RSO Commission Recommends Changes to the Relocation Fees
At the November 3rd meeting the Rent Stabilization Commission recommended a new formula to calculate relocation fees in Beverly Hills that will, in most instances, reduce the fee paid to households if evicted by the landlord due to no fault of the tenant. At the next meeting in December the commission recommended that tenants of ‘mom-and-pop’ landlords should receive 25% less. If City Council enacts these changes then come July households across the city will fare much worse than today if evicted for no fault. Let’s take a look at the commission’s recommendation.
A relocation fee is obligated whenever a rent-stabilized tenancy in Beverly Hills is terminated due to no fault of the tenant. Reasons for lawful no-fault termination include landlord use of a single unit at the property for a family member, major remodeling, demolition, redevelopment, or condominium conversion.
Today the relocation fees range from $7,000 to $14,000 (by number of bedrooms up to two) plus $2,000 if any occupant is a senior, disabled resident or minor. The current fees were established in 2017 by City Council and are adjusted annually for inflation each July. The fees make no accommodation for ‘mom-and-pop’ landlords so every rent-stabilized household gets 100% of the applicable fee.
City Council has tasked the Rent Stabilization Commission to consider whether the relocation fees should be amended. Over a series of seven meetings culminating (in December) the commissioners supported a recommendation to change the way the fee is calculated:
- Use a formula in which the ‘market rent’ for a comparably-sized apartment (from zero to four bedrooms) is multiplied by three to which is added $1,000 for moving expenses; and,
- Reduce the applicable fee by 25% if the landlord owns four or fewer rental units in Beverly Hills, not counting one single-family home (tenants in residence for longer than ten years would see a reduction of 15%).
The Rent Stabilization Commission’s 4–2 majority supported the recommendation but the commission’s two tenant representatives were opposed. The mom-and-pop provision was supported by a 5–1 majority with one tenant commissioner opposed. City Council may adopt the recommendation; may decline to act and thereby leave today’s relocation fees unchanged; or modify the commission’s recommendation as City Council sees fit. If these recommendations are adopted by City Council then we will see the new fees take effect in July of 2022.
How would the relocation fee be affected? Let’s look at the recommendation in more detail.
Recommended Relocation Fee: Worse for Tenants!
Current relocation fee
The current relocation fee is based on a formula adopted in 2017 that multiplies the market rent for comparable a Beverly Hills apartment times three plus moving expenses which were then estimated at $1,393 regardless of apartment. The market rent used in the formula was determined by housing cost study; the moving expenses (including utility setup) was estimated based on a survey of real-world costs. This table from the 2017 City Council staff report explains how the fees were established.
Notably as the table shows the fees top-out at the 2-bedroom apartment size. For example a household renting a 3-bedroom apartment at a higher rent would still receive only the 2-bedroom fee. Tenants have argued as early as 2017 that households in larger units were disadvantaged by that limitation.
Recommended relocation fee
The Rent Stabilization Commission modeled its recommendation on the relocation fee formula adopted last year by Culver City. That city calculates its relocation fee as three times the tenant’s current rent (or alternately the ‘small-market’ rent for a comparable apartment determined by Housing and Urban Development, whichever is greater). To the fee is added $1,000 for moving expenses (regardless of apartment size).
Over the course of seven meetings the commissioners considered a variety of options but in November it narrowed consideration to just one option: the Culver City formula. Commissioners liked the easy math: (current or market rent x 3) + $1,000.
Rent Stabilization commissioners made one tweak: the Beverly Hills formula would be based on a ‘market rent’ for a comparably-sized apartment in Beverly Hills up to four bedrooms. The market rent is to be determined by staff using the median value for the range of rents for Beverly Hills rent-stabilized tenancies created since January for a comparably-sized apartment. That data is available from the city’s rental unit registry.
The commission-recommended relocation fee carries over the Culver City’s parsimonious $1,000 for moving expenses (again regardless of apartment size); and it carries over the $2,000 supplement from the current Beverly Hills relocation fee payable to households which have a senior, disabled resident or minor as an occupant. Let’s put those carried-over amounts in some perspective.
Concerning the moving expenses, the compensation is lower than what is already on the books — and not by a little. City Council in 2017 adopted a relocation fee that incorporated $1,393 for moving and utilities setup. That was four years ago, and the relocation fee has been adjusted for inflation each year since. Effectively the equivalent moving benefit would be $1,500 today. So $1,000 for moving expenses as recommended by the commission slashes the current compensation by about one-third.
Concerning the $2,000 supplement for qualified households, it has not been adjusted for inflation since 2017. In carrying it over the commission inexplicably recommended against adjusting it for inflation in the future. Consequently the value of that supplement will erode over time with inflation.
Let’s turn to the aspect of the formula that has the greatest effect on the relocation fee amounts: how the ‘market’ rent is determined for the purpose of calculating the relocation fee.
When the ‘market rent’ doesn’t actually reflect the rental housing market
If City Council agrees then the vast majority of Beverly Hills households would receive a much smaller relocation fee if they are evicted due to no fault of their own. That is because the bulk of the relocation fee is determined by how the city chooses a ‘market rent’ for the purpose of calculating the relocation fee. The ‘market rent’ is the value that is multiplied by three in the fee formula.
The commission agreed to allow the rent stabilization division to determine the ‘market rent’ for a comparable apartment with the same number of bedrooms. The division proposes to take the median value from a range of rents for a comparably-sized rent-stabilized apartment that were rented in the city since January.
For example, a household evicted from a 1-bedroom apartment would receive a fee that is in large part determined by the city-determined median rent for 1-bedroom apartments rented since January: $2,281.67 according to the division. That value would be multiplied by three. The November staff report provided the commission with those median ‘market’ rent values.
With the $1,000 for moving expenses added, the total relocation fee for the 1-bedroom household would be $7,845.01. To put that into context the current relocation fee for a 1-bedroom apartment is $10,323.61. That’s a $2,478.60 difference. This table compares today’s relocation fees as posted on the rent stabilization division website with relocation fees calculated according to the commission’s recommended formula with the median ‘market’ rents provided by the rent stabilization division.
Again, the reason why the recommended relocation fee for a 1-bedroom household is lower, indeed why the relocation fees for apartments of two and fewer bedrooms are lower, is because the ‘market rent’ (as determined by the rent stabilization division for the purpose of calculating the fee) is less than the market rent that identified by the city in 2017.
Consequently the relocation fee it generates, even though the formula is not very different, is smaller. And it doesn’t help that the moving expenses component of the recommended fee is significantly less. In sum, both the lower ‘market rent’ used to calculate the fee, and the lower moving allowance, conspire to reduce the recommended relocations fee provided to evicted households.
What does that mean in practice? An evicted household will find that the smaller relocation fee won’t stretch as far when it comes to rent replacement housing. For if the fee is calculated using a base rent that understates the true cost of a month of replacement housing, then it stands to reason that the range of replacement housing options will be more limited than perhaps the commission expected when it recommended the fee formula.
In a companion analysis we will show how the ‘market rent’ in the table above understates the actual cost of rental housing — at least according to asking rents for apartments available online.
###Which households gain, and which lose
It is clear from the table above that the potential gain or loss from the recommended relocation fee relative to the current fee depends on the number of bedrooms that the household occupies. Most disadvantaged are 1-bedroom and 2-bedroom households. Their fee would be sharply lower — 24% lower — than today’s relocation fee if they are evicted. Studio occupants would receive a fee that is 14% lower (a difference of a thousand bucks — no small sum!).
Households in larger units fare better. Those relocated from a 3-bedroom apartment would see a modest increase from the recommended relocation fee. And 4-bedroom households would see a much bigger gain: their fee would be 12% higher than the fee to which they are entitled today. These gains are due to the new 3-bedroom and 4-bedroom relocation tiers as recommended by the commission.
Another way to evaluate the relocation fee as recommended by the commission is whether tenants overall fare better. As our analysis shows, many more households would be harmed than helped. In fact 90% of renting households would fare worse under the relocation fees as recommended by the commission.
Where 4-bedroom households would gain the most from the recommended relocation fee because of the new 4-bedroom fee amount, those households represent just 1% of all rent-stabilized households. There are many more studio, 1-bedroom, and 2-bedroom households and all of them would receive a sharply lower fee. So overall tenants are much worse off under the recommended relocation fee formula. Again, see our companion analysis for a more detailed accounting.
The Rent Stabilization Commission wasn’t presented with an analysis that would show the actual impact on renting households under the recommended relocation fee.
‘Mom-and-Pop’ Landlords Get a Special Break
Commissioners looked more favorably on the ‘mom-and-pop’ provision: by a 5–1 vote commissioners decided that landlords who own no more than four units total in Beverly Hills (besides a single-family home) could pay an evicted household a relocation fee that is 25% lower than the recommended fee. (For the one-quarter of rent-stabilized households that have occupied their unit for more than ten years, the mom-and-pop break is 15% instead of 25%.)
Corporate owners would not be eligible for the mom-and-pop break, according to the commission’s recommendation. Individuals, family trusts, and LLCs that are not corporate controlled could qualify. How many landlords could that be?
We looked at the data. According to the rental unit registry data there are 458 properties of 4 or fewer units. That is about 4-in–10 properties — a big number. How many rental properties are actually owned by moms-and-pops as defined by the commission’s recommendation? Practically speaking, a mom-and-pop landlord can qualify if they are not corporate-owned and own no more than four units. The only valid ownership combinations for any given ‘beneficial owner’ is one 4-unit property; two duplexes; or one 3-unit property.
We wanted to exclude properties that appear not to qualify based on ownership. So we looked at available title information provided to us by a friendly real estate professional and excluded landlords that are corporations and landlords that appear to own some combination of properties that total 5 or more units. (We excluded 74 such properties by cross-referencing landlord entities and mailing addresses.) Based on those exclusions we guesstimate that as many as 384 landlords could qualify for the mom-and-pop break. With more digging we could probably eliminate additional landlords but that would have a marginal effect on the total number of potentially-qualified mom-and-pop landlords.
Our estimate shows how sweeping can be a mom-and-pop exemption as recommended by the commission: as many as a thousand households could be affected. For those households the commission-recommended fees could be reduced by an additional 15%–25%. Most mom-and-pop studio households could see a $1,500 lower fee while most mom-and-pop 4-bedroom households could see a fee reduced by $4,000. That’s not chump change.
The commission did not see any analysis whatsoever that could suggest how sweeping this recommended mom-and-pop exemption could be. Moreover, the commission agreed to allow landlords to self-attest to mom-and-pop status to qualify. That’s called the honor system! We fully expect to see a mom-and-pop empty their building using the state’s Ellis Act paying discounted fees before turning it over to a developer. As we’ve observed before, on the rental market it’s not the longtime tenancy that is of value but the empty unit.
Our Take
Much of the Rent Stabilization Commission discussion proceeded without devoting much attention to the data and staff analysis presented to commissioners over the past year. We put the blame squarely on the rent stabilization division. The meeting staff reports either ran over 100 pages with difficult-to-sort-out attached reports and tables; or the staff reports were so lean that they provided commissioners with too little information. On occasion commissioners had to ask for basic information because it wasn’t provided.
Commissioners also didn’t benefit from staff-side analysis that should have informed their final discussions. For example, in the November meeting the final relocation fee formula recommendation was agreed without knowing that 90% of households would see a significantly lower fee in July if adopted by City Council as recommended. There was room for it in the staff report which totaled only four pages.
In December commissioners agreed on a recommended mom-and-pop fee discount, but they saw no analysis to show that about 1,000 renting households could see a much-reduced relocation fee. The staff report ran to only three pages so there was room there for some additional analysis to inform the commissioners’ discussion.
We provide this analysis because City Council should understand the impact of the Rent Stabilization Commission’s recommendations before adopting them. If the commission had undertaken a more systematic and informed discussion, with some leadership in evidence from city staff, we might have different recommendations today.
In conclusion, let’s remember why a landlord would evict a tenant due to no fault of the tenant: because it makes financial sense. Whether it’s eviction for redevelopment, condo conversion, remodeling, or some other use, the financial upside dwarfs the relatively small relocation fees they would pay today. Why reduce those fees next July? Relocation fees are not even a rounding error in the context of redevelopment.
In Santa Monica renting household get as much as double the Beverly Hills relocation fee and as a result those displaced households can afford to rent again in the city. Their landlords don’t seem particularly inconvenienced as redevelopment continues apace. Why should renting households in Beverly Hills take it on the chin to pad the developer’s bottom line?
[Note: This post was substantially rewritten to move certain aspects of our analysis to a standalone analysis post to improve readability.]