A recurring struggle in the world of rental unit shortages is the effort of some municipalities to limit rent charged by use of local ordinances. These are commonly termed “rent control ordinances” and they come in a large variety of types. The most common rent control involves limits to rental increases and restrictions on evictions of existing tenants if the purpose is to obtain higher rental. Organizations representing landlords and developers constantly challenge the ordinances or seek to limit them with varying success and major cities, such as San Francisco, Oakland and Berkeley are subject to rent control. (It is worth noting that New York has had rent control for well over fifty years.)
The arguments against rent control ordinances were largely based on alienation of property rights without due process combined with the more practical argument that it would eliminate new residential multi-unit construction since the profits were limited to the developers and builders.
But the shortage of affordable units have still resulted in numerous rent control ordinances in California and the property owner is well advised to understand and conform to the local ordinances that may exist.
This article shall discuss a new issue that has been developed: whether a single-family home can be subject to rent control.
Costa Hawkins Rental Housing Act: State Law
Recently, a key question was whether single family homes which rent out portions could still be subject to rent control.
The Costa–Hawkins Rental Housing Act ("Costa–Hawkins") is a state of California 1995 law, which limits certain provisions of municipal rent control ordinances. Costa–Hawkins preempts the field in two major ways. First, it prohibits cities from establishing rent control over certain kinds of residential units, e.g., single-family dwellings and condominiums and newly constructed apartment units; these latter are deemed exempt so as to encourage new construction. Second, it prohibits "vacancy control", also called "strict" rent control.
If an apartment is under "vacancy control", the city's ordinance works to deny or limit an owner's ability to increase its rent to new tenant(s). It applies even in cases where the prior tenant voluntarily vacated the apartment or was evicted for a 'just cause' (such as failure to pay rent). In other words, Costa–Hawkins, by prohibiting "vacancy control" in the above voluntary or 'just cause' circumstances, mandates that cities allow an apartment owner the right to rent the vacancy at any price (i.e., usually the market price). Note that this normally does not allow the owner to evict without good cause to achieve a higher rent.
While rent control in California is largely the creation of its municipalities, the ability of city governments is limited by the federal and state constitutions, as well as federal and state laws. Costa–Hawkins is the key state statute enacted to manage the power of California cities to regulate their rental markets.
Single Family Home Exclusion:
The question that came before the courts recently was whether the California ordinance excluding single family residences would apply regardless of the number of “units” being rented out in such a residence. If a family rents out half a dozen rooms are, they still a single-family residence not subject to local rent control laws as mandated by the Costa Hawkins Act?
An appellate court affirmed the trial court’s interpretation that these types of boarding situations were indeed subject to rent control protections. The case of Owens v. the City of Oakland Housing, Residential Rent and Relocation Board is the controlling case.
The legal argument advanced by the tenant advocates that the lower court supported was that a “dwelling or unit” or “dwelling unit” is not the entire property to which an owner holds title but, instead, the living quarters allocated to the habitation of a given tenant or tenants to the exclusion of other residents. In that case, the owner’s four-bedroom detached home was therefore subject to Oakland’s Rent Adjustment Program (“RAP”) and the three unrelated tenants were entitled to the protections under the ordinance. This decision was affirmed by the appellate court, thus applicable statewide.
If rooms are rented out separately to multiple people, the structure has been altered from a single-unit dwelling into a multi-unit dwelling. By renting out multiple “units” the family suddenly finds itself subject to whatever rent control laws apply to the apartment’s buildings in the locale. What was seen as an economic opportunity by some homeowners by renting out several bedrooms or the subdivided basement can become a nightmare as the tenants assert the rights available under the local ordinances and the protections of the Costa-Hawkins law are no longer available.
It is vital to research the local law before you convert your emancipated childrens’ rooms into income producing assets.