Knowledge Center

Rent Control

Portland Rent Control Explained by a Professional Property Manager

Today’s topic is one that’s becoming more and more popular in multiple areas of the country, and that’s rent control. Recently, the whole state of Oregon passed rent control laws, and now some revisions are being made in several cities.We asked Scott to give us an idea of what’s happening with rent control in Portland and throughout Oregon.

Portland’s Real Estate Market

Portland is very progressive and not the only region with rent control laws. The trend recently has been for states to shift the rulebooks more towards resident protections. Understanding the local Portland economics is important because when you are talking about rent controls, there is always a driving force behind why rent control is being implemented.Portland has been one of the hottest investment markets in the nation for quite a long time. It’s also had an acute housing shortage. This has created expensive rents, and many residents are struggling to pay for housing. So, Senate Bill 608 was passed in February of 2017.

Understanding Senate Bill 608

There are two main parts of this bill.The first is an actual cap on rents. There are a lot of exceptions. For example, if a home is 15 years old or newer, it’s fully exempt because they want to keep driving the development and construction of new homes. But, if the home is more than 15 years old, landlords are limited to a seven percent rental increase, plus the CPI or Consumer Price Index. Over the last two years, it has resulted in a rent increase that can go no higher than 10 percent.This is pretty reasonable and not terribly limited. As long as you are staying close to market rents, a 10 percent increase is not going to limit your profitability or returns in Oregon.The second part of this bill addressed no-cause evictions.Most people associate the word eviction with being forced out for nonpayment of rent. That might be true but there is also a no-cause eviction, and that typically means a landlord is not renewing a lease. The big change in Oregon is that if the resident has been in the property for more than one year, landlords cannot do a no-cause eviction or ask for the property back with a 30-day notice period.This is significant. It applies to month-to-month residents as well if they’ve been living in the home for more than a year. This, combined with the law that says you can only increase rents once a year means that you have a bizarre leasing situation. If you have a vacancy on February 1 and you want to fill it, you might do a five or six-month lease so you’re at the point where the next vacancy is in the summer. But in Portland, the new laws mean your lease end date and the date you increase your rent are likely to be two different dates.The problem for landlords is that this provides a much shorter window of time to determine whether this is a resident you’d like to keep. Waiting out a full year before you decide whether you want to renew the lease is no longer possible. It gets you in trouble because it doesn’t allow you to do a no-cause eviction, in which you simply decide to look for a new resident or do something else with your property.We’re now recommending an 11-month lease instead of a full year lease. This is the only way to maintain leverage when it comes to removing residents we’d rather not work with. In the past, you could remove a resident with a 30-day notice and get your property back. Now, you need to have a documented reason to evict the resident, such as nonpayment of rent, lease violations, or criminal activity. That’s not possible anymore.

Portland Property Management and Legal Knowledge

Understanding these laws is critical, and many investors aren’t even aware of them. When you read the legislation, you can either trust your own ability to interpret the laws or you need to hire a really good real estate attorney. You can also hire a good Portland property management firm that will know the rule book and handle the legal issues for you.Rent control and eviction laws are different depending where you are in Oregon. With the housing shortage, Portland has a stricter rulebook than the rest of the state. There are additional new rules on security deposits and accounting restrictions.You’re running a business when you invest in a property and rent it out in Portland. Businesses have laws, and it is your responsibility to abide by these laws and regulations. You have to take this seriously because the government takes this seriously and they are going to hold you accountable.Don’t try and figure out all the different laws on your own. As we said earlier, laws are always changing. They’re always being updated depending on the market and the people who are in power. And the trend both nationally and in Portland is to move closer to a tenant-friendly set of laws and regulations. This means you have to know exactly how the laws affect your properties and your investments.If you have any questions about rent control in Portland, Oregon, please contact us at Mynd Property Management. We have processes in place to protect our owners and investors against the problems that can be encountered with rent control and evictions.You can also visit our Facebook group of investors, which is called Master Mynd. It’s a real estate investors’ club, where you can exchange ideas with other owners. Check out our weekly podcast as well, called The Myndful Investor. We invite leaders in real estate and property management to talk about their success and, more importantly, their failures. There’s a lot to learn from this relatable content.

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Rent Control Laws for Alameda

As many of you know, or should know, six Bay Area cities considered ballot initiatives related to rent and eviction controls last November. The measures passed in four of them: Oakland, Alameda, Richmond and Mountain View. Here, in our ongoing series, we’re going to take a closer look at the impact of those new laws city-by-city and what it means to you.First up is Alameda.

The Vote

Alameda voters were presented with two competing rent and eviction control ballot measures in November. The first measure, Measure M1, would have capped rent increases at 65% of inflation, along the lines of stringent rent control laws in Oakland and Berkeley. Voters rejected that measure and passed a competing one, Measure L1, by a margin of 56% to 44%. Voters had time to digest the pros and cons: this measure was a confirmation of an existing ordinance on rent and evictions that the City Council adopted back in March. It is now the law.

The Details

This new law - unlike the measure that was defeated - does not cap annual rent increases, which is good news for landlords obviously.But it isn‘t a free ride. The law DOES limit rent hikes to one per year. Another important provision: the law does stipulate that rent increases above 5% are subject to review by the Rent Review Advisory Committee. If either the landlord or resident disagrees with that panel’s decision (), either party can file a petition to take it to a hearing officer for arbitration.()Meanwhile, the new Alameda law also permits so called no-fault evictions (), but those evictions are limited to 10% of a property’s total units in any month, or 25% in any 12-month period. In the case of a no-cause eviction, relocation fees are required and the rent offered to the new resident cannot be more than 5% greater than the prior resident’s rent. The idea behind that: to discourage landlords from evicting residents in order to increase rents. Plan accordingly.But wait, there’s more….In cases of “no fault” and “no cause” evictions, landlords must pay relocation benefits to residents being displaced. These benefits amount to $1,553 plus the equivalent of one month’s rent for each year that a resident has rented the unit capped at four months’ rent.Alameda, in rejecting firm rent control caps in favor of mediation, seems to have settled on a middle ground. “I think because it is new to Alameda, it is a hot-button subject here,” resident Robert Anderson told the Alameda Sun. “ Landlords in other communities seem to be able to be successful with some controls in place. There is no reason Alameda should be any different.”

The Real Bottom Line?

Just be ready to justify any rent increases above 5% - and certainly beware of relocation benefits that go with certain evictions. Like with anything else involving local rules, and property ownership for that matter, learn the law inside out. And make sure you have advisors who know the law inside out.

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Richmond Rent Control Laws

Bay Area cities, on November 8, considered ballot initiatives related to rent and eviction controls. Significant measures passed in four of them—Oakland, Alameda, Richmond and Mountain View. In this installment of our mini-series breaking down the ballot initiatives, we’ll examine the impact of those new laws on property owners in Richmond.

The Results

Rent control on Election Day was a slam dunk.Some 64% of voters supported the new rules. The new law will set a maximum allowable annual increase at 100% of the San Francisco area Consumer Price Index (). Also, the so-called base rent will be set at the rent tenants paid in October 2015, so many owners will have to roll rents back to that level before new increases.()Furthermore...The new ordinance would also establish a Rent Control Board, to be appointed by the city council. Both landlords and tenants will be able to petition the new body for an increase - or decrease - in the rent cap based on factors such as insufficient maintenance of the property or adjustments necessary to provide the owner with a fair return on investment.Under another provision of the new law, an eviction is allowed only if one of the following conditions are met:

  • The tenant fails to pay rent; breaches the lease; commits or permits a nuisance; or fails to give the landlord access to the premises in certain situations
  • The landlord needs to undertake substantial repairs to the unit; seeks to use the unit as a primary residence by the landlord, or the landlord’s spouse, children, parents or grandparents; or the landlord seeks to withdraw all units of an entire property from the rental market

ADVICE: Always keep meticulous records especially when communicating with tenants.In addition, the owner/landlord must make relocation payments to evicted tenants made under certain circumstances in an amount to be determined by the City Council through a Relocation Ordinance to be adopted by the Council.

Landlord Bottom Line

Before beginning an eviction or rent increase, make sure you consult the law () and re-evaluate lease with each of your tenants. Again, good record keeping is a must - something a tech-savvy property manager can help provide for you.For more information visit the City of Richmond here.

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How to Determine Whether Your San Jose Apartment is Subject to Rent Control

There has been a lot of activity in San Jose, California around its rent control regulations. A number of proposals have gone before the City Council for consideration—some successful, others not. This flurry of activity can make it hard for San Jose property management companies, landlords and real estate investors to keep track of what’s what.Consider this: San Jose, CA is the 10th largest city in the nation () and is home to more than 330,000 units of housing. Of these, an estimated 41.5% are occupied by renters. That’s a lot of rental housing. Some of these units are subject to San Jose’s rent control policies, others are not. It is important that San Jose property managers, rental property owners and real estate investors understand the intricacies of the city’s Apartment Rent Ordinance.Over the coming weeks, we’ll be posting a series of articles in The MYNDful Investor that dive into San Jose’s rent control policies. These articles will share a host of information to ensure San Jose property managers, owners and investors have the information they need to comply with local regulations.Today, we start with the basics. Below we share a brief history of the city’s Apartment Rent Ordinance and then dive into which units are covered by the policy.

A Brief History: San Jose’s Apartment Rent Ordinance

Although it may seem more pronounced today, the affordability of San Jose’s rental housing has been a concern of local leaders for decades. As far back as the late 1970s, a City Council-appointed task force was exploring ways to address a range of issues faced by local renters.In response, in July 1979, the San Jose City Council adopted a rent-stabilization ordinance that covered both rental apartments and mobile home parks. In 1985, the City Council voted to separate the law into two: one for mobile home parks and the other for rental apartments, the latter of which became known as the San Jose Apartment Rent Ordinance (). The is outlined in Chapter 17.23 of the San Jose Municipal Code.

Rental Units Subject to San Jose’s Apartment Rent Ordinance

According to the , a “rental unit” is defined as the following:A dwelling unit offered or available for rent in the city of San Jose, together with the land and buildings appurtenant buildings thereto, and all housing services, privileges, and facilities supplied in connection with the use or occupancy thereof, which unit is located in a multiple dwelling or guesthouse as those terms are defined and used in Title 20 of the San Jose Municipal Code.What?!Since not everyone is a lawyer, and not every San Jose property manager or rental property owner has time to flip to and from different sections of the San Jose Municipal Code, we’ll break it down in simpler terms.The San Jose applies to all rental properties that were built and occupied before September 7, 1979 and contain three or more units unless otherwise exempt, as outlined below.

Units Exempt from the San Jose Apartment Rent Ordinance

The San Jose exempts a number of units from the city’s rent control policy. Exempt units include:

  • Rental properties built or occupied after September 7, 1979
  • Single family homes
  • Duplexes
  • Condominiums and townhouses
  • Rooms in hotels or guesthouses that are rented to transient guests for less than 30 days
  • Rental units owned or operated by any government agency or whose rent is subsidized by any government agency ()
  • Rooms in a hospital, extended care facility, emergency residential shelter, asylum, nonprofit home for the aged, fraternity house, sorority house, or in dormitories owned and operated by a school
  • County property located within San Jose’s boundaries

Mapping Units Subject to San Jose’s Rent Control Policy

The City of San Jose has made it easier than ever for people to determine whether their apartment is subject to rent control. The City has created a map of rent-controlled properties, which can be found here.To see if a property is rent-controlled, select “Multiple Housing Roster” on the menu located on the left side of the screen. Type in the property address and press enter. This will tell you whether the property is rent controlled._____________________Still not sure if your rental unit is covered by the city’s rent control law? San Jose property management companies, owners and investors are encouraged to call the City of San Jose to speak with a staff member directly: 408-975-4480.Otherwise, keep an eye on The MYNDful Investor for future articles about San Jose’s Apartment Rent Ordinance!

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Repealing Costa-Hawkins Will Create Stricter Rent Control Policies

California has some of the highest housing prices in the country. There’s no silver bullet approach that will make housing suddenly more affordable. State legislators seem to have recognized this, which is why more than 100 bills aimed at addressing affordability and homelessness have already been introduced this legislative session.Assembly Bill () 1506 is one of those proposed pieces of legislation, and it has California landlords on edge. 1506 would effectively repeal the Costa-Hawkins Rental Housing Act of 1995 that regulates rent control policy statewide.

A Brief History

Before Costa-Hawkins, municipalities could adopt either “moderate” or “strict” rent control policies. Moderate rent control limited a landlord’s ability to increase rents on existing, ongoing tenancies. Municipalities with strict rent control also limited the rent that a landlord could charge on the open market, even after the apartment had been vacated by the outgoing tenant. Berkeley, Santa Monica and East Palo Alto were just a few of the cities with strict rent control policies prior to Costa-Hawkins.Costa-Hawkins created a set of uniform rent control regulations that municipalities across the state were required to abide by. Notably, under Costa-Hawkins, certain types of dwelling units became exempt from rent control regulations; “vacancy control” was prohibited – i.e., municipalities could not regulate rental rates on units that were voluntarily vacated by the previous renters at an amount other than what the open market could bear; and allowed landlords to increase rents on subtenants if the master tenant no longer vacates a rent-controlled unit.Newly-constructed units () became exempt from rent control regulations under Costa-Hawkins. The state law also exempted single family homes and condos if the tenancy began after January 1, 1996. 1506 Would Repeal Costa-Hawkins Altogether 1506 would scrap all of these regulations. Currently, Costa-Hawkins creates a baseline that municipalities must abide by and then municipalities can layer in additional rent control provisions as long as those provisions do not contradict what’s spelled out in Costa-Hawkins. Repealing Costa-Hawkins eliminates that baseline and would allow municipalities to adopt rent control policies that vary drastically by jurisdiction.Cities could once again introduce “strict” rent control, allowing local lawmakers to regulate the rental rates on housing units that were voluntarily vacated. 1506 would also reintroduce rent control for newly-constructed units. It would open the door for new regulations regarding single family homes, condos and owner-occupied multifamily properties.The legislation was proposed by Assembly Member Richard Bloom () and co-authored by Assembly Members David Chiu () and Bob Bonta ().Proponents of the legislation say 1506 will help to stabilize communities. They argue Costa-Hawkins unfairly ties the hands of cities that are attempting to deal with runaway housing costs at the local level. Advocacy Group Tenants Together calls Costa-Hawkins a “major barrier to strong rent control and universal displacement protections.”Opponents say the legislation is misguided. They worry that stricter rent-control laws will deter investors and limit new construction – the exact opposite of what is needed if California is trying to increase its housing supply and address affordable housing. Opponents point to a report released by the California Legislative Analyst’s Office in 2015, titled “California’s High Housing Costs: Causes and Consequences.” The nonpartisan LAO noted “the key remedy to California’s housing challenges is a substantial increase in private home building in the state’s coastal urban communities,” and 1506 would be a major impediment to new construction.

Potential Ramifications

Many of our rental property owners have already contacted us here at Mynd to express their fears over 1506. Specifically, rental property owners are worried that 1506 will eliminate their ability to bring their rental units to market rent when a resident voluntarily moves out. The 1506 could significantly hurt a landlord’s cash flow and ability to earn a decent return on their investmentOther potential ramifications include:

  • Investment in new construction could grind to a halt. New apartments will be subject to rent control, and taking away a landlord’s ability to set rental rates could mean that projects no longer pencil out. Project margins are already narrow here in California due to high costs of land, labor and other regulatory obligations.Susan Shelley, writing for the LA Daily News, puts it succinctly: “No one with any sense is going to buy or build rental property in California while state lawmakers are proposing to unleash rent control. The conversation alone could reduce the supply of housing.”
  • The resulting lack of new construction will exacerbate California’s affordable housing crisis. As noted in the LAO report above, the best way to mitigate high housing costs is to add more housing to the market. It’s Supply and Demand 101.
  • Property values could drop significantly overnight and some landlords may opt out of the real estate industry altogether. It is possible that some will look to cash out quickly by evicting tenants and converting their rental units to condos to avoid new rent control regulations. Others may sell their property to developers in search of value-add opportunities. Either way, the end result will be to reduce the overall supply of affordable rental housing.
  • Building owners may not have the cash flow to reinvest in their properties, which could lead to delayed repairs and maintenance. California’s housing inventory will start to deteriorate.At an Assembly Housing and Community Development meeting on Friday, March 3rd, a group of San Francisco and San Jose landlords confirmed this sentiment, saying the bill could put them out of business altogether. “This is the same sort of law that caused thousands of units to be abandoned across New York City, the owners just couldn’t maintain their buildings,” said Noni Richen, president of the Small Property Owners of San Francisco.
  • Repealing Costa-Hawkins opens the floodgate to a new set of rent control regulations that add to other costly regulations that landlords now have to abide by. For instance, as of January all new apartment buildings must be 30% more energy efficient than the last generation of buildings. Another regulation requires all water runoff to be kept on the property; the cisterns needed to comply with this regulation can increase construction costs by an estimated 7%. Layering in regulation after regulation – even as well intentioned as many of these regulations are – drives up the cost of housing even further.

CONCERNED? HERE’S WHAT YOU CAN DO

If you’re an East Bay landlord worried about the repeal of Costa-Hawkins, here’s what you can do:

  1. Call all legislators listed below by March 14, 2017!
  2. Identify yourself and state the city that you live, work, own or manage residential rental property in.
  3. Ask the legislator to VOTE NO on 1506 and thank the staff for their time.

Please call all of the followingAssembly Members:Asm. Catharine BakerWalnut Creek, San Ramon, Dublin, Livermore, Pleasanton () 319-2016Asm. Timothy GraysonVallejo, Benicia, Martinez, Concord, Pleasant Hill, Pittsburg () 319-2014Asm. Rob BontaOakland, Alameda, San Leandro () 319-2018Asm. Kansen ChuFremont, Newark, Milpitas, San José, Santa Clara, Leandro () 319-2025Asm. Jim FrazierAntioch, Bethel Island, Birds Landing, Brentwood, Byron, Collinsville, Discovery Bay, Fairfield, Isleton, Knightsen, Locke, Oakley, Pittsburg, Rio Vista, Suisun City, Travis AFB, Vacaville, Walnut Grove () 319-2011Asm. Bill QuirkHayward, Union City, Castro Valley, San Lorenzo, Ashland, Cherryland, Fairview, Sunol, North Fremont () 319-2020 Asm. Tony ThurmondHercules, Pinole, San Pablo, Richmond, El Cerrito, Albany, Piedmont, Berkeley, Oakland () 319-2015Asm. David ChiuSan Francisco () 557-0313Asm. Phil TingSan Francisco () 557-2312

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AB 1482 2020 Update for California Landlords and Investors

Statewide rent control arrived in California effective January 1, 2020, and today Steve Rosenberg, VP of Investor Education at Mynd Property Management and Giles Imrie, VP of Corporate Counsel at Mynd are talking about what this means for Oakland landlords and investors. There have been a lot of comments and concerns about the implementation of this new law, and it’s important to know what’s happening as we move forward with rent control.

Background: California’s AB1482

This law provides a statewide cap on rental increases. Owners can increase rent five percent every year, plus the CPI for your particular region. You cannot go over 10 percent, even if the CPI is high. Right now, your rental increase won’t be able to go any higher than seven or eight percent. That’s the annual maximum that you can increase rent.

There are a couple of exemptions in place for individually owned single-family homes, condominiums and a few others that we have described in previous blogs.The second piece of this law is the just cause eviction ordinance, which says you can no longer terminate a lease at the end of the term unless the tenant has breached the lease or not paid rent or caused damage. It means the tenant now has the option, if they are otherwise in compliance with the lease, to renew their lease and stay as long as they want.

You can still remove the tenant and get possession back if you’re doing something like moving back into the property yourself. You can terminate the lease without cause under a few conditions and with a potential payment of relocation fees to your tenant.

Pay Attention to Lease Disclosure Requirements

Now that this law is in effect, there are a couple of things coming up that you’ll need to be aware of in order to stay compliant with it. You’ll need to start with three different disclosures that you need to build into your lease documentation if you want to take advantage of the various exemptions provided in this law.

Disclosures need to be provided to your residents through the lease agreement as of July 1, 2020. Before July 1, you are required to provide information to your residents, but on July 1, you actually have to have the verbiage in your lease agreement.

The initial disclosure is if your property is subject to the rent cap. Your property is included if it’s not a single-family home and it’s not a condo or townhouse or owned by any kind of corporation. Then, you have to put in the specific statutory language advising the tenants of what the civil code sections are and how they allow the protections under the rent cap and just cause ordinance. The other two disclosures are really important.

For example, there is an owner move-in exception in the just cause ordinance, so if you or a family member want to move back into your home, then you are allowed to terminate the lease. The catch is, you have to add this language into your lease as of July 1. That specifically gives you the right to do that. Failing to update your lease documentation with the correct language will result in a loss of this exemption.

Basically, this means you have to re-write your lease as of July 1, 2020, especially if you want to take advantage of these exemptions. You must either include it in the body of the lease itself or include an addendum. You are required to have the disclosure language in there of “if your property is subject to rent control.”

This adds a level of complexity because you may be managing different kinds of property with different leases and different disclosure terminology. Some of the properties you own may be subject to rent control and others may be exempt. You will have to be able to identify which type of property it is and insert the correct documentation into the lease.

If your property is exempt and it is a single-family home or condo or townhome, then you need to add that disclosure information stating that the property is exempt. Failing to do so means it is no longer exempt. Every lease after July 1 you must maintain that same statutory language.

california statewide Rent Control ab 1482 2020

Implementing AB1482 is Changing and Challenging

It’s early, and we’ll be learning more about how AB1482 is implemented and enforced as we move through the year. The main implications are certainly with the rent increase portions of the law. It was retro-acted to March of 2019. So, if you raised your rent beyond what is currently allowed between March of 2019 and now, you’ll have to go back and re-adjust that rent to get it in compliance with the rent cap.

These are the main issues that have popped up with Oakland rental property owners, and it’s possible that future issues will be decided in the courts. With all of the exemptions and the juggling of local rent control ordinances with the statewide rent control law, there’s a lot of confusion even among experienced property investors.

We’re also following what’s happening in other markets. In Seattle, there has been talk about a new law in which when investors buy a home with the intention to flip the property, they would be required to give the residents a certain amount of time before they would actually have to move out of the property. There are a lot of things in the works, and the tenant rights organizations are constantly pushing for new legislation on all fronts.

For those of you that want to know more about 1482, we have a lot of video and blog content that further explains the law and how they apply to you. It’s critically important that you are educated about rent control and just cause eviction. If you’re not already working with a professional Oakland property management company, you might want to check in and make sure you’re compliant. We’d be happy to help and we have tons of resources, so contact us at Mynd Property Management if you have any questions.

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