What You Should Know About Recovering Seismic Retrofit Costs
Written by Peter Strauss of Iconic Investments
The race to complete the mandatory City of Los Angeles earthquake retrofit work has begun for owners who want to finish the work before the seven-year city requirement. Per the Mayor’s office, only 608 buildings have completed the work with another 4,000 already in progress. The total number of buildings Citywide requiring retrofit is 13,000.
This article will discuss how owners can recoup a percentage of the retrofit costs by taking advantage of the Seismic Retrofit Work Program offered by the Los Angeles Housing & Community Investment Department (HCIDLA). Iconic spoke with Linda Wang of the Rent Stabilization-Rent Adjustment Commission, and asked her further questions about how the program works.
The Cost Recovery Program in a NUTSHELL
- Recover up to 50% of the costs spent on earthquake retrofit work
- Maximum recovery = $38 per month
- Collected over 10 years
- Requires an application and approval process
The Seismic Retrofit Work Program has some benefits but also some pitfalls. The Tenant Habitability Plan, or the THP, is a document that is required by the City before owners can start construction. This detailed document asks for information such as tenant names, contact info, move-in dates and current rents. HCIDLA also requires that the THP is submitted along with the cost recovery application. If on the THP an owner lists a unit as vacant, that unit automatically does not qualify for cost recovery. The “up to” 50% recovery of costs gets reduced from the get-go because of the vacant units.
An owner can only collect recovery fees from tenants listed on the THP. So, as units turn/become vacant over time, owners can no longer collect fees on those units. Therefore, with vacancy, owners will be lucky to recoup 30-40% of their costs.
Probably unlikely, but in the event the owner's costs are amortized and exceed $38 per month/per unit, the 10-year recovery period will extend to keep the fee at or below the threshold.
Here's a perk: HCIDLA will include interest on the approved recovery amount. The benchmark is the 10-year Treasury using the approved date of the THP.
Fun Facts about the Seismic Retrofit Work Program
- The processing time for a cost recovery application is 60 days.
- Most applications get rejected because they don’t include the proof of expense payments.
- Maximum recovery amount is $38 per month (If greater, the 10-year recovery period extends).
- Tenants have a 15-day right to appeal application; financial burden is not an excuse.
- Vacant units after the THP do not qualify.
- Recovery transfers to the new buyer in the event of a sale.
- A 30-day rent increase notice is required once approved.
- The application fee is $25.
- A tenant's refusal to pay recovery costs is grounds for eviction.
- Applications can be completed electronically; you can find the application at hcidla.lacity.org.
ICONIC WANTS TO HELP
At Iconic Investments, we pride ourselves on being more than just a brokerage firm. We are also a valued information resource and an advocate for property owners. We write articles to provide original, quality and timely content that will help owners improve the management of their buildings and make more insightful decisions.
