Relocation Fees (Again) Return to RSO Commission Agenda

Relocation fees will make another appearance on the Rent Stabilization Commission’s agenda on November 3rd. It is a continuation of a discussion that has proceeded in serpentine fashion through five prior meetings since November of 2020. They commission’s task is to decide whether the Beverly Hills rent stabilization ordinance should be amended to revise the amount of relocation fees awarded when a tenancy is terminated. Here the backstory on the commission’s discussion and our position on the relocation fee.

Background

Relocation fees compensate rent-stabilized tenants when their tenancy is lawfully terminated for one of the five reasons allowed by the rent stabilization ordinance. Generally these include remodeling, redevelopment and landlord use of a unit for a relative. The current relocation fee schedule was established by City Council in 2017; it starts at $7,000 for a studio and increases to $14,000 for units of two or more bedrooms.

The relocation fee is increased annually by the percentage change in consumer prices. There is a supplement of $2,000 to the fee when any occupant is senior (62+), disabled or is a minor. The $2,000 is not adjusted for inflation.

The question is whether the current relocation fee schedule is right for Beverly Hills.

Relocation fees vary by city because the fee is calculated differently. Santa Monica, West Hollywood and Los Angeles use a fixed-fee schedule as does Beverly Hills. Santa Monica is far more most generous than our city. Los Angeles is more parsimonious. West Hollywood does a bit better by relocated tenants than we do.

Culver City is different: it uses a formula that multiples the tenant’s current rent by three and adds a thousand dollars — something that disadvantages tenants with below-market rents — so Culver City provides an alternate calculation that uses a below-median market rent established for the Section 8 program. Neither way of calculating the relocation fee in Culver City is a particularly good deal for tenants.

In mandating a relocation fee each locality is in theory addressing the same problem: the tenant who is evicted needs relocation assistance, including the cost of moving, utilities and at least the initial rent and deposit. But approaches differ and no locality makes explicit its rationale or objective behind the way the fee is calculated.

Beverly Hills is no different. Rent stabilization ordinance section 4–6–9 says only:

If a landlord serves a notice of eviction on a tenant for any other reason [than for-cause], the landlord shall pay to such tenant a relocation fee in accordance with the provisions of this section.

That’s not much to go on! Consequently commissioners have talked for ten hours over five meetings about fundamentals. And they have reviewed various data. But sometimes they seem no closer to an answer about what our fee is supposed to accomplish than when they started talking a year ago.

To be fair, City Council struggled with this issue back in 2018. Council then referred this issue and others to this commission for recommendations.  The stakes are even higher now that the city expects more tenancy terminations for redevelopment in the coming years.

City staff has their work cut out for them too. Imagine herding six commissioners (two tenants, two landlords and two at-large representatives, who are neither tenants nor landlords) toward consensus on a hot-button issue when they were not too familiar with the many specifics of our rent stabilization ordinance.

Deliberations

Deliberations started back in November of 2020. Commissioners heard that the current relocation fees were calculated in 2017 and adjusted for inflation since. They also learned that there are few instances where fees are obligated. That’s because few properties are redeveloped and landlords tend to buy-out tenants rather than evict them for remodeling.

Going back to the beginning, the November 4, 2020 staff report included a memo that explained all about the relocation fee. Then as now the key question was how to fairly compensate tenants who are evicted and thrust into a rental market where the asking rent may will likely be higher. (That is a particular concern for longtime Chapter 5 households that were protected from big increases for decades.)

The Meeting #2 staff report on December 2, 2020 brought additional data to the discussion. There was a table showing how relocation fees recalculated to reflect current (2020) rents were not any higher than the current fee schedule which has been increased for inflation. The staff report also presented a comparison with nearby jurisdictions. Beverly Hills came in at the low end; Santa Monica was the most generous; but Culver City used a simple relocation fee formula for each tenant who was relocated: three times their current rent plus $1,000.

Commissioners immediately indicated an interest in the simple option: Culver City. Landlords liked the easy math while other commissioners found it straightforward to understand. For the city it could be no easier to implement; you could do it on the back of an envelope! There was no market study necessary or analysis or any complicated equations. Something for everybody!

The meeting #3 staff report for February 3, 2021 introduced more data. This time it was actual rents drawn from the rental unit registry. Now we had some real numbers! That data was limited but it did spark a philosophical discussion about how best to compensate tenants. Should certain households (like seniors) receive a higher fee? Should there be a higher fee for 3-bedroom households? Should city employees get a higher relocation fee too? Should mom & pop landlords get a break on paying the fee? What constitutes a ‘mom-and-pop’ landlord anyway?

Some areas of tentative agreement emerged among commissioners: a higher fee for 3-bedroom households, a supplemental payment for city employees, and maybe a higher supplement for senior households. They called it “Culver City plus”: three months of rent plus moving costs and a bump-up for eligible households.

Thereafter things went off-track. Two tenant-commissioners resigned before the March meeting and that plunged the commission into a period of inaction. It was reconstituted by City Council in August 2021. And relocation fees were back on the agenda. But there wasn’t time to discuss it and the relocation fees item was tabled until September. But then the September meeting was cancelled and the discussion was pushed back yet again.

Discussion commenced at meeting #4. The staff report for September 13, 2021 reflected the confusion. It was difficult to understand. There was an attached staff report for September 1st (the cancelled meeting) which itself had an attached staff report for the delayed August meeting. To understand what was happening the public had to peel back the layers like opening a set of nested Russian dolls.

The saving grace: the rent stabilization division presented an updated estimation of moving expenses (p. 113) in the meeting #4 September 13th staff report which was helpful. Tenant commissioners thought the Culver City formula’s $1,000 for moving expenses seemed too low.

By this point in the commission’s deliberations it was apparent that nobody from the public was following the commission’s deliberations. Renters Alliance recapped some meetings but the recylcing of the same arguments and successive staff reports made for tough going. Unsurprisingly virtually no members of the public contacted the commission about the relocation fees. Even reconstructing this timeline has been frustrating and time-consuming!

By the 5th meeting October 6th staff report it was clear that commissioners were solely focused on the Culver City formula. Helen Morales, deputy director of the rent stabilization division, appeared to put a thumb on the scale in favor. But now there was a new wrinkle: the Culver City formula was not as straightforward as it seemed! From the October 6th staff report:

Upon a further review of the Culver City ordinance, it is important to note that the Culver City ordinance provides that for no-fault terminations: the landlord shall pay a relocation fee in the amount of three (3) times the greater of tenant’s current monthly rent in effect or the Small Area Fair Market Rent established by the U.S. Department of Housing & Urban Development (HUD) for a comparable unit in the same ZIP code, plus one thousand dollars.

The staff report included HUD’s Small Area Fair Market Rent schedule. It showed that the small-market rents were not the median rents (the 50th percentile and the middle of the range) but rather were 40th percentile rents which is well below the median. That 40th percentile was chosen because HUD was choosing a lower percentile for the purposes of administering the Section 8 housing voucher program. (Commissioners ultimately set aside the small-rent figures.)

However on the table was still that key question: how to fairly compensate longtime tenants who may be below-market on rent but will pay market rents when they are relocated?

For landlords on the commission, less was more. Frances Miller asked, Why not count the relocated tenant’s security deposit toward the relocation fee? The reasoning: when she returns her tenants’ deposit, which is the equivalent of two months rent, the household needs only the third month’s rent for the lease signing (the first month’s rent plus two months deposit). Wasn’t a relocation fee that is three months rent plus moving expenses on top of the two months rent they get back from the security deposit too much for the landlord to pay?

Helen Morales, deputy director of the rent stabilization division, clarified that the deposit is the tenant’s money already and should be considered separate from the relocation fee. She added that state law won’t allow the deposit to be used for a relocation fee anyway.

Landlord and Vice-Chair Neal Baseman took a different tack. He though that rent stabilization has already cut these tenants a big break on the rent over time. Why shouldn’t they use that windfall for a new place? “If a long-time tenant has been there and paying less rent for a long period of time, then they’ve obviously saved a lot of money versus what somebody who is paying market rent every year,” he said. “They should have saved up some money over the years, and you know, they can move on.”

Fellow commissioners weren’t convinced by that reasoning. The discussion was then continued to meeting #6 in November.

On the Table for the Upcoming November 3rd Meeting

What’s on the table for discussion on November 3rd are virtually all of the questions that have preoccupied the commissioners to date. The staff report highlights these guiding questions:

  • Whether to modify the current relocation fee calculation
  • Whether to increase the existing $2,000 senior/disabled/minor additional fee by the CPI
    index (which would increase the additional fee to $2,257.02);
  • Whether to modify the relocation fee for owner occupancy to add a Mom and Pop reduction; and,
  • If a Mom and Pop reduction in the relocation fee for owner occupancy is recommended, the Commission must define:
  • what constitutes a “Mom and Pop” landlord?;
  • what documentation is required to meet the Mom and Pop designation?; and
  • what is the reduction?

If commissioners were buying a car we could say they haven’t yet chosen the model much less agreed on trim and options. And they’ve been kicking tires since last November!

From to the November staff report here are the basic options for the relocation fee:

The Commission may consider whether to recommend that the relocation fee be the greater of: 1) the tenant’s current monthly rent times three (3) plus one thousand dollars ($1,000); or the average or median current market rent for the same size unit included in the above referenced table times three (3) plus one thousand dollars ($1000).

It is difficult to parse that paragraph so let’s restate the options:

  1. Tenant’s actual rent x 3 months plus $1,000;
  2. Average rent for a similarly-sized unit rented in 2021 (i.e., market rent) x 3 months plus $1,000; OR,
  3. Median rent for a similarly-sized unit rented in 2021 (i.e., market rent) x 3 months plus $1,000.

If none of those options bridges the gap between below-market rents and the higher cost of market rent, how will longtime tenants, particularly Chapter 5 tenants, find a new place in Beverly Hills that they can afford?

Renters Alliance has recommended in public comment at the September and October meetings that the commission consider a fee that does reflect the additional rent that the relocated tenant will pay every month for more expensive replacement housing. However that concept never made it into the commission’s analysis.

Relocation Fee Options

For all of the ten hours of discussion over five meetings we see two practical options: 1) keep the Beverly Hills relocation fee structure we have but updated to reflect current rents and moving expenses; OR 2) calculate the relocation fee in a manner that more closely reflects length of tenure.

Option #1: Update the Existing Fee Schedule

This is a table of relocation fees as was adopted in 2017 but recalculated to reflect market rents for 2020 (a pandemic year) and to provide an incrementally higher move-in payment of $1,300. This table is presented on page 4 of the December 2, 2020 staff report. We have adapted the table to include the current city relocation fees for comparison to the ‘updated’ table.

2020 market rents Studio 1-BR 2-BR 3-BR
$1,799 $2,400 $3,800 $5,850
Relocation fee
Three months rent + $5,397 $7,200 $11,400 $17,550
Moving expenses + $1,300 $1,300 $1,300 $1,300
Utility start-up costs $285 $285 $285 $285
Updated relocation fee $6,982 $8,785 $12,985 $19,135
Compare: current fee $6,988 $10,323 $13,986 N/A
Source: December 2, 2020 staff report. Table by Renters Alliance.

Note that comparing the current fees (at bottom) with the ‘updated’ values it looks like the studio fee is unchanged. That is not surprising because the current relocation fees have been increased for inflation each year since 2017. However the updated 1-bedroom fee shows a decrease of 15% from the current fee amount; the 2-bedroom fee shows a more modest decrease of 7%. Why are these fees lower?

These fees are lower because the market rents used to calculate the updated fees in this table are actually lower than 2017 rents. That is likely due to the pandemic, which pulled rents down in 2020. (The studio category likely decreased modestly but greater compensation for moving and utilities offset the decrease.)

This table highlights the challenge of revising relocation fees at this turbulent time: the data we have on current (i.e., market) rents may not reflect actual conditions until the market stabilized. We may see this uncertainty persist well into 2022. Asking rents today may be substantially higher than the data for market rents may indicate.

Regardless, the updated fee schedule represents the conservative option: use the fee structure we have but tweak the numbers to reflect today’s condition. Even more conservative would be to keep the fee schedule we have until the market stabilizes. That may be the better option!

Option #2: Make the Fee Reflect the Higher Cost of Replacement Housing

We think that when a tenant is involuntarily displaced the relocation fee should reflect the higher cost for the replacement housing. This is worth considering because under-market households will need a comparatively higher relocation fee to cushion them in the transition to more expensive market-rate rental housing. In contrast, market-rent households are already paying market price. Shouldn’t they get a comparatively lower relocation fee if they don’t need to be cushioned against more expensive replacement housing?

That is how the federal government thinks about it!

Fifty years ago Congress passed the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 to quantify the relocation assistance paid to “displaced persons” due to federal activity. United States Code Chapter 61 Title 42 contains a section titled Replacement housing for tenants and certain others which mandates a fee in the “amount necessary to enable such person to lease or rent for a period not to exceed 42 months, a comparable replacement dwelling….”

That’s really the concept we’re reaching for here: compensating tenants for the additional cost of replacement housing.

The Department of Housing and Urban Development relied on the Uniform Relocation Assistance statute when it promulgated a memo titled Relocation Assistance to Tenants Displaced From Their Homes. The HUD policy statement includes this section about the relocation fee:

The assistance needed for one month is determined by subtracting the “base monthly rent” for your present home from the cost of rent and utilities for your new home (or a comparable replacement home, if that cost is lower). That monthly need, if any, is multiplied by 42, to determine the total amount that you will receive.

The HUD not only identifies how relocation assistance is determined — according to need — but it also touches on nearly every aspect of the concept of a relocation fee. The Rent Stabilization Commission did not see this HUD memo. The commission didn’t hear from the rent stabilization division about the federal requirement for 42 months of relocation assistance. Unfortunately it was not brought to the commission’s attention over the ten hours of commission meetings.

We think it is important to consider the HUD policy. So we extracted Beverly Hills rental unit registry data from a rent stabilization division report provided to City Council in August. This is what the report’s table looked like.

current rent by move-in-date chart by unit size via RSO report 2021-8-3

We then drew on that data to calculate how much an average Beverly Hills household would receive under the HUD formula by unit size and according to length of tenure. What we generated was a table of HUD-type relocation fees across those categories (excluding the moving and associated expenses).

2021 market rent Studio 1-BR 2-BR 3-BR
$1,890 $2,246 $3,465 $4,147
Move-In Period Relocation fee
2016-2020 $5,628 $1,596
2011-2015 $17,010 $7,476 $20,118 $3,066
2006-2010 $23,898 $7,980 $27,006 $18,564
2001-2005 $23,352 $15,162 $29,064 $25,914
1996-2000 $31,836 $20,034 $39,774 $44,940
Data: Rent Stabilization Division report to City Council August 3, 2021. Analysis and Chart: Renters Alliance

What these fee figures represent is the additional expense of higher rent for the hypothetical relocated tenant in any unit size by length of tenure over a period of 42 months (in line with the federal relocation fee policy). Again we arrive at these figures by taking the monthly difference between the current rent and the future market rent and then multiplying that additional expense by 42 months.

There are a couple of things to notice about the values in the table. There is no relocation fee shown for 1-bedroom and 3-bedroom households that moved in between 2016-2020. That’s because the market rents drawn from the rental unit registry report provided to City Council in August show that market rents are lower then rents paid, on average, by households of that tenure in those units.

So if market rent is lower than the rent the relocated tenant currently pays, then under the HUD formula the tenant would not get the housing assistance component of the relocation fee but would be eligible for other expenses. (Again the federal policy is intended to compensate tenants who need the housing cost assistance because the new rent is higher.)

The accuracy of this model depends on an accurate survey of market rents. In this example the market rent is generated by averaging a relatively small number of tenancies created in 2021 in each unit size. It’s a proxy for market rent but not a reflection of asking rents — an important distinction!

In that regard there are inconsistent values across the unit size categories and tenure categories. That’s more about the data than the model we used to calculate these relocation fees. Of course even relatively recent tenants who receive a relatively small housing assistance allowance would receive assistance with moving and related expenses.

And the last point we would make is that the commission hasn’t really discussed the appropriate way to estimate moving and related costs. The staff reports show wide variation from a flat $1,116 used to calculate the current relocation fee (in 2017) to a flat $1,300 used in the updated table of fees (in 2021). (We illustrated that table in Option #1 above.) Estimated moving expenses rise as high as $6,760 at the upper end of the range for a 3-bedroom apartment as illustrated on page 113 of the September staff report.

Have Your Say

The Rent Stabilization Commission will discuss relocation fees for the sixth time on November 3rd.
You can contact the commission to comment on any aspect of the commission’s work on relocation fees. The agenda shows relocation fees as item #3 under continued business. Want to comment? You can contact the commission by phone just as the item is being introduced during the Rent Stabilization Commission meeting on November 3rd at 6 pm. Call 310–285–1020 and tell the receptionist which item you are calling about. Or send an email prior to the meeting to commentRSC@beverlyhills.org and note in the subject line that it is comment on agenda item #3 Relocation fees.

The staff report frames a number of questions for discussion. Should relocation fees be calculated differently? Should there be a mom-and-pop exemption discount? How to define mom-and-pop? Should the supplement for qualified households be increased for inflation — or is the current $2,000 the wrong number? Have your say to commissioners on any of those questions or any other aspect of the relocation fee.

Our View

We don’t see the need to continue to overthink the relocation fee. After five meetings and ten hours of discussion let’s either: 1) continue with the city’s current fee schedule, add a fee for 3-bedroom households, (as commissioners have agreed) and continue to increase it annually for inflation; or 2) begin to calculate the fee using HUD’s prescription that provides 42 months of the difference between the current rent and the market rent for below-market households that will enter a more expensive housing market.

We tend to favor the HUD approach because it seems more equitable.

Second, forget the mom-and-pop exemption because it is not necessary. Few tenants are awarded relocation fees anyway, and far fewer will be evicted by a resident-owner eligible for a reduced fee. It’s not worth spending time on much less trying to define ‘mom-and-pop’ when City Council couldn’t do it.

Third, forget any more talk about median rent verses average rent for the purpose of calculating the relocation fee. If the concern is outlier values (i.e., very large or very small rents) then calculate a ‘trimmed mean’ to excluding the statistical outliers.

And finally let Culver City keep their formula. Culver City can’t be the answer only because the math is easy!

Do you have a question about Beverly Hills relocation fees? Please get in touch with Renters Alliance!