The city of Los Angeles recently rolled out a complete database of rent-controlled properties. Landlords of rent-controlled properties know or are likely to know of the major implication of being on that list: the City’s Rent Stabilization Ordinance caps annual rent increases at 3 percent (or up to 5 percent if utilities are included). But many may not know about other applicable laws that can hurt value and limit development potential:
First: the Ellis Act. The Ellis Act was created to ensure that developers who demolish pre-1978 rent-controlled apartments to make way for new apartment development would be required to include either affordable housing or replacement rent-controlled units – up to 20 percent of the new units. However, if the redevelopment was composed of for-sale product, Ellis would not apply. Nevertheless, tenant displacement is a growing concern. It’s not uncommon for developers seeking discretionary approval to be leveraged politically into an affordable housing mandate and even be required to guarantee the right of return for evicted tenants. While Los Angeles has not yet adopted an inclusionary zoning policy, it’s likely new legislative mandates for affordability will come soon.
Second: code compliance. Knowing that vacancy rates in Los Angeles have dropped to below 3 percent, the housing market will likely continue to boom. From the tenant’s side, however, it means there’s a housing panic throughout the city. Landlords might be getting top dollar on new leases, but there are likely also renewing tenants who just can’t afford to leave, and they would do just about anything to stay and keep rents low. Tenants might even report miniscule code violations to housing inspectors to cut a bit off their rent. It’s more important than ever for landlords to make sure buildings are up to code and implement tight property management protocols. Not just to keep inspectors off your back, but to ensure that your tenants don’t have any reason to spite you.
Third: mandated seismic upgrades. We all know, and the scientific community agrees, that the infamous “Big One” is coming, but we just don’t know when. Any landlord might own one of the 13,500 apartment complexes in the city of Los Angeles that are required to be upgraded in the next seven years. It will be costly – with estimates of between $60,000 to $130,000 – to landlords. For those who can’t afford the cost, how will they finance the structural upgrades and comply with relocation requirements and tenant habitability plans? Currently, city and state legislators and other policymakers are debating how much of that cost could or should be passed to residential tenants. They are considering the adoption of a tax credit to subsidize tenants. But no pass-on or tax credit will cover the full cost. One thing is definite: Landlords will be paying.
Residential landlords and developers in Los Angeles have never been more vulnerable. According to a 2015 UCLA study, L.A.’s stagnant wages and increasing rent make it one of the most unaffordable cities in the country. Tenants’ rights groups, in response, are becoming more vocal by the day, creating extra pressure on landlords and tenants. Any misstep can cast you in the light of a slumlord, negligent property owner or evil developer. With increasing rent; pressure from advocacy groups; and tricky rent-controlled laws, codes and policies for landlords and developers, it’s more important than ever in Los Angeles to protect yourself and understand the law and how it might affect you.
Noel Hyun Fleming is a member of the real estate and land-use department of the Liner law firm in downtown Los Angeles. She also serves on the city of L.A.’s Zoning Advisory Committee.