Title
Introduction of Ordinance Amending the Alameda Municipal Code by Adding Section 2-23 to Article II Concerning the Creation of a Rent Review Advisory Committee; and
Introduction of Ordinance Amending the Alameda Municipal Code by Adding Article XIV to Chapter VI Concerning the Review of Rent Increases. (Community Development 481005) REVISED AS OF JULY 21, 2015
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Introduction of Ordinance Amending the Alameda Municipal Code by: a) Adding Section 2-23 to Article II Concerning the Creation of a Rent Review Advisory Committee; b) Adding Article XIII to Chapter VI Concerning the Review of Rent Increases
BACKGROUND
On January 20, 2015, the City Council directed staff to prepare an ordinance that would address six discussion points, developed through a community-based process, regarding concerns expressed by tenants about rent increases and concerns expressed by housing providers that the City not create or impose significant procedural or financial hardships on them.
In addition, because the procedures that were proposed to address the identified issues would continue to rely on the use of the Rent Review Advisory Committee (RRAC), Council directed that an ordinance be drafted that would formalize the RRAC by establishing it as one of the committees in the Municipal Code and better define its duties.
On May 5, 2015, staff presented two draft ordinances to the Council for its consideration. One ordinance continued the current practice of allowing a tenant to request a rent review hearing regardless of the amount of the proposed rent increase. The other ordinance required a minimum percentage rent increase and provided an informal conciliation process to address those rent increases that did not meet the minimum percentage increase. In addition, staff requested Council direction regarding undertaking a study to analyze the impacts of rising rents on Alameda residents.
The Council stated its preference for Ordinance A, the ordinance that permits a rent review hearing regardless of the proposed rent increase amount, and directed preparation of a study to analyze the impacts of rising rents on Alameda residents. While the Council expressed its preference for Ordinance A, it also asked whether certain provisions in the draft ordinance were preempted by state law, specifically the Costa-Hawkins Rental Housing Act (Costa-Hawkins).
Ordinance A provisions would deny a landlord the right to increase a tenant’s rent if the landlord failed to appear at the Committee’s hearing without good case or failed to provide the required notice under the Ordinance. The City Attorney’s Office has researched the question of whether the proposed Ordinance, which has provisions that would deny a landlord the right to increase a tenant’s rent for failing to appear at the Committee’s hearing without good cause or for failing to provide the required notice under the Ordinance, is preempted by Costa-Hawkins, or other state law, and has concluded that it does not. The proposed ordinance does not regulate or control the amount of the rent increase a housing provider may impose so long as the housing provider provides the proper notice and participates in good faith in one hearing before the Committee. In addition, the ordinance does not preclude a housing provider from exercising its right to seek redress in court. Therefore, the ordinance falls within the authority of the City “to regulate or monitor the basis for eviction”, which authority Costa-Hawkins specifically permits.
Based on the City Attorney’s conclusion that the proposed ordinance is not preempted by Costa Hawkins, or other state law, staff is recommending that the City Council introduce two ordinances: one to create rent review procedures and the second to formally create the RRAC.
DISCUSSION
As part of its May 5, 2015 discussion of the Rent Review Ordinance, several Council members asked for minor revisions to the ordinance. A redlined version of the Rent Review ordinance is attached as Exhibit 1 so that the proposed changes can be readily noted. In addition to the requested edits, a severability clause was added, as well as a definition of a “housing unit”.
The City Attorney’s Office has provided the City Council, under separate cover, a comprehensive legal memorandum regarding the question about potential conflicts between the proposed ordinance and state law. What follows is a non-confidential and non-privileged discussion of the question of possible preemption by state law.
Legal Analysis
As a general principle, there are three types of rent control. The most restrictive is called “vacancy control” in which an ordinance sets the maximum rental rate for a unit and requires that rate be maintained even when the unit is vacated and another tenant takes occupancy. A more moderate rent control is called vacancy decontrol/recontrol that allows a housing provider to establish an initial rent for a vacated unit but, after the initial rate is in place, limits rent increases so long as the same tenant occupies the unit. The least restrictive rent control is called permanent decontrol that limits rent increases for occupied units (i.e, for units occupied when the ordinance is adopted) but when the unit is vacated, the housing provider is free not only to set the initial rate but future rent increases as well. Currently the City of Alameda has no type of rent control for residential properties.
The Costa-Hawkins Rental Housing Act (Civil Code, sections 1954.10 through 1954.535) (Act) was enacted in 1995. Costa Hawkins has several sections that state that the Act shall not “be construed to affect the authority of a public entity that may otherwise exist to regulate or monitor the grounds for eviction.” Because the provisions in the draft Ordinance that are at issue would prohibit a “subsequent rental rate” (which is regulated by Costa-Hawkins) for one year or would delay the rent increase until the proper notice under the Ordinance had been served, the legal question is whether there is a conflict between the Ordinance and Costa-Hawkins.
Although courts have found some rent control provisions in conflict with Costa-Hawkins, the draft Ordinance does not include any of the provisions that were found in those cases to be contrary to the Act. For example, it does not regulate or control the amount of the rent increase a housing provider may impose so long as the housing provider provides the proper notice and participates in good faith in one hearing before the Committee. It does not preclude a housing provider from exercising its right to seek redress in court. Rather, the Ordinance’s “stick” to seek compliance with the Ordinance is to provide the tenant with the opportunity to provide evidence in the tenant’s defense in an unlawful detainer action should the housing provider not provide the required notice and/or not participate in the rent review process and then seek to evict the tenant on grounds that the tenant had not paid the higher rent. Under those circumstances, the Ordinance falls within the authority of the City “to regulate or monitor the basis for eviction”, which authority Costa-Hawkins specifically permits.
In addition, there is a strong presumption that a local government’s legislative enactments are valid and must be upheld unless their unconstitutionality, whether based on preemption or otherwise, clearly, positively and unmistakably appears. For example, local rent control ordinances, such as those in Berkeley and Oakland, which limit evictions for “just cause” have been upheld as a valid exercise of a city’s “police powers”, notwithstanding that they provide to a tenant a substantive ground of defense in an unlawful detainer action. Similarly, a local government’s ordinance that requires a notice to the tenant that the tenant must cease creating a nuisance before the landlord may begin eviction procedures has been upheld by the court.
Accordingly, although municipalities may not impair the summary eviction procedures under the unlawful detainer statutes or alter the Evidence Code’s burden of proof in such proceedings, they may by ordinance limit the substantive grounds for eviction. This may be by specifying, for example, that a landlord must prove in an unlawful detainer action, the landlord’s compliance with a municipality’s ordinance that required a certain notice be provided to the tenant.
The proposed Ordinance requires that a housing provider must provide notice of the availability of the City’s rent review procedures. It further requires a housing provider to participate in a meaningful way in the rent increase review process by attending the Committee’s hearing or having a representative present who has the authority to enter into agreements on behalf of the housing provider. If the housing provider fails to provide the required notice and/or fails to participate in the hearing process and thereafter files an unlawful detainer action against a tenant who has refused to pay the higher rent, the tenant may use such failure as evidence in the tenant’s defense in the unlawful detainer action. Based on the analysis above, the provisions in question would not be preempted by the state’s unlawful detainer statutes.
For these reasons, the City, without being in conflict with Costa-Hawkins or any other state law, may enact an ordinance that will allow a tenant to raise in the tenant’s defense in an unlawful detainer action, that the housing provider has not complied with the ordinance’s provisions that the housing provider must provide the required notice concerning the availability of the City’s rent review procedures and must participate in a meaningful way in the rent increase review procedure itself.
Rent Review Ordinances in other Jurisdictions
It should be noted that similar provisions to those proposed in the draft ordinance have been in other cities’ ordinances for many years. For example, under the City of Fremont’s “Residential Rent Increase Dispute Resolution” Ordinance, landlords are required, as in the proposed Ordinance, to notify tenants of the existence of the city’s rent increase dispute resolution process. The ordinance sets forth a very lengthy dispute resolution process in which landlords must participate in good faith. The failure of the landlord to provide such notice or to participate in good faith in the resolution process operates as a complete defense to an unlawful detainer action based on the failure to pay any illegally imposed rent increase.
Similarly, the City of San Leandro’s ordinance likewise requires notice to the tenant of the availability of that city’s rent increase review procedures and requires a landlord to appear before a Rent Review Board if a tenant has requested a rent review hearing. If the landlord in that city fails to provide the required notice or fails to appear at the hearing, the rent increase is void, giving rise to a defense by the tenant should a landlord seek to evict the tenant based on the tenant’s failure to pay the higher rent.
None of the above described provisions of these ordinances, nor any other similar provisions of other ordinances of which staff is aware, have been challenged on grounds that Costa-Hawkins or any other state law preempts their application.
Other Issues
At the May 5 Council meeting, the Mayor requested information about the success of the RRAC process to date. Exhibit 2 is a summary of outcomes of cases by year, beginning in 2000. Over the last 14 years, on average, 71% cases have been successfully resolved.
Lastly, pursuant to Council’s direction to move forward with a study to analyze the impacts of rising rents on Alameda residents, the City has retained BAE Urban Economics to conduct the study. Work commences on July 1 and will be concluded within the next four months. Staff anticipates returning to Council with the report’s findings before the end of the year.
Conclusion
Based on the City Attorney’s conclusion that the proposed ordinance, which creates rent review procedures and formalizes a RRAC, is not preempted by State law, including Costa-Hawkins, staff recommends that such an ordinance be introduced.
FINANCIAL IMPACT
Adopting an ordinance to provide mandatory notice of the City’s rent review process to all tenants receiving a rent increase may impact the City’s General Fund. It is anticipated that the number of requests for a hearing at the RRAC will increase as more tenants are made aware of the program. An increase in cases to be processed may impact existing staff’s capacity to process the requests and schedule cases to be heard within a reasonable amount of time. The Housing Authority has agreed to track the time and resources involved in staffing the RRAC over the next 12 months, and then prepare a report for the City Council documenting the costs involved in administering the expanded program. If additional financial resources are needed, the Council can consider funding the program, or revising program elements to match current available resources at that time.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
The draft ordinance establishing a rent review program and formalizing the RRAC has been prepared consistent with the Municipal Code. A rent review program is consistent with the intent of the Housing Element of the City’s General Plan which is to ensure that the City’s housing stock meets the needs of residents in all economic sectors, including very low- and low-income households.
ENVIRONMENTAL REVIEW
Adopting an ordinance establishing a rent review program and formalizing the RRAC is not subject to environmental review in that the activity is not a “project” for purposes of the California Environmental Quality Act (CEQA) because it is an organizational or administrative activity of the City that will not result in direct or indirect physical changes in the environment. CEQA Guidelines, section 15378 sub. (b)(5).
RECOMMENDATION
Introduction of Ordinance amending the Alameda Municipal Code by: a) adding Section 2-23 to Article II concerning the creation of a Rent Review Advisory Committee; b) adding Article XIV to Chapter VI concerning the review of rent increases.
Respectfully submitted,
Debbie Potter, Community Development Director
Financial impact section reviewed by,
Elena Adair, Finance Director
Exhibits:
1. Redline version of the proposed ordinance
2. Summary of RRAC cases