Attorney General Bonta Announces Settlement over the Use of Utility Fees as Shadow Rent Increases

Settlement with property management company provides full restitution to tenants in San Rafael, Novato, and other North Bay cities who paid unlawful rent increases and were subjected to other illegal conduct

OAKLAND - In partnership with the Marin County District Attorney's Office, California Attorney General Rob Bonta today announced a settlement with Mission Rock Residential California, Inc. (Mission Rock), a residential management company that oversees over 30 apartment buildings in California. The settlement resolves a joint investigation by the California Department of Justice and Marin County District Attorney's Office concerning Mission Rock's unlawful rent-increase practices and other violations of state and local tenant protection laws. The investigation found that, in 2022, Mission Rock raised rents for approximately 140 families close to the maximum permitted by California's Tenant Protection Act (TPA), while at the same time requiring those tenants to start paying for water, sewer, and garbage services that had previously been included in their rent. Mission Rock switched these tenants to a ratio utility billing system, known as "RUBS," under which tenants were charged utility fees based not on each unit's actual usage but on a complex formula to allocate costs for the entire property, including common areas. The complaint, which was filed today in conjunction with a proposed stipulated judgment, alleges that this resulted in several months of rent payments that exceeded the TPA's rent cap. Due to early intervention by the California Department of Justice and the Marin County District Attorney's Office, Mission Rock stopped billing existing tenants for the full utility charges. As part of today's settlement, the residential management company will make a payment of $495,000 and be subject to strong injunctive terms to deter future misconduct. The complaint and settlement were filed with the Marin County Superior Court.

"Some California landlords have tried to get away with illegal rent increases by shifting utilities and other fees to tenants and pretending those new charges are not 'rent' under the TPA. That violates the law. We appreciate that Mission Rock quickly rescinded the unlawful utility charges once we raised the issue, and that it has now agreed to be bound to several terms meant to ensure compliance with tenant protection laws going forward," said Attorney General Rob Bonta. "Today's settlement should put others on notice: If you violate state or local tenant protections, you will be held accountable. I'm grateful for the partnership of the Marin County District Attorney's Office. At a time when Californians are rightfully concerned about the cost of living, we are once again showing that our laws can help reduce housing costs for families."

"Misrepresenting rent increases through utility or fee add-ons threatens housing stability, misleads tenants, and violates the law. It also disadvantages landlords who play by the rules and contribute to fair, stable housing in our community," said Marin County Deputy District Attorney Michael Wear. "Our office is committed to protecting tenants and honest landlords by ensuring full compliance with the law."

Co-authored by Attorney General Bonta during his time as a state assemblymember, the TPA was signed into law by Governor Gavin Newsom in 2019. It created significant statewide protections for most tenants, including by limiting rent increases and prohibiting landlords from evicting tenants without just cause. Under the TPA's rent cap, landlords are prohibited from raising rent more than 10% total or 5% plus the percentage change in the cost of living, whichever is lower, over a 12-month period. Effective as of April 1, 2024, Senate Bill 567 strengthened the TPA's protections, created new remedies for violations, and gave all city attorneys and county counsel express authority to enforce the TPA directly.

The type of utility billing system used by Mission Rock, RUBS, has been criticized in California and around the country because the charges often lack transparency, may vary widely from month to month, and may be based on formulas that can be changed by landlords. The complaint alleges that Mission Rock issued utility charges as high as $200 per month while also increasing rents close to the TPA's rent cap. Mission Rock also required tenants to pay a new $10 insurance fee for liability insurance on top of rent. The combination of all of these charges exceeded the TPA's rent cap and left many tenants struggling to pay their rent.

In addition to the unlawful rent increases, the complaint alleges that Mission Rock increased rents for tenants in San Rafael without including mediation information required by the City of San Rafael. In response to the joint investigation, Mission Rock rescinded these rent increases, notified tenants of their mediation rights, and refunded overpaid rent. Further, Mission Rock illegally required some tenants to pay rent through an online portal, with no option for paying by check or money order, and failed to have on-site managers at numerous properties with 16 or more units as required by law.

As part of the settlement, Mission Rock will pay roughly $435,000 in civil penalties as well as nearly $60,000 for restitution to refund affected consumers. The settlement also requires Mission Rock to:

• Restore lawful rental rates for tenants who paid unlawful rent increases and utility fees and stop charging tenants for utilities that exceed the rent cap.
• Ensure that any new utility charges to an existing tenant, including increases to utility charges, fall under the rent cap when combined with other rent increases.
• Accept rent payments through means other than its online portal or electronic funds transfer.
• Send a notice to tenants informing them how they can pay rent without incurring processing fees, as could occur when paying online, and clarifying Mission Rock's late fee policy.
• Fill vacant on-site manager positions and ensure tenants know the identity of their on-site manager.
• Fully comply with the TPA and other California tenant protection laws.

A copy of the complaint and proposed stipulated judgment, which is subject to court approval, can be found here and here.