Title
Recommendation to Provide Direction to Staff Regarding Various Amendments to the City’s Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance (No. 3148) Which May Include Amending Various Sections of Article XV of Chapter VI Concerning Review of Rent Increases, Limitations on Evictions, Eliminating the Sunset Clause, and Making Clarifying Amendments; and
Public Hearing to Consider an “Ellis Act” Policy and Adoption of Resolution Adopting a Policy Concerning the Requirements, Procedures, Restrictions and Mitigations Concerning the Withdrawal of Residential Rental Units From Rent or Lease (Ellis Act Policy). (Housing 265)
Body
To: Honorable Mayor and Members of the City Council
From: Amy Wooldridge, Interim City Manager
EXECUTIVE SUMMARY
This special meeting is an opportunity for the City Council to provide direction to staff regarding potential amendments to the City’s Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance (Ordinance 3148), adopted on March 1, 2016. Potential amendments include substantive amendments, such as:
• Eliminating terminating tenancies for “no cause;”
• Instituting an annual maximum allowable rent increase; and
• Revising the requirements for payment of relocation benefits.
Potential amendments could also include clean-up or procedural amendments, such as:
• Eliminating the “sunset clause” and other changes that clarify provisions in the ordinance; and
• Remove internal inconsistencies in the ordinance.
The meeting has also been noticed as a public hearing to consider adopting an “Ellis Act” policy. The Ellis Act policy sets forth certain procedures, restrictions, requirements and mitigations that are to be followed when a rental unit is withdrawn permanently from the rental market.
BACKGROUND
On March 1, 2016, the City Council adopted the Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance (Ordinance 3148). In the spring of 2017, Council adopted Ordinance 3180 that made a number of changes to Ordinance 3148, including eliminating the “no cause” provision as grounds to terminate a tenancy, a substantive change. Subsequently, a referendum petition was successfully circulated to set aside Ordinance 3180. In addition, an initiative petition was successfully circulated to place most of the provisions of Ordinance 3148 into the City Charter. In light of those matters, Council elected to repeal the recently adopted Ordinance 3180 and place the initiative petition on the November 2018 ballot (Measure K). The voters rejected Measure K by a 55% to 45% margin. Therefore, Ordinance 3148 remains in place and can be amended by the City Council as it may decide to do so from time to time.
As a result, staff is seeking direction from the City Council regarding proposed amendments to Ordinance 3148. Amendments could address the following topics (and others that relate to Council direction):
• Those amendments that were adopted as Ordinance 3180 (and later rescinded), including elimination of “no cause” tenancy terminations;
• Direction on an annual maximum allowable rent increase, and accompanying amendments, including a database to track current and allowable rent increases, allow for a hearing officer to consider rent ceiling violations, etc.;
• Other amendments that may be warranted to clarify or are necessary to further amend the provisions of Ordinance 3148, including the “sunset” provision that states that by operation of law, the Ordinance will be repealed in its entirety unless by December 31, 2019, Council affirmatively takes action to retain or modify the Ordinance; and
• Recommendations in the report prepared by Management Partners (Exhibit 4) that the Council reviewed and commented upon in July 2018. For example, revisions to the way relocation fees are calculated are addressed in the Management Partners report.
In addition to providing direction on these topics, staff recommends that the City Council conduct a public hearing and adopt the Ellis Act policy attached as Exhibit 1 to provide procedures, restrictions, requirements and mitigations that are to be followed when a rental unit is withdrawn permanently from the rental market.
The section below discusses each of these issues in more detail.
DISCUSSION
Ordinance 3180 (rescinded)
In spring 2017, the City Council adopted Ordinance 3180 that made a variety of changes to Ordinance 3148. Most of these changes were proposed by staff based on its experience implementing the Rent Stabilization Program (RSP) during the 12 months following adoption of Ordinance 3148. The changes dealt with a number of issues ranging from fixed-term leases and temporary tenancies to clarifying changes to the relocation benefits and procedures and other housekeeping revisions. With minor changes concerning fixed term leases, Exhibit 2 is the Summary of Council Direction and Staff’s Recommended Amendments to the Rent Review, Rent Stabilization and Limitations on Evictions Ordinance that was prepared by staff in 2017, when the Council considered Ordinance 3180. The Summary notes the recommended change by issue, Council direction, and staff’s proposed solution and provides a comprehensive outline of the changes that were included in Ordinance 3180 but never implemented because the ordinance was subsequently rescinded by the Council. The recommended changes are still relevant and staff believes that it would enhance the RSP if the amendments contained in Ordinance 3180, with minor revisions concerning fixed term leases, were adopted.
No Cause Termination of Tenancy
An amendment included in Ordinance 3180 that is not addressed in the attached Summary is the elimination of no cause terminations of tenancy. Ordinance 3148 permits landlords to terminate tenancies for no cause subject to certain restrictions including a requirement that the rent for the new tenant cannot be 5% more than the rent paid by the terminated tenant and that the number of no cause terminations in a 12-month period be limited to 10% to 25% of the units, depending on the number of units in the building. Council voted to eliminate no cause terminations rather than to continue to permit them with restrictions as part of Ordinance 3180. Because Ordinance 3180 was subsequently rescinded, Ordinance 3148 continues to permit no cause terminations as described above.
As noted below, the City of Alameda (City) was one of the first cities in 2015-16 to take action to mitigate the impacts of rising rents and low vacancy rates on seniors and low- and moderate-income families. Over the last three to four years, there has been a number of initiatives at the State and regional levels to deal with the affordable housing crisis and the resulting increase in the number of homeless individuals and families. These initiatives include State legislation aimed at increasing the supply of housing and emergency funding to aid unsheltered people, as well as local jurisdictions adopting laws to stabilize rents for in-place tenants and prohibit no cause terminations. Larger Bay Area cities like Oakland and San Jose took action to strengthen their rent stabilization ordinances and adopt eviction protection measures over the past several years.
In December 2018, the Association of Bay Area Governments (ABAG) and the Metropolitan Transportation Commission (MTC) published the CASA Compact, a 15-year emergency plan to address the affordable housing crisis in the nine-county Bay Area. The Compact has ten elements that address “three P’s”, Protection, Production, and Preservation. One element calls on all Bay Area jurisdictions to adopt “just cause” eviction protections that would prohibit no cause evictions. To implement this element, the State Legislature will consider just cause eviction protection on a statewide basis. Given that the CASA Compact is recommending just cause eviction protection as a “best practice” to protect in-place tenants, the Council may want to provide direction to staff regarding no cause terminations. Council could direct staff to amend Ordinance 3148 to eliminate no cause terminations or maintain no cause terminations with restrictions pending action at the State level.
Because the no cause termination provision was eliminated as part of Ordinance 3180, and that elimination was likely the catalyst for the referendum, staff recommends that, if the Council provides direction to address eliminating no cause terminations, any changes to the Ordinance be handled as a separate, or stand-alone, amendment to Ordinance 3148.
Annual Maximum Allowable Rent Increase
Ordinance 3148 does not set an annual maximum allowable rent increase. Rather, the ordinance requires that all annual rent increases above 5% be heard by the Rent Review Advisory Committee (RRAC). For rent increases above 5% for tenants in multi-family units built before February 1995, the RRAC’s decision is binding unless appealed to a Hearing Officer, whose decision is binding (subject to judicial review). For rent increases above 5% for tenants living in single-family homes or multi-family units built after February 1995, the RRAC’s decision is non-binding. Rent increases at or less than 5% may be heard by the RRAC if requested by the tenant, but such a hearing is not mandatory. The RRAC’s decision is also non-binding for all rent increases of 5% or less.
When Ordinance 3148 was adopted in 2016, it built upon the City’s existing RRAC process that had been in place since the late 1970s, and relied on a “mediation” process that was intended to reinforce community norms about appropriate rent increases and to provide a mediated forum to address rent increases that fell outside those bounds. This system worked reasonably well until rents started their rapid escalation in 2014-15, and vacancy rates declined to well below the 5% rate that is considered healthy. (Currently, Alameda has a 2.5% vacancy rate with 45.4% of tenants paying more than 30% of their income to rent based on 2017 American Community Survey 5-Year Estimates.) Therefore, when Ordinance 3148 was adopted, Council felt it was important to give the RRAC process more “teeth” or enforcement power, but declined to establish an annual maximum allowable rent increase.
Traditional rent control establishes an annual maximum allowable rent increase, typically tied to the Consumer Price Index (CPI). The maximum allowable rent increase can range from 65% to 100% of CPI and in some jurisdictions, there is a maximum floor and ceiling. For example, there may be a floor of 1% and a ceiling of 8%, so that if CPI is 0% or 10%, a landlord would receive a 1% maximum allowable rent increase if CPI is 0%, or an 8% maximum allowable rent increase if CPI is 10%. Rent control ordinances must, however, provide landlords with a fair return on property, so rent control ordinances provide procedures for rent increases above the annual maximum allowable rent increase when required to ensure a fair return on property, typically as determined by a hearing officer.
While Alameda was one of the first cities to address the recent rental housing crisis with a rent stabilization ordinance, since 2016, a number of jurisdictions have adopted or strengthened existing rent control ordinances, including the cities of Richmond, Mountain View, San Jose and Beverly Hills. These cities have adopted ordinances that include an annual maximum allowable rent increase. However, a few cities, such as Hayward and Fremont, have replicated Alameda’s approach in requiring a hearing for rent increases above a certain percentage, and have not established an annual maximum rent increase.
While Ordinance 3148 has been effective in keeping rent increases to 5% or less to avoid a mandatory hearing at the RRAC, concern has been expressed by tenants that successive annual 5% rent increases are not sustainable for seniors living on a fixed income, individuals whose Social Security or other pension does not increase annually at a commensurate rate, or for low- and middle-income families whose salaries are also not keeping pace with an annual 5% rent increase. The compounding effect of an annual increase of 5% can lead to rapidly rising rents, making it financially challenging for tenants, including those who have lived in their homes for a number of years.
The Council may want to provide direction to staff regarding the issue of an annual maximum allowable rent increase versus the process currently in place. It should be noted that the City’s process requires that all rent increases above 5% (multi-family and single-family rental units) be heard by the RRAC. Most cities with traditional rent control do not regulate single-family homes or rental units built after February 1995, as these units are exempt from rent control per State law (Costa Hawkins Rental Housing Act). However, if Council wants to explore an annual maximum allowable rent increase, the City could provide for a hearing officer to hear rent ceiling violations (rent increases above the annual maximum allowable rent, as is the practice in other jurisdictions) and continue to provide a venue for tenants living in Costa Hawkins-exempt units by mandating a process for the RRAC to hear those rent increase cases (above the maximum allowable rent increase) and issue non-binding decisions.
Other Amendments to Ordinance 3148
As noted above, City Council considered, and adopted, a number of amendments to Ordinance 3148 recommended by staff based on its experience implementing the RSP during the 12 months following adoption of the ordinance. In addition to those recommended amendments, RSP staff has identified several other amendments that would be helpful in administering the program. The need for these amendments has emerged over the last two years and reflects a maturing of the program and the ways landlords and tenants function within the Ordinance requirements. For example, staff is seeing more proposed “buy-out” agreements, with landlords offering incentives/cash payments for tenants to move voluntarily rather than paying the tenants relocation assistance as provided in the Ordinance and adhering to the Ordinance’s restriction following a termination of a tenancy for no cause or no fault. Therefore, RSP staff is recommending that buy-out agreements be permitted under the Ordinance but regulated. This would include requirements such as tenants being informed of their rights at the time of the buy-out offer (e.g. to say no, to consult with an attorney, etc.), tenants having the right to rescind buy-out agreements within a 30- or 45-day period, and requiring landlords to file a copy of the signed buy-out agreement with the RSP.
Exhibit 3 is a list of additional issues that were not included/addressed in Ordinance 3180 that staff is recommending be addressed at this time. In addition to the example provided above, changes include the following:
1) Establishing a rent registration system to collect critical data to better understand the City’s rental market;
2) Addressing the issue of large rent increases served on Costa Hawkins-exempt units as a way to avoid paying relocation assistance (i.e., if a tenant moves voluntarily but reluctantly due to an inability to pay the large rent increase there is no requirement to pay relocation benefits); and
3) Clarifying and housekeeping items such as adding definitions of what is not a “rental unit” and establishing the authority of the City to subpoena records associated with a violation of the ordinance.
Sunset Clause
Another key provision of Ordinance 3148 that was not addressed in Ordinance 3180 was Section 6-58.200, which states that the ordinance would be automatically repealed, unless by December 31, 2019, the Council took affirmative action to extend it. This section is sometimes referred to as the “sunset clause.” While the City Council always has the authority to amend, suspend, or repeal an ordinance, the explicit inclusion of the sunset clause was an acknowledgement that the ordinance established a new regulatory framework for the rental housing market in Alameda and that it would be important to monitor its success during the initial years.
Staff recommends action on the “sunset” section at this time. If the Rent Stabilization Program is to continue past December 31, 2019, the Housing Authority, as the Program Administrator, needs this information to address its staffing needs, and the program fees for the next fiscal year need to be billed in the May 2019 time frame so they can be timely processed. Therefore, staff has prepared an ordinance for the City Council’s consideration at its regular April 2, 2019 meeting that would delete Section 6-58.200 and thus eliminate the sunset clause.
Management Partners Report
On May 16, 2017, as part of the process of considering amendments to Ordinance 3148, the City Council directed staff to retain a third-party consultant to review and make recommendations on three specific issues:
1) Relocation benefits and the formula used to calculate those benefits for permanent and temporary tenancy terminations;
2) Provisions regarding government-ordered terminations; and
3) The role of the RRAC in the rent review hearing process, including possible use of professional mediators and/or hearing officers either with or in lieu of the RRAC.
Council requested third-party review as these issues were more substantive than those issues that were ultimately addressed in Ordinance 3180. The City hired Management Partners to prepare the requested report. The report was presented to the City Council on July 10, 2018 (Exhibit 4). The report was an informational item as Measure K was pending on the November 2018 ballot and the Council chose not to make changes to the ordinance until it knew the outcome of the November election. As noted above, Measure K failed and the City Council retains the ability to modify the ordinance.
The Management Partners Report concludes that the City’s Ordinance is having the desired effect of discouraging the displacement of existing tenants to gain higher rent, providing financial assistance to tenants whose tenancy is terminated for no cause/no fault, and providing a forum through which landlords and tenants can resolve rent increase disputes.
The Report also identifies opportunities to improve the program’s equity, fairness and administration. These include the following:
• Tie relocation benefits to the Fair Market Rent (FMR) to provide a more equitable basis for relocation costs (under the Ordinance, relocation benefits are tied to the current rent the displaced tenant is paying which may disadvantage tenants that are paying lower rent);
• Explore options to provide reduced relocation benefits for landlords who own no more a few rental units (“mom and pop” landlords);
• Require landlords to provide four-months’ advance notice (versus 60 days) for no-cause/no fault terminations (except government-ordered terminations), assuming such advance notice is not preempted by State law;
• Eliminate relocation benefit payments for government-ordered terminations due to no fault of the landlord (as mandated by State law);
• Maintain RRAC as a quasi-judicial decision-making body, but enhance mediation;
• Provide clear responsibilities and guidelines for RRAC members;
• Explore amending the Sunshine Ordinance to limit the sharing of private or personal information provided in writing to the RRAC; and
• Provide more training to RRAC members on mediation, conducting hearings and making recommendations.
The Rent Stabilization Program staff has implemented most of the recommendations identified in the last four bullet items.
With the failure of Measure K, the City Council has the authority to amend Ordinance 3148 as it deems appropriate. Therefore, the Council may want to revisit the Management Partners’ recommendations and provide direction to staff regarding relocation benefits, government-ordered terminations of tenancies, and the role of the RRAC.
Ellis Act Policy
Ordinance 3148 provides for certain “no fault” evictions, including evictions for a property owner’s withdrawing rental unit(s) permanently from the rental market under the Government Code, section 7060 et seq. (Ellis Act). However, the Ellis Act is not self-executing and is framed in terms of what a local jurisdiction may do if it has an ordinance that addresses rent control. In general, the Ellis Act sets forth certain procedures, restrictions, requirements and mitigations that must be followed or provided when a rental unit is withdrawn permanently from the rental market. In addition, Ordinance 3148 provides that a landlord may terminate a tenancy by demolishing a rental unit, thereby removing the property permanently from the rental housing market, provided the landlord has obtained all necessary and proper demolition permits from the City (Section 6-58.140 G, AMC).
To date, however, the City Council has not adopted a policy to implement either of these sections of the Ordinance. Currently, all a landlord is required to do to comply with the Ordinance is file a form with the Program Administrator stating that the landlord is terminating the tenancy based on withdrawing the rental unit from the rental market, or, in the case of demolition, obtaining the necessary City permits to do so, and (in both cases) providing the required relocation payments to the displaced tenant(s).
In FY 2017-18, approximately 12% of all no cause/no fault terminations have been due to withdrawal from the rental market. However, it should be noted that if the Council decides to consider elimination of no cause evictions, the number of terminations due to withdrawal from the rental market is likely to increase as landlords will no longer be able to terminate tenancies for no cause. It is anticipated that most of the terminations for withdrawal from the rental market will occur for single-family homes, often those that are being sold, as the Ellis Act requires all rental units on a property to be withdrawn. It is important to have a policy in place to regulate this category of termination, so if a property owner in the future decides to return the property to the rental market, s/he is clear about the rules and regulations. Therefore, staff has prepared a draft Ellis Act policy described below. The draft policy was reviewed with both landlord and tenant stakeholders in December 2018.
If a landlord, or a landlord’s successor in interest, decides to return the rental unit to the rental market within five years of the property’s withdrawal from the rental market, the recommended policy would require the following:
• The landlord must first offer the rental unit to the tenant who was displaced, and the rent must be the same as the rent in effect at the time the unit was withdrawn from the rental market, plus no more than a 5% increase in the rent. If the displaced tenant does not accept the offer or does not respond to the offer, the landlord may rent the unit to another person but the rent shall be the same as the rent in effect at the time the unit was withdrawn, plus no more than a 5% increase in the rent. If the property is sold, the current landlord is required to inform the purchaser of the restrictions, to inform the purchaser of the contact information for the displaced tenant and to inform the displaced tenant of the contact information for the new landlord. The purchaser’s obligations, however, are not negated if the current landlord fails to provide this information.
• If the rental units are demolished and new rental units constructed on the property within five years of the withdrawal, the rent for the new units shall be subject to Ordinance 3148 (as it may be amended) notwithstanding other provisions of law concerning rent for new construction but subject to the landlord’s opportunity to receive a fair return through a petition process.
If a landlord, or a landlord’s successor in interest, decides to return the rental unit to the rental market within two years of the property’s withdrawal from the rental market, the recommended Policy would require the following:
• In addition to offering the rental unit to the displaced tenant as described above, (a) the landlord will be liable to the displaced tenant for actual and punitive damages, and (b) the City may file a civil action against the owner for punitive damages. (Such actions must be brought within a three-year window.) This is intended to discourage landlords from terminations solely to remove a tenant from a unit and then turning around and re-renting the unit to another tenant, presumably at a higher rent.
Notice of termination and other requirements under the proposed policy include:
• The landlord must give each tenant at least 120-days’ notice before the tenant must vacate. The landlord must provide notice that if a tenant has lived in the unit for at least one year and is either disabled (as defined under State law) or 62 or older, the tenant is entitled to remain in the unit for one year before having to vacate.
• Any displaced tenant is entitled to relocation benefits under Ordinance 3148, which includes the right to extend time in the rental unit in exchange for a reduction of the relocation fees.
• The landlord must record a Memorandum with the County concerning withdrawal of the rental unit from the rental market so that subsequent purchasers of the property are on notice of that fact and the related restrictions. (Recording this document addresses the issue described above where a landlord sells the unit that has been withdrawn but neglects to inform the purchaser, who then rents the unit.)
• A tenant cannot be evicted under this provision of the Ordinance unless the landlord has satisfied all the requirements of the Policy.
The attached policy does not include all the limitations that the Council could impose under the Ellis Act. For example, the Ellis Act provides that if a landlord decides to return the rental unit to the rental market within 10 years of the withdrawal, the landlord must offer the unit first to the displaced tenant on “terms permitted by law.” (The attached Policy provides for only a five-year window.)
Moreover, some communities have expanded the categories of tenant households for which the one year, rather than the 120 days, entitlement is imposed before eviction. Such categories include low-income households (as defined by State law) and/or households with one or more minor children.
Staff is recommending the five-year window that allows previous tenants to return to their units and caps rents for new tenants at no more than 5% above the prior rent as the City currently has no regulations in place that allow tenants to return or cap the rent of future tenants if the unit is re-rented after the unit has been withdrawn from the rental market. Ten years is a long time and it is unlikely that a previous tenant would want to return and/or be located in order to be offered the right to return. Five years is a reasonable amount of time for restrictions to be in place, after which a unit could be re-rented without restrictions. There have been 22 units that have been withdrawn from the rental market over the last 2½ years, or 12% of all terminations. Staff recommends continued monitoring of Ellis Act terminations, and if there is a pattern of abuse or misuse of this type of termination, it may be appropriate to consider extending the five-year window to up to 10 years at a later date.
For similar reasons, staff is recommending that the City follow State requirements that tenants who are disabled and/or over the age of 62 may remain in their unit for one year following notice that the unit is being withdrawn from the rental market. Staff will track information on the number of households with minor children and determine if an expansion of the policy is needed at a later date.
Other Issues
If there are other issues or concerns about Ordinance 3148 that warrant Council direction at this time, it is requested that direction be provided at this meeting. It should be noted that the ordinance requires preparation of an Annual Report which provides information and data about the Program during the Fiscal Year. The Annual Report is presented to Council in September of each year. If there are certain issues/concerns that Council would like staff to track or report back on, the Annual Report may be the appropriate place for addressing those issues and making recommendations about next steps.
FINANCIAL IMPACT
There is no impact to the General Fund from providing direction on potential amendments to Ordinance 3148 and/or adopting an Ellis Act policy. The RSP is a cost-recovery program as landlords are charged an annual fee to cover the cost of administering all aspects of the Program.
However, some of the amendments outlined above will require additional funding to implement. It is recommended that an updated fee study be conducted once Council has provided direction to staff about any desired amendments and the necessary ordinances have been adopted. This will ensure that the RSP continues to collect the fees necessary to implement the Program. The fee for Fiscal Year (FY) 2019-20, assuming the sunset clause is eliminated, will remain the same as last year, $106 per unit; any change in the fee due to the amendments would occur in FY 2020-21.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Consideration of amendments to Ordinance 3148 and/or adoption of an Ellis Act policy is consistent with the requirements of the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
Consideration of amendments to Ordinance 3148 and/or adoption of an Ellis Act policy is exempt from review under California Environmental Quality Act (CEQA) pursuant to the following, each a separate and independent basis: CEQA Guidelines section 15378 (not a project) and section 15061 (b) (3) (no significant environmental impact).
RECOMMENDATIONS
It is recommended that the City Council:
1. Provide direction to staff regarding various amendments to the City’s Rent Review, Rent Stabilization, and Limitations on Evictions Ordinance (No. 3148) which may include amending various sections of Article XV of Chapter VI concerning review of rent increases, limitations on evictions, eliminating the sunset clause, and making clarifying amendments; and
2. Conduct a public hearing to consider an “Ellis Act” Policy and adoption of resolution adopting a policy concerning the requirements, procedures, restrictions and mitigations concerning the withdrawal of residential rental units from rent or lease (Ellis Act Policy).
Respectfully submitted,
Debbie Potter, Base Reuse and Community Development Director
Financial Impact section reviewed by,
Elena Adair, Finance Director
Exhibits:
1. Ellis Act Policy
2. Summary of Council Direction and Staff Recommendations
3. Additional Staff Recommendations
4. Rent Stabilization Ordinance Review