An arbitrator resolves El Gato Penthouse price-hike dispute

By Jeff Kearns

A rent dispute between landlords and tenants at the El Gato Penthouse Apartments on E. Main Street has been quietly resolved by an arbitrator, who split his judgment between the two sides.

The arbitrator, David Finch, cut the rent hikes proposed by Vasona Management down to size, limiting the increases to 5 percent (the maximum under Los Gatos law), plus about $250 in pass-through costs and operation fees per unit per month.

Twenty-five tenants initially went on the warpath in May 1998, when Vasona told tenants in the complex's 80 units that they would be paying rents that averaged 40 percent higher, with some rents going up as much as 62 percent.

The tenants took their beef to the town, and were steered into the town's rent control dispute resolution process, which failed. The next step, mediation talks in August, also failed after Vasona made four offers, all of which the tenants turned down. The dispute went into arbitration in November.

The sticking point was the interpretation of the Los Gatos rental ordinance, which says that rent hikes are capped at 5 percent per year, or 7 percent of the Consumer Price Index, except for reasonable increases to cover capital improvements.

It was the word "reasonable" that the parties interpreted differently.

Tenants, who charged that Vasona was trying to push them out with the hikes and bring in corporate renters with deep pockets (a charge Vasona denied), said that things like a new hot tub, cheap oil paintings in the halls and a bigger advertising budget didn't quite fit the definition of reasonable. In all, Vasona made $864,000 in capital improvements, including remodels for all of the units.

The tenants also said that their levels of service declined during the remodel, which was finished in the spring of 1998. The arbitrator ordered the landlords to credit tenants for the loss of service, and if the tenants requested it, to re-install the old heaters, kitchen and bathroom vents and kitchen cabinets. But he concluded that there wasn't any permanent reduction of service.

The arbitrator also allowed some of the increased costs to be passed on, but ruled that Vasona couldn't pass through costs in a five-year period when the capital improvements the rent increases cover have an actual useful life of 10 to 20 years. Also allowed were some debt service pass-through costs and an increased operations and maintenance budget.

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