Court Talk

At a Cost

written by Edward M. Lai

Landlords who raise rents during a state of emergency end up footing the bill.

Rents are a little more affordable in Oakland. Rentjungle.com has Oakland rents averaging $2,527 a month. Oakland renters can expect to pay $1,761 a month for a studio, $2,503-$2,330 a month for a one-bedroom apartment and $3,251-$3,191 for a two-bedroom apartment. And those are the everyday rents. What would happen to housing costs in the event of an emergency or catastrophe?

We have all heard of cases where unscrupulous people try to take advantage of the desperate public during times of emergency by suddenly raising prices on essentials such as food, water and housing—not just in California, but all over the country. For example, after a tornado hit the town of Joplin, Missouri in May of 2018, a landlord there announced to all of his tenants that their rents would be raised. One tenant was told his rent would be increased from $475 per month to $595 per month, a 25% increase. Two other renters were told by the same landlord that their rents were being increased from $475 to $550 a month, a 16% increase.

A total of 13 renters who received such rent increase notices filed complaints with the State of Missouri Attorney General’s Office. After investigating, the Attorney General filed suit against the offending landlord for price gouging. In its suit, the Attorney General’s Office asked the court to (1) issue a permanent injunction prohibiting the defendant landlord from engaging in unlawful, unfair and deceptive practices, (2) to require the defendant to pay full restitution to those consumers who were harmed, in addition to (3) paying a civil penalty of $1,000 per violation of the law, (4) pay the state an amount equal to 10% of the total restitution ordered, as well as to (5) pay all court and investigation costs. That case is still pending.

Closer to home, California has earthquakes, droughts, wildfires and floods. Immediately following the North Bay wildfires of 2017, some landlords raised their rents 80% or more. Governor Jerry Brown issued a state of emergency in the counties of San Diego, Santa Barbara and Siskiyou. California Attorney General Xavier Becerra immediately followed with a consumer alert reminding California citizens that price gouging during a state of emergency is illegal under Penal Code Section 396.

The Attorney General’s warning went unheeded, and his office soon received numerous complaints of price gouging. The Attorney General’s Office responded by filing and serving complaints upon the offending landlords.

Following the Santa Rosa fires, a San Francisco real estate agent and Novato landlord was charged by the California State Attorney General’s Office with three counts of price gouging for spiking the rent of her Novato property in October 2017, just days after the Governor issued an order against exorbitant rent increases in the wake of the wildfires. She’d suddenly raised the rent on her six-bedroom, three-bathroom house from $5,000 per month to $9,000 per month. A day later, she dropped the price to $7,000 per month, then a few days after that she lowered it again to $5,800 per month. Since all three price increases were above the threshold for what is considered price gouging during a state of emergency, the result was three separate misdemeanor charges, with potential penalties of one year in jail and/or a $10,000 fine. The landlord’s problems may not end there, as violators of the ordinance are also subject to civil enforcement actions, which include civil penalties of up to $5,000 per violation, injunctive relief and mandatory restitution.

What is a State of Emergency?
A state of emergency is an official declaration suspending normal governmental and constitutional procedures in responses to an earthquake, flood, fire, riot, storm, drought, infestation, disease or other natural or manmade disaster. Depending on the size of the disaster, the president, governor, or local city or county governing official can make the declaration. The declaration remains in effect for 30 days, and may be extended for additional 30-day periods as necessary.

Once a state of emergency is declared, California Penal Code Section 396 will apply. In its text, that statute recognizes that after disasters, “some merchants have taken unfair advantage of consumers by greatly increasing prices for essential consumer goods and services. While the pricing of consumer goods and services is generally best left to the marketplace under ordinary conditions, when a declared state of emergency or local emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of essential consumer goods and services be prohibited . . . ”

Barring justification, an excessive increase is an increase of more than 10% above the price charged by the person in question for the same goods or services immediately before the declaration of emergency. Most household goods that people buy for use primarily for personal, family or household purposes are protected, such as food and drink, emergency supplies, medical supplies, and construction materials. Cars and motor homes requiring DMV registration are not covered by the price gouging statute Cal. Penal Code Section 396©.

The statute was amended in 2017 after California wildfires destroyed a significant number of homes and rental units. Under the 2017 amendments, after a declaration of emergency, a landlord cannot increase the rent more than 10% from the unit’s pre-disaster base rental price. However, this base price can vary depending on the lease and whether the unit was previously vacant.

In addition, a landlord cannot evict tenants during the emergency (unless the eviction was already underway) and then re-rent or offer to rent to new tenants for more than the evicted tenant could be charged. These rules also apply to spaces in mobile home parks and campgrounds. (Cal. Penal Code Section 396(j)(11)(A-D).  

Further, AB 1919 proposed by Healdsburg Assemblyman Jim Wood clarifies the existing statute to make it a criminal misdemeanor to raise rents more than 10% after a state of emergency has been declared. Under that new AB, “rental price” of housing means (A) for housing rented one year prior to the time of the proclamation or declaration of emergency, the actual rental price paid by the tenant. For housing not rented at the time of the declaration or proclamation, but rented, or offered for rent, within one year prior to the proclamation or declaration of emergency, the most recent rental price offered before the proclamation or declaration of emergency. (B) For housing not rented and not offered for rent within one year prior to the proclamation or declaration of emergency, 160 percent of the fair market rent established by the United States Department of Housing and Urban Development. This amount can be increased by 5% if the housing is offered for rent fully furnished. 

Other Anti-Gouging Ordinances
Can these anti-gouging ordinances affect rents during times of non emergencies? Can they slow rising rents in California? Oakland Mayor Libby Schaaf praised the actions, stating, “When there’s a fire, you pass an anti-rent gouging ordinance. The state has a fire. It’s called the housing crisis.” Support for rent cap ordinances is building.

For example, Los Angeles mayor Eric Garcetti wants the state legislature to approve an anti-price gouging rent cap. State Senator Scott Wiener states his fellow legislators are discussing similar bills as a way of dealing with the housing shortage over the next 10 years.

Similarly, there has been a movement to pass legislation that would amend already existing rent control laws, and codify regulations where there are no rent control laws to try to control what some deem to be runaway rent increases. Such legislation aims to set a maximum allowable increase in rents, at a level that targets only the most outrageous hikes and leaves alone reasonable landlords who are not gouging their tenants. Under the proposals, if an increase exceeds the ceiling, offending landlords can face a “runaway rent tax,” which is a penalty tax levied upon the landlord. All revenue generated by this tax would be used by the local municipality to create more affordable housing. Tenant advocates claim it would be a win-win for renters, while fair minded landlords would face no adverse effects.

However, landlord advocates oppose such ordinances, calling them a form of tenant welfare that is paid to only a small group of people.

Edward M. Lai is with Fried & Williams LLP and can be reached at 510-625-0100.