With the third City Council rent stabilization study session behind us, we can see more clearly what the next rent stabilization ordinance will look like. It is a decidedly mixed picture for those who rent in Beverly Hills. We’ve gained several important protections since this process kicked-off in early 2017. The allowed annual rent increase is limited to the change in consumer prices. Relocation fees assist displaced tenants. The city banned no-just-cause evictions. And landlords now have to register their properties and pay the required business tax. But what Council giveth, Council can take away. Here’s our recap of the third and final rent stabilization study session.
The November 20th City Council rent stabilization study session was local-government sausage-making at its finest: our councilmembers zipped through 35 rent stabilization policy decisions in two hours flat. On some issues the discussion wrapped-up in only three minutes. This was a policymaking ‘lightning round’ that will inform the rent stabilization ordinance that dictates the arrangements under which 7,700 city households contract rental housing.
The staff report provided the 35 guiding questions. Councilmembers took them question-by-question without hardly a reference to a table or a chart or even any of the ten issue memos prepared by the city’s consultant for the purpose. And staffers largely sat on their hands even when the discussion culminated in choices that present clear unintended consequences.
Though Mayor Gold kept the six public speakers to a strict 3-minute limit, he allowed no comment on issues as they came up.
I will summarize here the Council consensus on each issue in the order it was discussed. Watch the meeting video for full details. Council will button-up the final rent stabilization ordinance probably on December 18th.
A new duplex exemption. Council will allow an exemption from the capped rent increase when the property owner is in residence. That means as many as 211 households could face an unlimited annual rent increase if their landlord occupies the adjacent unit or decides to move in a member of the family. Today 99 duplexes are owner-occupied, according to the rental unit registry, and going forward none would find increases capped at the current 4.1%. Instead “the sky’s the limit,” as Mayor Gold said.
Under this provision, ‘owner’ is defined broadly to include individuals, family trusts, and even limited partnerships. So it is very likely we will see more renting households affected by the duplex exemption once owners move in a relative to take advantage of this significant incentive. That’s doubly-bad in the case of a dual-tenant duplex: not only would one tenant be bounced for the relative and leave with a reduced relocation fee (see below), but the other tenant would then face unlimited increases.
Council was careful to say that eviction protections would stay in place for any exempted duplex tenant. But that is an academic point: an unlimited rent increase is a most efficient means of moving a tenant out and zero relocation money would be obligated. Council did grant an exception for the very few (if any) Chapter 5 tenants resident in an exempted duplex.
Use by landlords. Council will allow a significant relaxation on the conditions that apply under the current rent stabilization ordinance when a landlord wants to repossess a rental unit for his own use. Today Section 4–6–6 (H) of the Beverly Hills Municipal Code allows the landlord to terminate a tenant “if the landlord seeks in good faith to recover such possession for use and occupancy by the landlord or the landlord’s spouse, children, or parents…”
The new policy would expand the definition of a ’relative’ to four generations. A tenant could be displaced if the landlord wanted to move in his parents, his kids or his grandkids.
The current policy requires the landlord to pay a relocation fee. The new policy reduces that obligation considerably: the landlord need pay the displaced tenant only 10% of the fee for each year of the tenant’s tenure. Because only four-in-ten tenancies extend to ten years or more, six-in-ten families would be sent packing with only some fraction of the fee; nearly one-in-ten households would depart with less than a third of the fee. That is a very significant rollback to the relocation fee requirement.
Probationary tenancies. Council has decided that the first year of any new tenancy is a “trial” year. The landlord could choose to discontinue a tenancy at his discretion at the conclusion of the lease period (or shortly thereafter). He need give the tenant only six months notice and there is no relocation fee obligation. For year-one tenants this is nothing less than a return to the old no-just-cause eviction allowance. Indeed it is a rollback of the city’s current policy that mandates that the lease transition to a month-to-month tenancy. Notably this provision was not even included on the agenda for discussion!
How would this apply? Let’s take an example. Midway though her first year, the tenant is notified that she must find a new place to live come the end of the lease. Another example: nine months into a lease the landlord informs the tenant that he’s not continuing her tenancy. Because six-month notice is required, she would be obligated to leave her apartment three months after the lease expires.
Again, there is no relocation fee. Although the tenant has incurred significant costs to move in, and will certainly incur added costs to secure replacement housing and move out, the landlord is not required to pay her a fee.
Relocation fee amounts. After an initial “trial” or probationary period expires and the tenancy goes month-to-month, relocation fees would apply. The fee schedule remains unchanged. The fee still tops out at the 2-bedroom tier. Households looking for replacement for their a 3-bedroom or 4-bedroom apartment will find the 2-bedroom fee falls far short. And the supplement for an eligible tenant (minor, senior, disabled) is still a flat $2,000 no matter how many children or seniors are resident. The supplement does not increase with inflation either. Council discussed none of it.
Relocation fees apply whenever a tenancy is involuntarily terminated. For-cause terminations, such as for nonpayment of rent or any termination under the city’s new ’disruptive’ tenant standard, would not incur a fee.
Rent banking. Council took this proposal off the table. It should have. The principle of rent banking is that some part of an allowed rent increase that was not levied at the time could be brought forward to a succeeding year and stack on whatever increase was allowable in that latter year. Council was concerned with rent ‘sticker shock’ if those banked increments stacked up, but in truth it was too complicated for both landlords and tenants and it found no support.
Habitability standards and inspections. Council agreed to establish a new Beverly Hills-specific ‘habitability’ standard. Today the state’s requires a ‘tenantable’ unit to have heat, hot water, weather-sealed windows, and door locks (etc.) so a higher standard would be a significant step forward. However Council punted the development of any new standard to a later time and perhaps to the new rent commission. (More on that below.)
Council did not agree to a regular inspection program, however, so Code Enforcement will continue to address tenant complaints just like the current system. That keeps a tenant in the unfortunate position of reporting her landlord for habitability violations and still vulnerable to retaliation. We should have seen the end of the tacit bargain that for too long allowed a landlord to skate on problems in exchange for a low-or-no rent increase to the tenant. A mandatory inspection program would have solved the problem.
Instead Council agreed to a random inspection program according to a schedule or protocol as yet unidentified. We will have to wait to see what the new ‘habitable’ standard looks like; how random inspections will be undertaken; and how soon some landlords will be held to account for current conditions that do not even meet the lax state requirements.
Finally, Council choose not to situate the inspection task in the rent stabilization program and instead it will remain with Code Enforcement. No doubt the landlords are happy about that outcome.
Qualified status. Council agreed to provide a modest cash supplement to tenants who will qualify for assistance based on household income and the cost of rent. (Together these constitute the ‘rent burden.’) The principle behind this qualified subsidy as expressed by councilmember Wunderlich is that the city wants to help those who need it. And by helping the lower-income tenants, Council could adopt a higher allowed annual rent increase for the rest of us.
This ‘qualified subset’ of tenants would receive the cash equivalent of 1% of the maximum allowed annual increase. So if the allowed increase is 4.1% then the subsidy would effectively reduce it to 3.1% for qualified tenants. As presented the subsidy would not go only to the lowest-income tenants but the lower-income OR rent burdened in each of the unit-size tiers (by number of bedrooms). The details are yet to be determined.
Council has set aside $500,000 for the program initially beginning with the next fiscal year in July. Still to be determined is how that pot of money is divided precisely. Should each tenant be guaranteed the subsidy they need? Should assistance be reduced if more qualified tenants than expected apply? Is $500k even the right sized pot of money? Because the allowed annual increase is the key to a sustainable tenancy, is it even prudent to subsidize some while the rent is allowed to outpace earnings for many others?
Luxury exemption. Council decided to exempt some households from rent stabilization protections if the rent for their unit rises above some as-yet-determined threshold. Here rent cost is a proxy for ‘luxury.’ The threshold (wherever it is set) would vary by unit size. Councilmember Wunderlich suggested that any unit that rents for more than 1.75 times the median rent for the size category could be exempted. Using current registry data for actual median rents, the ‘luxury’ threshold in each unit-size tier would be:
- Studio: $2,527
- 1-Bedroom: $3,325
- 2-Bedroom: $4,725
- 3-Bedroom $6,563
Households paying a higher rent in each tier would be vulnerable to losing their cap on the allowed annual rent increase. How high could the rent be raised for these families? “The sky’s the limit,” Mayor Gold said. Based on registry data I estimate that 341 families (about 5% of all renting households) would no longer have the benefit of the current 4.1% cap if the threshold were fixed at 1.75 x median rent.
We don’t know if exempted households would lose other RSO protections, however. And maybe it does not matter: allowing an unlimited rent increase is tantamount to empowering the landlord to evict at will. Nor do we know if only the rent amount would determine the exemption; or if the cost of rent relative to household income (i.e., the rent burden) would instead determine it. We don’t know because Council spent exactly two-and-a-half minutes discussing it.
Pass-through costs. The key concern is seismic retrofit. If 50% of the retrofit costs were passed-through to affected tenants over the proposed ten year period it would mean $57 more per month atop the base rent. That is in addition to the allowed annual increase and other passed-through costs. That magnitude of pass-through would hit residents of mid-sized properties (between 5 and 10 units) hardest given the somewhat lower rents in those properties.
However no councilmember questioned why the seismic cost should be passed-through to tenants at all. West Hollywood recently put the entirety of the cost on the landlord even though that city caps the annual rent increases at only two-thirds the amount allowed by Beverly Hills.
Councilmembers did question whether a capital expenditure that can be depreciated over 20+ years should be covered by tenants in only ten years. Council also seemed to agree that a 50% tenant share might overcompensate the landlord who gains 100% of the benefit in property appreciation. But in the thirteen minutes taken to discuss it there was no definitive conclusion. (Ultimately 25% or 33% may be passed to tenants.) The amortization period likewise was left undefined.
The solution seemed to be dictated less by reason or rationale and more by the desired outcome: the tenant pays but not too much. “If the amortization schedule were longer, then the percentage to the tenant should be higher,” said Mayor Gold, and he found no disagreement.
Other pass throughs quickly found Council consensus though it was not decided how to extend pass-throughs to the few remaining Chapter 5 tenants. Chapter 6 tenants will pay:
- Some percentage of seismic retrofit over some time period;
- Half the rent stabilization program cost;
- Half the inspection program cost;
- Half the water fee.
Maximum allowable rent increase. You may have expected that this topic would eat up most of the study session. Yet Council took exactly three minutes to decide to maintain the allowable rent increase at 100% of CPI (consumer price index) as it is now. (This past July the allowed increase ticked up to 4.1% with the rise in consumer prices for our region.)
Council also established a 3.5% to 7.5% range in which the allowed annual rent increase can float. When inflation carries the allowed increase higher, as it has recently, the allowed increase can’t exceed the 7.5% ceiling. By the same token, once consumer prices trend lower the new floor of 3.5% will guarantee that landlords can raise the rent at a (compounded) rate well above the change in consumer prices. The latter scenario is more likely as inflation has been historically low; in fact it was near zero just a few years ago. The 3.5% floor benefits the landlords. Indeed it is a half-percentage higher than was allowed as recently as June.
However there was no stated rationale for keeping the allowed rent increase tied to 100% of CPI. Half of rent control cities in the state benchmark their allowed annual increase to less than 100% of CPI. By keeping our allowed increase at 100% of CPI tenants find ourselves in a city that is among the half that allow a more generous return to the landlord. (West Hollywood and Santa Monica allow only 2.8% to just over 3% respectively while the allowed increase in Beverly Hills is 4.1% compounded annually.) There was no discussion about the issue.
Nor was there a stated rationale for the 3.5-to–7.5 percent range for the increase. It was seat-of-the-pants horse-trading: some wanted 3% to 7% (Bosse and Mirisch) and 4% to 8% (Wunderlich and Gold) and so councilmember Friedman suggested the Solomonic approach: 3.5% to 7.5%.
Protection from eviction during the school year. Council banned no-just-cause termination in October but there are other instances when a tenancy can be terminated by law. For example, state law allows a tenancy to be terminated for condominium conversion or redevelopment or even if the landlord wants to stop renting his property. Such terminations portend disruption for students who may have to move out of our school district.
This school-year provision would ensure that no household with a child enrolled in a ‘Beverly Hills area’ school is be evicted before the end of the school year. Council was divided on whether to apply it to teachers but in the end BHUSD-employed teachers got the protection too. So a notice of termination issued during the school year would not be effective until August, Council said, but that would not apply to any household terminated for any ‘at-fault’ reason (like nonpayment or eviction for being ‘disruptive’).
Rent commission. Tenants had proposed a tenant-landlord board to mediate disputes and make policy recommendations to Council. Landlords largely agreed. The board was proposed to include both tenants and landlords with a city official perhaps to preside as Chair.
Council subsequently created a new ‘disruptive’ tenant reason for termination and charged the board with adjudicating it. Council also tasked the board with certain appeals. That meant quasi-judicial responsibilities and Council agreed to structure it more like a 5-member commission. However it is no longer a tenant-landlord body: the new rent commission will be majority homeowners with a single seat each for a tenant and a landlord.
The missed opportunity here is not tasking the new commission with the review of for-cause eviction notices served upon tenants. For example, a tenant can be served with a notice to quit for what should be a correctable action. Or she is served with a 3-day notice to correct-or-quit for a condition long known to the landlord (like a live-in pet or a partner). Those are sometimes retaliatory actions. To challenge the for-cause notice the tenant must take it to court and hire an attorney. But if the tenant had an opportunity to bring it to the commission we might avoid some unnecessary evictions. (Unfortunately Council declined to consider the suggestion.)
With such a mixed-bag of half-baked rent stabilization policies a tenant could ask who stood up for us. Councilmember Lili Bosse was the clarion voice for some tenant protections. When other councilmembers were content to let fees go, she made a stand. Her objection to zero fees for a relative move-in stretched that discussion to nearly 30 minutes. An excerpt:
If I owned a building and I want to put my mother or my children in the building, I should be able to do that. But I also feel that there is somebody who lives in that apartment building who’s life is going to change because we’re essentially evicting them… [and] I don’t think it should be free… What happens if the owner of the building wants to put their kid there or their mother there? They have no protection and that is what I’m uncomfortable with. — Councilmember Lili Bosse
Councilmember John Mirsich, however, was inclined to offer lesser protection when it came to fees and in the end Council compromised: the fee would be prorated at 10% for each each year of tenancy. That is less than most every rent control city mandates for an involuntary termination. Councilmember Mirisch also suggested the concept of the probationary tenancy. Here too he urged no relocation fee.
Councilmembers Lester Friedman and Bob Wunderlich each staked out middle-of-the-road positions on most issues. Mayor Julian Gold, however, is always the landlords’ ally. In this study session he tried to limit protections where he could. Regarding any cap on the annual rent increase for an exempt unit he said, “The sky’s the limit.” He also pushed to exempt ‘luxury’ units even while pushing-back on a proposal to provide lower-income tenants with a rent subsidy to cushion the annual increase. With four votes in favor he tepidly agreed, though. “We’ll see what it looks like.”
The draft rent stabilization ordinance will next come back to City Council on December 18th for what s likely to be a final approval. If you have an opinion about any of these proposed changes please give City Council a shout by email at MayorandCityCouncil@beverlyhills.org or by phone at (310) 285-1013.