Sneaking Rent Control into Santa Barbara

Rent control has been a hot political topic this year.  This past May 31st, Governor Newsom signed Executive Order N-12-19 which extends the California “state of emergency” – originally declared in December 2017 in response to the Thomas Fire.

By signing this Executive Order, Governor Newsom also extended the cap on rental increases that automatically goes into effect during a state of emergency. Such anti-price gouging laws are intended to keep landlords and vendors from charging more in times of hardship (i.e. increasing the price of water when supplies are limited or charging higher rent to people displaced from their homes).

Penal Code §396 states that “Upon the proclamation of a state of emergency… it is unlawful for any person, business, or other entity, to increase the rental price… by more than 10 percent.”

Santa Barbara landlords are therefore unable to charge more than 10% higher than their rent levels that existed in December of 2017.  This rental cap is scheduled to remain in effect until December of this year, 2019.  Unless of course, the state of emergency is extended once again.

Violating this price-gouging law constitutes a misdemeanor, punishable by up to one year in jail and $10,000 in fines, per incident.  For owners of large multi-family apartment complexes, these fines can quickly add up.

Lack of awareness of the law is not a defense.  An apartment owner in Santa Rosa recently settled for nearly $60,000 in fines and penalties, once price gouging violations were brought to his attention.  The matter was quickly remedied with existing tenants.

Coupled with these “state of emergency” price caps, is the new City of Santa Barbara Ordinance No. 5885, recently passed in May of this year.  This requires local landlords to offer written leases to their tenants of at least one year, with offers going out or before September 9, 2019. Landlords will be violating Penal Code §396 if these leases include rent increases higher than the 10% cap.

So, without officially instituting rent control, Santa Barbara has implemented a cap on rental increases for the next year.  This may have been intentional or unintentional, if City Council was unaware of the interaction with state law when this was passed.

The headwind from Sacramento is pushing for tenant rights in a tightening residential market.  And residential landlords should take notice.

Selling the “potential” of low rental prices is becoming less of a benefit for income property, as the upside is now being capped.  And with Assembly Bill 1482 now on the table at the state level, which caps rental increases statewide at 7% annually, all indications are that rent control is here to stay.