

After over a year of hard work finding the right language, a committed sponsor in the legislature, and the right timing to move forward, we had in HB 809 sponsored by Representative Sue Helm a vehicle we believed would protect students who wanted to rent off campus housing and the landlords who wanted to rent to them from arbitrary, biased and prejudicial local ordinances being passed in many cities and towns throughout Pennsylvania.

Some, like the City of Pittsburgh’s ordinance, limit the number of unrelated persons who can live in a single rental home or apartment. The magic number in Pittsburgh is three, and we have seen landlords with even four or five bedroom rental properties prosecuted by city code enforcement officers and fined hundreds of thousands of dollars, yes hundreds of thousands for renting to more than three unrelated persons. Other municipalities like Greensburg license student housing separately from other rental units, dictate in which areas of town students are permitted to live, and require that a student rental unit not be within 500 feet of another student rental.

HB 809 addresses both of these types of arbitrary restrictions, and if passed, will make ordinances which discriminate on the basis of matriculation subject to being invalidated by court action. On July 20th, a hearing was scheduled in front of the House Municipal Government Committee, and PROA affiliates from West Chester to Harrisburg to Erie and Meadville, and of course Pittsburgh, prepared to testify.

My written testimony traced the problems I have seen with Pittsburgh’s ordinance since the 1980s, beginning with the owners of a building I lived in as a law student. Those owners sued to get a variance to allow four students to rent two bedroom, two bath units in a high rise building nestled between Duquesne University’s old gym, Rockwell Hall, Fisher Hall and the Liberty Bridge. Clearly, the owners thought, this was not the type of building or location which the city intended to restrict to only three students per unit. The owners were wrong, and after years of expensive litigation, Pennsylvania appellate courts upheld the city’s right to limit student housing, and left it to the legislature to change the law. The owners sold the building to Duquesne University shortly thereafter, and the university houses as many students in the building as it sees fit, since college dorms are not subject to the city ordinance.

Other witnesses provided testimony about the effects of ordinances in other parts of the state on both landlords and students, including non-traditional students like returning veterans and how even married students with jobs could be affected by ordinances like that in Greensburg.

But Representative Kate Harper postponed the hearing several times, for various reasons, and by the time we had the opportunity to testify, well organized municipal groups opposing the passage of HB 809 including officials and landlords who lived in different college towns, were mobilized to speak and write to legislators against the bill. Witnesses told anecdotal stories of students urinating in public, having loud parties on weeknights lasting into early morning hours, of student cars making crowded streets unsafe, and students failing to keep houses yards and porches in a manner consistent with neighborhood standards. Municipal officials had Powerpoint presentations with charts showing that neighborhoods with student housing had not several times or even ten times the police calls as non-student neighborhoods of similar square mileage, but a hundred times the police calls, putting a terrible strain on municipal services and stress on their neighbors.

Witnesses supporting the passage of HB 809 were drowned out by the emotional pleas, disturbing anecdotes and incredible statistics presented by opponents. Some commented that if an ethnic, racial or religious minority had been substituted for the word student in the testimony of opponents, the prejudicial, over reaching bias of the testimony would be apparent to anyone. None of the opponents acknowledged that non-discriminatory ordinances already exist against things like loud parties disturbing the peace, public intoxication and public urination. In fact, they claimed the only way to deal with those activities is to keep most or all students out of their neighborhoods, since offending activities begin and end too quickly for police to prosecute if the students are there.

If you would like to hear some of the testimony, one supporting witness, and two opposing witnesses, and see the PowerPoint figures for yourself, search for Representative Kate Harper’s website, and click on the video excerpts from the hearing.

In the aftermath of the hearing, the PROA board met with our lobbyists and discussed where we go from here. We still believe that many local ordinances unfairly discriminate against students and other unmarried individuals in their housing choices, and prevent owners of multi-bedroom units from renting those units to many good prospective tenants just because of their student or marital status. However, the organization and passion of opponents mean that a more patient and deliberative course is required to get the justice and equity we seek for student and unmarried tenants and landlords who would rent to them.

PROA affiliates have filed Public Records Information Act requests which seek the raw data on which the statistics in the municipal government PowerPoint are based. We will need to analyze the data for multiple other variables between the districts being compared, such as density of population, socioeconomic factors between the districts, and other variables independent of student residence which would contribute to the deviation in police calls which the municipalities attribute entirely to student housing. Next, we will need to test the veracity of police call accounting to see if the data led to the result, or the desired result led to the data.

We can’t do much to combat anecdotal stories, but we can check local, non-discriminatory ordinances which exist in the communities where the stories arose, and ask why those ordinances were not used to combat the bad behaviors complained of. Finally, we must find our own anecdotal stories of good student and unmarried tenants who were discriminated against and landlords who have been unfairly prevented from renting their properties to the number of persons the properties can reasonable accommodate, such as only having three tenants allowed in a four bedroom house.

When we are ready for the information and emotion offered by opponents, we can come back to HB 809 and have a full discussion on its merits, and hopefully get it passed for the benefit of Pennsylvania.

In Act 167 PROA Sees Another Victory for Landlords Dealing with Abandoned Tenant Property

By Bradley S. Dornish, Esq.

Since the passage of Act 129 in the summer of 2012, landlords in Pennsylvania have had far more direction from PA law on how to handle personal property left behind by tenants who have vacated their rental units than was ever previously available. Our state organization, the Pennsylvania Residential Owners’ Association, (PROA) worked for many years to get that key piece of legislation drafted, through the legislative process, and to see Act 129 become law. Click here to read more »