Rent Controls and Eviction Controls

Q: Seems the more I read, the more uneasy I am becoming about the future of our industry. With the prospect of rent controls, eviction controls and all the other things headed our way, what should I be doing to prepare?

A: You have every reason to be concerned and are wise to prepare. Our industry, as well as our livelihood, are under attack from all sides. At the federal level, policies implemented by unelected bureaucrats at the DOJ and HUD a few years back are severely hindering our ability to properly screen applicants. The limitations on the use of criminal background reports, coupled with the changes in the reporting of adverse credit information, limits the information available and the tools that housing providers have historically used to effectively screen prospective residents. At both the state and local levels, there is a very real possibility that rent restrictions may be in place in the very near future for the entire state.

Although the rent caps being discussed in the halls of Sacramento may seem manageable today, there is nothing to prevent the CPI plus seven percent proposal (as of this writing) to be changed to CPI plus five, three or two percent… For those housing providers that are already subject to some form of rent control, they are mildly comforted by the wisdom of vacancy decontrol that has been in place since Costa Hawkins was enacted in 1995.

Vacancy decontrol, the ability to reset those rent controlled units’ rents to market upon a vacancy, functions as a pressure release valve, as limited as it is, that provides some relief to the outrageous limitations that full blown rent controls bring. The protections provided by Costa Hawkins are in the cross hairs of many and are currently under assault. Proposition 10, which our industry rallied to defeat last year by over a two-to-one margin, is already being brought back again for a repeat performance in 2020 as a similar albeit a slightly less onerous version: Prop 10 redux. As onerous as rent controls are, they pale in comparison to eviction controls, just cause eviction ordinances, rent boards, tenant unions, and the requirement to pay relocation benefits to residents who are asked to vacate. Relocation assistance can range from the equivalent of one month’s rent up to amounts in excess of $23,000. Hard to describe the requirement to pay relocation assistance as anything other than an involuntary re-distribution of wealth from housing providers to tenants.

The assault on housing providers continues with the provision of free legal counsel to tenants facing eviction. What should be a limited and efficient method of removing problematic residents has in many ways turned into a circus, with courtrooms functioning more like a Moroccan bazaar, where the demands from these represented tenants approach unconscionable levels, with the all too common jury demand, all the while encouraged by a judiciary seemingly unwilling or unable to effectively meet out justice as required. The continued assault on Prop 13, the imposition of split roll taxes, the relaxing of the standards and the lowering of the vote threshold to impose parcel taxes, will all adversely affect our bottom lines, and in many cases will adversely affect our property values.

Given the current legislative climate in Sacramento, a super majority in the hands of legislators that historically have not had our collective interests in mind, it is sure to be a rough road going forward, at least for the foreseeable future.

Now more than ever before, we must stand united as an industry and remain united in our fight to preserve our rights as housing providers to continue to do what we do best. As housing providers, we have willingly invested our time and treasure in the provision of the housing stock, of providing the very real and the very necessary housing for the residents of California. Government does not do what we do, there are countless examples of failed government housing projects across the country. We have taken risks over the years by investing and improving the housing stock under our care. Most housing providers are hardworking decent, responsible and caring individuals who recognize the great responsibility that comes with being a housing provider and take pride in what we do. The vast majority are committed to doing the right thing and manage their properties responsibly. As an industry we educate our own, we share our knowledge with the less experienced, we encourage education and training and foster responsible ownership.

So how do we prepare for this brave new world approaching? We do what we do best, we perfect our craft, we stay alert and informed about the new rules and regulations headed our way. The game of owning and managing real estate continues; however, the rules are changing. Now more than ever before, thorough tenant screening is an absolute must. Understand that our tools are being limited; however, they are still available. Use them. Know that prospect well before you agree to hand over the keys. Criminal, credit and eviction reports are no longer optional, they are mandatory; they should be utilized in every prospective resident screening and decision process.

Be active in the management of your properties, recognize the early warning signs of aberrant behavior, maintain your properties as required, document and record evidence of tenant misbehavior, take pictures of damage caused, document lease violations, keep logs and notes of conversations and incidents with residents.

Minimize the use of “text messages,” rather use email or do it the old school way, actually draft and send letters. Text messages are often reactive, emotional, and not well thought out. Emails and letters provide you an opportunity to control the message, affirm your willingness to do as required, and document the tenant’s indiscretions and failure to perform as he or she is required. Maintain control of the communication process. Keep it professional, objective, never make it personal. Ensure that you are properly insured, a general liability policy, coupled with both a personal and a commercial umbrella are absolute must haves.

Consider employment practices and fair housing defense coverage as well, as these are generally excluded from basic policies. Consult an experienced insurance broker for review of your existing policies and adjust as necessary. For those that hold multiple properties, as in all investment vehicles, diversity is key. Diversity in type of asset, location of the holdings, and balance. Your investment portfolio should spread the risk inherent in any one particular investment vehicle to multiple asset classes. Now is not the time to be over leveraged; 50 to 60 percent loan-to-value can carry you through some rough times. Of course, carefully choose your advisors and ensure that their primary motivation is to do what is best for you.

Above all, don’t panic. Most of us have been through the ups and downs of the real estate cycle before. At the end of the day, this is still California, as much as we have to complain about, there is vastly more to be proud of and encouraged by.

 

 

This article is presented in a general nature to address typical landlord tenant legal issues. Specific inquiries regarding a particular situation should be addressed to your attorney. Stephen C. Duringer is the founder of The Duringer Law Group, PLC, one of the largest and most experienced landlord tenant law firms in the country. The firm has successfully handled over 285,000 landlord tenant matters throughout California and has collected over $200,000,000 in debt since 1988. The firm may be reached at 714-279-1100 or 800-829-6994. Please visit www.DuringerLaw.com for more information.