Tenant Troubles: Is The Rule Of Seven Really A Thing?

Is there some type of seven-year rule that benefits landlords if they do not raise the rent for seven years and then increase it all at once?

I ask this because when I moved into my flat in 2010 the landlord said that generally he wouldn’t raise the rent unless someone stayed for seven years, at which point he would raise it by about 7%.

Then, about two weeks ago I was out with some friends who live my neighborhood and their landlord had just raised their rent by about 10% after they had been living in their flat for seven years.

Then just last night I ran into a neighbor across the street who told me that she has to move after having lived in her building for seven years because the landlord had raised the rent. We all live in buildings that are covered by rent control.

What is going on?

By 1978 the residential real estate market in San Francisco had changed forever. Gone were the days when an investor bought an apartment building based on a conservative projection of its future income and strictly evaluated the building based on its net operating income. A new breed of rapacious real estate brokers–many of them followers of Werner Erhard’s EST (a quintessential me-generation, greed-is-good psuedoreligion popular in the 70s)–realized that San Francisco real estate could be sold without regard to old, stuffy “market value” considerations, despite climbing interest rates of 11% and 12%.

A new breed of buyers agreed. Doctors and dentists began to invest in large downtown apartment buildings. They didn’t care about cash flow as long as they could write off the substantial debt service. They chanted the mantra “Location, location, location.”

Of course the big vipers, like Angelo Sangiacomo and Gunther Kaussen knew they could have their cake and eat it too. Sangiacomo is known as the Father of Rent Control because he steadfastly refused to cease doubling, tripling and even quadrupling rents for his 1,700 units. Kaussen, described by Der Spiegel as “the world’s biggest slumlord” with 2000 units in the Tenderloin, crushed his tenants with similar practices.

Later that year, rumor grew of a shadow in the East, whispers of a nameless fear, and Rent Control now perceived. Its time had now come–in Berkeley and Davis and Cotati kingdom.

In 1979 the interest rates hit 13% and landlords’ lairs echoed with this refrain: “What news from the South, oh sighing wind, do you bring to me at eve? Where now is Santa Monica? Tenants vote and I grieve.” After Santa Monica voters passed a tough Rent Control Ordinance that included vacancy control in April, 1979, the San Francisco Board of Supervisors rushed to enact the anemic Rent Ordinance we have now.

Landlords were frightened, scared witless. Many of them lacked the ability (or the literacy) to analyze and interpret the new Rent Ordinance. (While I sympathize to a degree, one can often rely on plain meaning to get by.) Some landlords were just too cheap to hire lawyers and their realtor advisors, hampered by the maximum IQ licensing requirement, were no help either.

We all know that ignorance and fear can lead to an unhealthy reliance on superstition.

After a long night of cocaine and disco binging at Henry Africa’s, a group of disgruntled landlords, lamenting the enactment of rent control, careened over to Anton LaVey’s place, where they and assorted Satanic worshipers conducted a voodoo ritual/seance designed to purge the City of all tenants. Upon hung-over reflection the next day, the landlords, realizing that driving tenants from the City might disrupt their income streams, decided instead to use their newfound occult skills to understand the Rent Ordinance and thwart its supporters.

Thus, the Small Property Owners Occult Knowledge Society (SPOOKS) was born.

S.P.O.O.K.S. Board of Directors, 1980

S.P.O.O.K.S. Board of Directors, 1980

In its heyday in 1980-83, SPOOKS attracted a membership of between 50 and 200 landlords and their supporters. In some circles SPOOKS was more popular than EST. Their monthly meetings at Trader Vic’s were notorious because members never removed their masks and the only nourishment one could take was through a straw.  Evidently the meetings were conducted in hushed whispers punctuated by slurping and demented cackling–truly occult.

Not much is known about the SPOOKS philosophy or the Society’s impact on the landlord community at large. There aren’t many records left and, like EST, no one will admit to former membership in the organization.

But you have stumbled upon a persistent SPOOKS holdover from the past–The Rule of Seven.

We will never know whether The Rule of Seven was devised as a tenant intimidation technique or it was an occult interpretation (misunderstanding) of the method of banking rent increases. Landlords were not allowed to bank, that is save up increases to impose them all at once, until 1982.  From 1982 to 1984, the annual allowable increase that could be imposed was 7% (hear the theremin in the background?) per year. Rent Ordinance §37.3(a)(2) now provides:

Banking. A landlord who refrains from imposing an annual rent increase or any portion thereof may accumulate said increase and impose that amount on the tenant’s subsequent rent increase anniversary dates. A landlord who, between April 1, 1982 and February 29, 1984, has banked an annual 7% rent increase (or rent increases) or any portion thereof may impose the accumulated increase on the tenant’s subsequent rent increase anniversary dates.

After 1984 a “seven-year wait and bank” strategy may have been effective because a landlord could increase the rent by 28%. But think about it, the strategy would assume a tenant would live in a unit for seven years, an assumption that is not corroborated by statistics. If the initial rent was $1,000.00 in 1984, the landlord would also lose $10,779.40 in accumulated income over seven years.

These days, the rent increases are formulated based on 60% of the annual local Consumer Price Index. Let’s say you moved into your unit in 2007 and the landlord never increased the rent. Now, he could only bank an increase total of 9.6%. Again, the landlord loses the accumulated income along the way.

Therefore, waiting seven years to increase the rent is a strategy of “Cut your nose off to spite your face.” It’s a stupid, vindictive and financially unsound practice that could only be justified by ignorant superstition, evidence that some landlords have SPOOKS in their brains.

Try to identify your landlord in the photos. Then read more about the history of San Francisco rent control in 1980-1991: Rent Control Wars, by Randy Shaw, and from the landlords’ perspective, The Birth of Rent Control in San Francisco, by Jim Forbes & Matthew C. Sheridan.

the author

Dave Crow is an attorney who specializes in San Francisco landlord tenant law. However, the opinions expressed in these articles are those of the author, do not constitute legal advice, and the information is general in nature. Consult the advice of an attorney for any specific problem. You understand that no attorney-client relationship will exist with Dave Crow or his firm, Crow & Rose unless they have agreed to represent you. You should not respond to this site with any information that you believe is highly confidential.

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  • cedichou

    It needs to be said that Santa Monica does not have vacancy control anymore. And good thing they don’t, since (quoting from: http://www.nmhc.org/ThirdPartyGuidance.cfm?ItemNumber=60869 )

    – The total supply of rental units DROPPED … 8 percent in Santa Monica between 1978 and 1990, even though the rental supply ROSE in most nearby cities.
    – a study of rent control in Berkeley and Santa Monica found that the beneficiaries of controls in those communities are “predominately white, well-educated, young professionally employed and affluent,” and that rent control had substantially increased the disposable income of these tenants while “exacerbating” the problems of low-income families.
    [Emphasis mine. Note that “well-educated, professionally employed and affluent tenants” having to fight with landlords is just a perfect constituency for a … tenant lawyer.]

    So Dave may deplore that SF passed an “anemic Rent Ordinance,” but tenants in SF are better off for it. Imagine the city losing 10% of its rental housing stock in 10 years like Berkeley or Santa Monica did! For comparison, the city loses less than 1% to condo conversion in 10 years, and less than 0.8% to Ellis act over the last 10 years.

  • njudah

    “After a long night of cocaine and disco binging at Henry Africa’s,”

    ok this was brilliant. seriously.

  • Howard Schumann

    Mr. Crow is wrong on all counts when it comes to est. He labels it a “a quintessential me-generation, greed-is-good psuedoreligion popular in the 70s.” Est had nothing whatsoever to do with religion, pseudo or otherwise and there was nothing in the two weekend training that promoted the “goodness of greed.” On the contrary, every aspect of the program came from the ground of being of compassion and support.

    Mr. Crow is obviously unfamiliar with the program and is relying on second or third hand information to discredit it, most likely from others who have not done it.

    The two-weekend training, created by Werner Erhard, provided participants with the opportunity to look at their life and to experience what was working and what was not. It was a program designed to shake people loose from deadening positions that were running their life, to take responsibility for it and to experience their own power to affect the quality of their life.

    Rather than becoming self-absorbed as the media slogans would have us believe, it allowed people to take the value they received from the training out into the world to share it with others. It was the “you and me” generation rather than the “you or me” generation.

    • Chuck

      Yes. Howard has captured The est Training perfectly. How it has anything to do with landlord practices in San Francisco is dubious.

      • Howard Schumann

        Thanks. It should have been left out of the article since it adds nothing.