Westside City Realtors Take a Look at Rent Control and Stabilization

How do the rent control and stabilization laws compare in the four Westside cities that have rent stabilization ordinances? That was the topic of a luncheon panel held Friday in Santa Monica, sponsored by the Beverly Hills/Greater Los Angeles Association of Realtors (BH/GLAAR).

About 70 area Realtors were on hand to hear representatives from West Hollywood, Beverly Hills, Los Angeles and Santa Monica discuss various changes in their city’s rent stabilization ordinances as well as plans for earthquake retrofitting of rent-controlled apartment buildings.

“It’s important for [Realtors] to know this information so they can adequately advise their clients of disclosures required, changes required, increases every year, security deposit requirements, all of those necessary items which rent stabilization requires that unless you have a trained person advising you when you buy a property, it’s hard to know, it’s hard to understand, and it’s hard to learn,” said James Litz, the BH/GLAAR government affairs director, explaining the need for the panel.

Under rent stabilization rules, landlords are allowed to raise rents by a certain percentage each year, but the amount of that raise varies from city to city.

Peter Noonan, the housing manager for West Hollywood, told the Realtors the city’s annual rent adjustment for 2018 will likely be in area of 1.75%. The exact figure won’t be determined until the Consumer Price Index (CPI) numbers for May are released in mid-June and will be announced at the June 28 meeting of the city’s Rent Stabilization Commission. Last year’s increase was 1.75%.

In Los Angeles, the annual rent adjustment can range from a minimum of 3% to a maximum of 8% under the city’s rent stabilization ordinances. However, Anna Ortega, director of rent stabilization for the city of Los Angeles, said it has been decades since an 8% increase was allowed. In recent years, the annual adjustment has been 3%. She noted that if the Los Angeles didn’t have a 3% minimum in place, last year’s rent adjustment, based on the CPI calculation, would have been 2.52%.

In Santa Monica, the annual rent adjustment for 2018 is 2.9%, up from last year’s 2.75%. Dan Costello, the Santa Monica Rent Control Board’s public information officer, said they are considering a $60 cap for any of those increases.

Beverly Hills has two categories for rent-stabilized units – those which started with a rent under $600 and those which started above $600 – explained Nestor Otazo, the city’s code enforcement manager.

At this point, only about 1.5% of Beverly Hills’s rent-controlled units are still in that first category where rents started under $600. Those units must be the primary residence for the tenants and must be occupied for a minimum of nine months per year. For those tenants, a 1.7% rent adjustment will be allowed in 2018.

The overwhelming majority of Beverly Hills tenants fall into the second category. Prior to 2017, Beverly Hills allowed rents on those units to increase by 10% per year. However, following resident complaints, the City Council lowered the annual rent adjustment figure to 3% or the amount of the annual CPI, whichever is higher, said Helen Morales, the city’s deputy director of rent stabilization.

Unit Registry and Airbnb

While West Hollywood and Santa Monica have required building owners to register each rental unit with the city for decades, Beverly Hills and Los Angeles, have only just started such a registry.

In Los Angeles, an optional rental-unit registry was started in 2017, but it became mandatory in 2018. If an owner does not register, he or she does not receive a registration certificate and cannot legally rent any units.

Likewise, Beverly Hills also started its rental unit registry in 2017. “We wanted to collect information about the structures in the city,” said Otazo.

In all four cities, the unit registration can be done in person or online.

Vacation rentals such as Airbnb has been a hotly debated topic in recent years. West Hollywood recently banned Airbnb in all rental apartment buildings. Santa Monica has the same policy. However, both cities allow “home sharing” where home or condo owners can rent out rooms in their home via Airbnb, provided the owner is present during the rental period.

Beverly Hills has not yet adopted a policy regarding Airbnb, but its zoning codes prohibit any rentals of less than 30 days, Otazo said.

As for Los Angeles, Ortega said the City Council has been studying the issue for the past two years, but has not yet passed an ordinance, which means that Airbnb is currently allowed in apartment buildings.

“At the moment in Los Angeles, it’s the Wild West,” said Ortega.

However, apparently not for much longer. Ortega expects the Los Angeles City Council to soon pass an ordinance prohibiting Airbnb rentals in rent-controlled buildings, but will likely allow “home sharing.”

Earthquake Retrofitting

Seismic retrofitting of older buildings that are especially vulnerable to collapse when a major earthquake eventually happens is a key issue in each of the four cities. Yet each city is at different stages of formulating an earthquake retrofit ordinance.

Since most of the buildings that fall under the rent-stabilization ordinances are older and were built to less stringent earthquake standards, the retrofitting is needed to protect the buildings and guarantee tenants still have a home after an earthquake hits.

“[By enacting these seismic retrofit ordinances], we are maintaining and preserving our rent-stabilized housing stock into the future and supporting our rent-stabilized tenants as well as our rent-stabilized landlords,” said Noonan, explaining the reason behind West Hollywood’s policy, a statement to which the other cities’ representatives concurred.

Retrofitting a building can cost anywhere from $100,000 to over $1 million, depending on the size and type of building. Such costs can be higher than some landlords can afford, so having tenants absorb some of those costs may be part of the plan.

Los Angeles, which passed its earthquake retrofit ordinance in 2017, allows 50% of the retrofit costs to be passed through to tenants, with a maximum cost of $38 per month for a period of no more than 10 years. Los Angeles building owners have been officially notified of the mandatory retrofits and now have seven years to complete them.

West Hollywood passed its retrofit ordinance earlier this year and is currently determining how much, if any, of the retrofit expenses can be passed through to tenants. The city held two public meetings in May to get resident input and also has an online survey for tenants and landlords to fill out.

Noonan said the city’s staffers will present a proposal for pass-through costs at the June 14 meeting of the city’s Rent Stabilization Commission, followed by a public meeting explaining the proposal on June 16. The Rent Stabilization Commission will then vote on that recommendation at its July 12 meeting and the City Council will likely take it up at its Aug. 6 meeting.

Once that pass-through amount has been determined and landlords officially notified, owners will have five years to complete the retrofits.

Santa Monica has also passed a seismic retrofit ordinance but has not yet determined the pass-through costs to tenants. That decision has been delayed because it is unclear in the city’s charter whether Santa Monica’s City Council or Rent Control Board has the final authority in the matter. However, Costello said it looks like Rent Control Board has the authority.

As for Beverly Hills, the city is currently studying the matter, but has not passed an ordinance. Otazo said they are closely watching how the neighboring cities handle the retrofit ordinances and pass-through costs before making their decision.

Building Upkeep and Possible Sale

After the meetings, Chris Bowen, BH/GLAAR’s deputy communications director, said they were pleased to host the panel and glad to provide the information to realtors.

Bowen also told WEHOville that while some landlords may be reluctant to do upkeep and other basic maintenance, those building owners are the exception, not the rule.

“A majority of owners want to have [tenants] living in positive conditions, so they are happy to pay their rent,” Bowen said. “When you have a situation where there are poor living conditions, it usually means, not always, but usually means that building is no longer profitable. If you’re a building owner, your motivation to keep that building operational when it’s operating at a loss, is not particularly high.”

When buildings are operating at a loss, owners often consider selling it. While the idea of selling a building can be frightening to many residents, BH/GLAAR’s James Litz said it should be viewed as an opportunity.

“If a seller puts a building on the market, it’s the Realtor’s obligation to bring them the best offer for it,” Litz said. “The tenants should, if they want to, get together and buy the building. That is a great investment opportunity for tenants to buy a building and actually have an investment that they build a nest egg on and collect the rents from. We encourage tenants to join together and buy buildings. A lot of first time home owners come from the tenants who want to buy a duplex or triplex to get the market and know they have a little income coming in.”