RSO Commission to Consider Relocation Fees

City council has tasked the Rent Stabilization Commission with discussing important aspects of the city’s rent stabilization ordinance and then recommending to council whether changes should be made. Up next is relocation fees: should the fee requirement be eliminated — or should the relocation fee amount be reduced or in some way modified? Here’s our preview of the commission’s relocation fee discussion.

City council created the Rent Stabilization Commission in 2019 to hear certain landlord-tenant disputes such as disruptive tenant proceedings and, more recently, tenant appeals related to COVID–19 rent forbearance. More significantly the commission has been charged by city council to discuss key rent stabilization ordinance provisions — like relocation fee amounts — and then to provide city council with a policy recommendation.

For example, in November the Rent Stabilization Commission discussed whether to regulate cash-for-keys buyouts. (As cash-for-keys implies, the landlord buys-out the tenant to facilitate a voluntary vacancy where the rent stabilization ordinance would otherwise offer the tenant some protection against eviction.) We strongly favor regulation, which could be anything from requiring a simple tenants-rights disclosure to a more systematic tracking of buyouts and amounts.

Last month the commission declined to recommend that the cash-for-keys buyout be regulated in any way. Not even a tenants-rights disclosure. Moreover, a majority of the commissioners agreed to not even discuss it. That was only the latest sign that the commission has more work to do to get up-to-speed on important rent stabilization issues.

Up next is the relocation fee: should city council eliminate, reduce or increase the relocation fee, or , or otherwise modify the ordinance related to relocation fees? The commission will discuss it Wednesday evening.

Relocation Fee is Required

Relocation fees are required for both Chapter 5 and Chapter 6 rent-stabilized tenants when the landlord terminates a tenancy for any lawful reason due to no fault of the tenant. There are reasons to terminate a tenant for cause: damage to the unit, unlawful occupancy, etc. The relocation does not apply in those cases. As the ordinance explains:

However, if a landlord serves a notice of eviction on a tenant for any other reason, the landlord shall pay to such tenant a relocation fee in accordance with the provisions of this section. The relocation fee shall be due and payable to the tenant, regardless of whether the landlord actually utilizes the apartment unit for the purposes stated in the notice of eviction, unless the landlord notifies the tenant in writing of the withdrawal of the notice of eviction prior to such time as the tenant has given the landlord notice of his or her last date of occupancy, or has vacated the unit, if a notice of the last date of occupancy is not given by the tenant. — B.H.M.C. 4–6–9

The relocation fee kicks in when the vacancy is not voluntary and where the tenant is not at fault. The fee itself reflects two overarching considerations:

1) Expenses incurred to secure replacement housing after an involuntary no-fault eviction; and,
2) Economic loss arising from “forgoing the financial benefit of remaining in a regulated unit, as compared with a replacement market-rate unit” (as a memo on the issue described it).

The latter reflects the value of a rent-stabilized tenancy. Finding comparable replacement housing will almost invariably cost more than the current housing — and in the current rental market much more. The difference in monthly rent between those comparable units when multiplied over years can equal tens of thousands of dollars.

The expenses incurred to secure replacement housing include (but is not limited to) first month’s rent, security deposit, moving expenses, and ancillary expenses related to utilities to name a few. Practically there is also the loss benefits associated with living in Beverly Hills. We know of families who were priced-out of the city and must secure alternate schooling for the kids. That can cost money too.

In sum, the relocation fee is intended to compensate a tenant who is lawfully but involuntarily terminated. The current fee schedule was adopted in April of 2017 and has been incrementally increased to reflect the change in consumer prices. The relocation fee is identical for both Chapter 5 and Chapter 6 tenants.

Studio 1-bedroom 2-bedroom
Beverly Hills Relocation Fees $6,726.53 $9,936.10 $13,461.75
Households that include a senior, disabled person, or a minor shall be entitled to an additional relocation fee in the amount of $2,000

There are a few things to notice about the relocation fee schedule.

First, the relocation fees in Beverly Hills are much lower than Santa Monica. According to the December staff report, a tenant relocated from a Beverly Hills 2-bedroom will collect about $13,000 here while a tenant in a comparable Santa Monica unit would collect $33,000. That’s a big difference. West Hollywood has relocation fees comparable to Beverly Hills but tops out at about $18,000 for a 3-bedroom unit.

Second, our relocation fee schedule does not include a tier for 3-bedroom tenants. It should: larger units cost more to rent. Why send a family with three kids in search of a market-rate, 3-bedroom replacement apartment with a 2-bedroom sized relocation fee? That makes no sense.

Also the supply of 3-bedroom units is quite limited in Beverly Hills; they comprise just 2.5% of all rent-stabilized units. That is because most of our rental properties are older and on balance those properties tilted toward units with fewer bedrooms. For the family with several children a larger unit is not a discretionary expense — it is a necessity. But also difficult to find.

Third, the relocation fee is decoupled from the actual cost of replacement housing. In a hot housing market the asking rent rises much faster than other consumer costs. The current Beverly Hills relocation fee was calculated in 2017 based on a multiple of three times the monthly market rent plus actual estimated costs for moving and utilities and has been incremented higher (most recently in July, up by 1.2%). Anyone who has searched for housing lately knows rents have risen much faster than, say, milk and eggs.

Also, the relocation fee should be periodically reset, perhaps every three years, to reflect current actual housing costs in addition to being incremented upward by the change in consumer prices each year.

Fourth, the relocation fee should recognize the value of the tenancy which is involuntarily surrendered. Consider the difference between the cost of a tenant’s current housing and the cost of the replacement housing in this market. It could be a thousand bucks a month; over two years the hypothetical tenant could be out-of-pocket for $24,000 (24 months x $1k/month) for comparable housing. That loss reflects the value of the rent-stabilized tenancy. The relocation fee should compensate the tenant for the lost tenancy because the landlord benefits commensurately for having the unit voluntarily vacated.

Read more about ways we suggest the relocation fee provision in Beverly Hills can be improved in our comment to the commission.

You can call in to the meeting to comment live at 310-285-1020 or email your comment to the commission prior to the relocation fee item being heard. Find commission contact information on the December 2, 2020 online meeting agenda or get in touch with Renters Alliance about how to get involved.