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City Council will vote to roll back a 2020 city policy protecting tenants from unfair fees Wednesday, in order to settle a landlord-led legal challenge.

The policy under scrutiny is the security deposit policy enshrined in the city's Fair Access in Renting (FAIR) ordinance. The policy limits how much a landlord can collect as a security deposit from a new tenant, and creates rules for how much of that deposit they can withhold to pay for repairs when that tenant moves out. Included is a requirement for landlords to provide tenants with a list of all appliances, fixtures, and other equipment in the rental detailing their condition—like how old an appliance is, or if a lighting fixture has a dent in it—and marking their depreciated value based on its age and condition. If a tenant has damaged any of these items while living in the home, a landlord can still withhold a fraction of their security deposit to pay for repairs or replacements—but the amount cannot be more than the depreciated value of the appliance or fixture in question.

This prevents landlords from, for example, charging tenants for a brand new fridge if their 25-year-old fridge is damaged when a tenant leaves the rental unit. The policy also allows tenants to sue landlords up to double their security deposit for failing to comply with the security deposit rules.

This policy, which is just a portion of a larger ordinance meant to enforce equity in Portland's renting process, drew complaints from property owners from the start for requiring too much administrative work on the landlord's end. So it was no surprise to hear that, a month after the FAIR policy became law, the city was hit with a lawsuit by a coalition of landlords.

The lawsuit accuses the policy of violating federal law for being "vague and ambiguous" and undermines a state law which allows landlords broad discretion to withhold any or all of a tenant's security deposit to repair damages.

"The new ordinances will make it more difficult to use security deposits for damages," writes one plaintiff, Janet Newcomb, in a legal filing with the case. "The depreciation schedule and inventory will be onerous. If we miss listing the tiniest item on the original schedule that is given to a new tenant, we will not be able to collect for the damage."

According to the complaint, Newcomb lives in Nevada but owns and operates nineteen rental units within Portland city limits. Newcomb is joined by another plaintiff in the case, Jerry Mason, the president of a real estate investment firm who owns and manages a total of 62 apartments in Portland. Both landlords threatened to sell their properties if the ordinance is upheld.

"The labor cost required to itemize and depreciate every single item in a unit is not worth it, especially given the risk of being sued for violating gotcha requirements," said Mason in a court declaration.

Instead of taking the complaint to court, the city has reached a settlement agreement with the aggrieved landlords. That settlement includes making a variety of tweaks to the original ordinance to reflect state and federal law. The changes include axing the requirement to depreciate the value of items in the home that may become damaged during a tenant's residency (called a "depreciation schedule") and decreasing the amount of money landlords who violate the policy can be sued for—from double a tenant's security deposit to $250.

City Council is scheduled to vote to approve the settlement Wednesday.

For tenants rights advocates who helped craft the original FAIR ordinance, these adjustments come as an affront.

"Eliminating the depreciation schedule undermines the main goals of the ordinance," said Alli Sayre, an organizer with Portland Tenants United (PTU).

Sayre said she's spoken with tenants who, before FAIR passed, had to pay their landlord thousands to replace antique appliances and fixtures with new products. One tenant said that, after 30 years living in the same rental unit, their landlord charged them thousands of dollars to replace the kitchen countertops. Another alleged their landlord charged them $750 to replace the door of an old refrigerator that the tenant had left a scratch on.

"Most places in this city have old appliances," said Sayre. "The idea that the tenant should pay to replace them at the price of a new one is ridiculous. Without a depreciation schedule, landlords have no incentive not to do that. At the end of the day, this is about getting the money we are owed back. Landlords think it's super unreasonable that we made it hard for them to steal."

While the adjusted policy axes the depreciation schedule, it still includes language limiting landlords from broadly withholding security deposits. The new amendment reads: "A Landlord may not claim any portion of the Security Deposit for routine maintenance; for ordinary wear and tear; for replacement of fixtures, appliances, equipment, or personal property that failed or sustained damage due to causes other than the Tenant’s acts or omissions; or for any cost that is reimbursed by a Landlord’s property or comprehensive general liability insurance or by a warranty."

Much of the settlement centers on aligning the city's policy with state law. To Sayre, that goes against the purpose of creating this policy in the first place.

"State law was too broad, and favored landlords," she said. "That's why we wanted FAIR."

On Friday, City Commissioner Dan Ryan sent an email sent to community members who were involved in shaping the initial FAIR ordinance to alert them of the proposed adjustments.

"I am confident that these FAIR amendments will improve this landmark policy and prove to better apply fair housing law in accordance with renter’s needs and Oregon law," wrote Ryan, who oversees the Portland Housing Bureau. Ryan noted that the changes have the support of the entire City Council.

Sayre said she's disappointed that city leaders appear to unanimously prioritize landlords' needs over tenants.

"They’re intentionally buying landlords off.... City Council is essentially bribing them at the cost of the majority of Portlanders, who are renters," she said. "It’s hard to see this settlement proposal and not feel like the city has abandoned renters."