The pressing question is: what on earth is happening with rent control in Santa Rosa? I can tell you, because I was there. In my previous blog I gave you a quick overview about rent control, and now I will share a more in depth analysis.
Santa Rosa Rent Control and the City Council
There was a city council meeting on August 16, at which time an ordinance which had been created by an independent consultancy was submitted to and reviewed by city council members. It was brought up for discussion and debated at great length. In some ways, it was amended on the fly to make it even more stringent for landlords. It was passed that evening. The ordinance will come up for a second reading during the city council meeting on August 30. If the second reading is approved, it will go into effect as of September 29, 2016, and will impact a number of properties in Santa Rosa.
Property Management Santa Rosa: Who is Impacted?
There is not necessarily any wiggle room to do much before September 29. There are already temporary rent control and just-cause moratoriums in place. Those were instituted previously as a “place holder” to create tenant protections until a permanent ordinance could itself go into effect. There is a small silver lining. This ordinance will only impact the properties that are also impacted by The Costa Hawkins Act. That means multi-unit buildings built before February 1, 1995. Furthermore, this ordinance will only affect units within Santa Rosa city limits. The city has additionally clarified that they will be applying this ordinance only to fourplexes and above, and also triplexes if the owner is not one of the residents of those three units. So, single family residences, condos, duplexes and owner-occupied triplexes are all excluded from this ordinance at present. That’s not to say it can’t be tightened up by an additional measure at some point in the future. I am seriously concerned that this is a possibility. I’m also seriously concerned because the county of Sonoma and other surrounding locations are keeping a close eye on Santa Rosa. The success of the rent stabilization ordinance in Santa Rosa may impact what other cities and the county may consider.
What the Ordinance Includes
This ordinance includes a rollback, which means there is now a benchmark. The rent you were charging on January 1, 2016, is the measurement of what the allowable rent is. If you raised it more than 3 percent since January, it is considered unenforceable by the verbiage of this ordinance. How that is going to be reversed has yet to be determined. We don’t know if you’ll have to refund rent to your tenants or what, but January 1, 2016, is the rent at which you need to base any rent increase calculations.
3 Percent Rent Increase Cap
There is a 3 percent cap on rent increases, except for those instances where you have instituted major capital improvements. Those improvements must be submitted to a program administrator for approval before you pass the cost onto your tenant. The formula for figuring out whether you can pass the costs of those improvements on to your tenant is itself complicated. The cost has to be 8 times the monthly rent for all units impacted. So, if you have a fourplex and all of those units rent for $1,000 per month, the major capital improvement must exceed $32,000 even to be considered for a “pass through”.
Notice to Vacate Restrictions
There are extensive tenant protections against notices to vacate, including details that could conceivably mean that tenants would have a life estate. As the ordinance is written, the tenancy may conceivably even pass from generation to generation. Approved notices to vacate would require the landlord to pay relocation costs, in an amount equal to three times the monthly rent plus $1,500. And this isn’t 3 times the monthly rent that you are charging. For example, if you were being generous and conservative as a landlord and only charging tenants $1,000 for a three-bedroom unit, but then you need to ask them to leave, you won’t be paying 3 times $1,000. You would need to pay 3 times what they will have to pay in the present market, which could be more than $2,000 per month. So, do the math. That becomes $7,500 or more. And, in addition to the other powers granted to the program administrator, THEY determine what the average present rent value is for any particular unit.
The ordinance establishes a new bureaucracy, including a program administrator and staff to oversee both the rent stabilization program and the capital improvement component. The initially calculated budget is already anticipated to exceed $1 million annually. That budget does not reflect additional program administrator duties that have been added during the 8/19 review, so the cost is likely to INCREASE. In many ways, intentionally or unintentionally, this ordinance was constructed in a way that if you, as the landlord, do not abide by it exactly and precisely, it could blow up in your face.
An official from the North Bay Organizing Project, a pro-tenant advocacy group, has called the August 16 vote “the most significant tenant protections passed in California in the last 30 years.” If you are familiar with the various rent controls that have been passed in California over the past three decades, you’ll realize that this is an onerous statement. Seemingly, in each instance, when the city council could have chosen a measure that would have helped landlords and property owners or tenants, the default choice was always to provide greater protection for tenants at the expense of the landlord.
Previously, in my last blog I said that Santa Rosa property management can be a challenging business. This ordinance, with its choices and impact, makes the business even more challenging. There are numerous, smart professionals who are committed to protecting your interests, even in the midst of this chaos. If you are a property owner in Santa Rosa, there are ways you can help influence the dialog at city council. If you are a property owner, DeDe’s Rentals can help you succeed, even in this difficult market. Please contact us at DeDe’s Rentals. We’re here to help simplify your life.