Moratorium Protections and Rent Increases Come Back to City Council

Coming back to City Council is the discussion about whether and when to wind down the city’s COVID moratoria on evictions and rent increases. The Rent Stabilization Commission teed-up the issue in October by recommending that COVID tenant protections be ended immediately. Council took no action then but in January agreed to tentatively sunset the moratoriums at the end of March. Council revisits the question now in light of Omicron. Will Council allow evictions to resume and rent increases to recommence?

As previously reported the Rent Stabilization Commission in October voted to recommend that City Council summarily end all COVID-era tenant protections. The protections include the moratorium on eviction for nonpayment; the moratorium on eviction for no-fault; and the moratorium on rent increases. Also to be decided is when to require repayment of rent delayed by the city’s moratorium. Council was reluctant to follow the commission’s recommendation, however, and took no action then.

When the issue came back to Council in January it bunted: due to Omicron action was deferred. Now the issue comes back to Council on February 15th with the question of whether or not to wind-down COVID tenant protections on the tentative end date of March 31st. Also up for discussion is whether to allow landlords to capture rent increases suspended by the moratorium. You can have your say until item #A2 is heard by City Council at the 2:30 pm afternoon meeting. Follow the directions at the top of the meeting agenda.

Let’s break it down starting with the moratorium on rent increases.

Time for a Post-Moratorium Rent Increase?

When should the moratorium on rent increases be ended — and should the landlord be allowed to capture some or all of the additional rent lost during the pandemic emergency?

To answer the first question City Council will likely debate whether we are in some post-pandemic ‘new normal.’ Clearly we are over the Omicron hump. Los Angeles County officials say the current infection reporting rate of 9,500 cases per day is much down from the Omicron peak of 44,000 daily cases in January. Yet it is still much above the 1,600 daily cases reported in December and the County still maintains an indoor mask mandate.

But has economy has recovered sufficiently to allow rent increases to resume? This is complicated by a tale of two households: some households saw incomes rise and perhaps benefitted from the asset bubble and these households arguably can afford to pay a rent increase; other households have struggled though pandemic-related economic challenges and some continue to struggle. For these households a rent increase will be problematic.

For low-income households in particular this moment is a challenge because inflation is putting on the squeeze. These households spend a disproportionate share of their income on necessities like transportation, food and housing — all sectors where costs have increased most — and the household budget is suffering. But where it concerns housing cost, inflation represents more than a squeeze — it is a vise on households struggling to pay the rent.

Shelter is an expense where inflation is especially durable and persistent. While the cost of necessities like transportation, energy and other necessities rise and fall rents by contrast are locked-in. Once a higher baseline cost for housing is established it persists over the long term because rents don’t decrease when other prices moderate. Rents are locked-in! Moreover, the annual change in consumer prices across the board is what establishes the maximum allowable annual rent increase each July.

What does this mean for Beverly Hills households? According to census data nearly half of all Beverly Hills households are already “severely rent burdened” because they pay half or more of their household income for housing. (The proportion of severely rent-burdened renting household is likely much higher.) There are households that are one rent increase away from deciding to locate outside of the city.

Should Landlords Capture Rent Increases Denied by the Moratorium?

A question related to recommencing rent increases is whether landlords should be allowed to capture some or all of the increases missed during the moratorium. The language of the urgency ordinance opens the door to multiple rent increases as we noted a year ago. By now some landlords have missed as many as three rent increases.

Chapter 6 allowable increases 2019-2022 tableCouncilmembers in January expressed concern about tenants paying a high percentage rent increase. So how could a landlord capture past rent increases? There is no easy answer to this question though the February 15, 2022 staff report provides five possible options based in part on the maximum rent increase that would have been allowed each year during the pandemic (reference the table).

Option #1: Allow one or more delayed rent increase(s) to be phased-in over some period of time after an initial post-moratorium rent increase. Following upcoming post-pandemic rent increase, for example, 1% could be added over the three subsequent annual increases (2023–2025) to recover a 3% rent increase that was delayed by the moratorium. But how many rent increases should a landlord carry forward — and how to spread them out?

For example two delayed rent increases that total 6% could be carried forward by adding a surcharge of 2% each year for three years. This is over and above whatever is the allowed percentage in the coming years. Or a 1% surcharge could be added for the next six years. Whatever the choice the headache is administration. The rent stabilization division will undoubtedly hear tenant complaints about unexpectedly-high annual rent increases.

Option #2: Carry forward only the actual percentage change in consumer prices (CPI) as a surcharge rather than the entire rent increase that would have been allowed but for the pandemic. CPI averaged just 1.2% for the 2020–2021 fiscal year period but the table above shows that the rent stabilization ordinance would have allowed 3.1%. The argument for this option is that the 1.2% carry-forward represents the landlord’s actual year-over-year increase in cost; carrying-forward the full 3.1% increase would over-compensate the landlord.

How would it work in practice? The current allowed maximum rent increase percentage is 3.9%. Under option #2 if the moratorium rent increase from 2021–2022 is carried forward but with a percentage that reflects inflation, then Chapter 6 tenants would see a 5.1% increase once the moratorium ends. The math: 3.9% + 1.2% = 5.1%.

Option #3: Carry-forward one or more delayed rent increases incrementally by allowing rent increases more frequently than once every 12 months. The rent stabilization ordinance does not allow more than one rent increase per year. Under this option City Council would suspend that limit and allow some carried-forward percentage increase between the annual rent increases.

For example if the landlord can carry forward the 2021–2022 delayed rent increase of 3.1%, that could be spread out over several increases by first adding 1.1% to the 3.9% post-pandemic rent increase so it would total a 5% increase. Then six months later the landlord could demand a 1% increase. Six months after that another 1% is added to the second annual increase. Six months later, again between annual increases, another 1% rent increase is demanded. The carried-forward 3.1% would be recovered in full at the second annual rent increase.

Yes it gets complicated and the argument against this option is again administration. It would be doubly troublesome if the rent stabilization division had to monitor unexpected off-year rent increases in addition to surcharges on top of the normal annual rent increase. The burden of fast-paced rent increases would fall hardest on tenants on fixed incomes.

Option #4: Allow only the usual maximum allowable annual rent increase after the moratorium ends and forget about any rent increases that were denied by the moratorium. With this option tenants would face an annual rent increase as soon as 30 days after the moratorium ends and that would establish regular annual rent increases at a percentage determined by the rent stabilization ordinance.

In practice a Chapter 6 household would see only a 3.9% rent increase if the moratorium ends before July. (After July the percentage increase is likely to be higher.) The next available rent increase would be 12 months after that. (For Chapter 5 tenants the percentage increase is established each month by the rent stabilization division but more or less reflects inflation like the Chapter 6 percentage.)

(An intriguing aspect of this option is that it brings our city closer to the rent stabilization model of West Hollywood and Santa Monica. These cities establish the maximum annual rent for each unit each year and the landlord generally charges that much. In Beverly Hills the rent increases were not centrally coordinated though the percentage was capped.)

Option #5 is a complicated proposal from the Mayor so let’s defer to the description included in the staff report:

Allow housing providers to impose the 3.1% rent increase that was missed for the period from July 1, 2019, through June 30, 2020, at the end of the rent increase moratorium. The following year, the housing provider would be allowed to impose a 1.2% rent increase for the missed rent increase for the period from July 1, 2020, through June 30, 2021, plus 3.0% for a portion of the missed rent increase for the period from July 1, 2021, through June 30, 2022. The third year, a housing provider would be allowed to impose a .9% rent increase for the balance of the missed rent increase for the period from July 1, 2021, through June 30, 2022.

It seems unlikely that City Council will discuss this option in much detail. Councilmembers will be more inclined toward a straightforward and understandable solution…and one that either disallows any carry-forward of past rent increases or allows the landlord to carry forward only the part of the annual percentage change that accounts for inflation.

Rent Payment and Repayment

If City Council sticks with the tentative sunset date of March 31st then tenants economically affected by COVID would have to begin paying full rent on April 1st. COVID-affected tenants who can’t pay full rent could face eviction proceedings shortly thereafter. (However state law does provide tenants with an ‘affirmative defense’ against eviction if there is an application is pending for COVID rent relief. How this plays out in the courtroom is unknown to us.)

As for rent repayment, any rent that was delayed pursuant to the city’s moratorium must be fully repaid by May 31, 2023 at the latest, according to state statute, although Council could establish an earlier repayment date. (Rent delayed pursuant to the state moratorium is another matter. It can be recovered by the landlord in small claims court.) It seems unlikely that City Council would accelerate rent repayment though.

No-Fault Eviction

More significant for some tenants is the possible end to the moratorium on no-fault evictions. This is eviction for redevelopment, remodeling, landlord use of the unit or when the landlord wants to exit the rental market. Evictions in progress before the moratorium can again proceed; for these tenants the clock will start ticking on the notice period (generally between 90 days and one year depending on cause and whether there is a senior in the household).

Where evictions are not in progress the landlord could notify the tenant of an eviction as soon as the moratorium ends. This is a real concern because we are seeing renewed interest in multifamily redevelopment for several reasons. On the demand side, there is renewed competition for available apartments and rents are rising. That demand is also stoked by potential homebuyers who have been priced-out of the single-family housing market.

On the supply side, the number of available apartments is limited in Beverly Hills because little housing has been constructed in past decades. Almost none of it was deed-restricted as ‘affordable.’ Rental unit registry data show a decreasing vacancy rate in Beverly Hills, according to the rent stabilization division.

AAGLA webinar: three reasons to sellMost significantly the context of development is changing. High rents are fueling redevelopment interest across the region and our city is no exception. New state incentives are encouraging greater density and the prospect of redevelopment appears to be driving sales. In fact the Apartment Association recently conducted a webinar titled, “Three Reasons to Sell the Income Property You Love…And How to Avoid Taxes When You Do!”

When the redevelopment wheel again begins to turn we will see more tenants displaced than we have in past years. That could mean a buyout (read our explainer before you sign!) or a stepped-up pace of no-fault evictions. Our Community Development Department quietly acknowledged as much at a recent Council meeting.

What will City Council Do?

City Council has proceeded cautiously to date in light of COVID-related uncertainties despite the Rent Stabilization Commission’s October recommendation that the moratorium protections end immediately.
We expect councilmembers to again proceed with caution and for a couple of reasons.

First, there is continued uncertainty about the course of COVID (and its variants). Los Angeles County has extended its moratorium protections through the end of year, including a prohibition on no-fault evictions, eviction for nonpayment, and a rent freeze. There is also a county mask mandate still in place. To date, Council has shown no interest in getting ahead of themselves on COVID.

Second, councilmembers seem to understand that some households are precariously-housed even before the pandemic and now we are facing a tougher housing market, a decreasing vacancy rate and evidently higher rents. The prospect that tenants could be displaced into a housing market characterized by rising rents and against a backdrop of higher inflation and economic uncertainty will likely give councilmembers pause.

We think it likely that City Hall will move cautiously and again extend the sunset date from March 31st to May 31st. The benefit to some segment of COVID-affected tenants is real and the impact on landlords marginal. In fact the staff report identifies this option explicitly in several places.

A sunset date in May would align with Los Angeles County’s recently-extended moratorium, which in phase I extends the moratorium on eviction for nonpayment to May 31st. Were the city to let our moratorium protection sunset on March 31st, then tenants in Beverly Hills could still claim protection under the County moratorium. Why then let the city protection expire? Our money is on a May 31st sunset date.

Do you have a view on what City Council should do about moratorium tenant protections and rent increases denied during the local emergency? Please get in touch with Renters Alliance!