Under LA RSO, capital improvements to rent-controlled buildings can in some cases be partially passed through to tenants via temporary rent surcharges, subject to LAHD approval.
Qualifying capital improvements — not routine maintenance — may allow the landlord to collect a surcharge from tenants for a defined period to recover a portion of the investment. Specific eligibility rules and calculation methods are governed by the RSO and LAHD.
Pass-through provisions are meaningful for capital-intensive older buildings facing major system replacements. For LA multifamily sellers, a building with recently completed pass-through-eligible work in progress can sometimes be marketed with the recovery trajectory as part of the value thesis. Complex but real.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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