The “Santa Cruz Rent Control and Tenant Protection Act”, or Measure M, which proposes to establish long-standing rent control and just cause for eviction regulations will be on the November ballot. You can find the full text of the measure here. If you own or plan to own a rental property in the City of Santa Cruz, please take time to read this ballot initiative carefully. If passed into law, this ordinance may have a significant impact on your investment properties. We have provided a summary below.

 

Rent “Stabilization”

 

If Section 6 of the ballot initiative is approved, no landlord will be able to charge rent in a “covered rental unit”, or a unit that is not exempt in Section 4 of the petition, in excess of the “base rent”, which will be set at the rent in effect on October 19, 2017. The landlord is then restricted to rent-increases within a predetermined “annual general adjustment” which cannot exceed 5 percent annually.

 

If put into law, this ordinance will establish a Rent Board, which is responsible for implementing and administering the new law. Landlords will be able to petition with the Rent Board to raise rents more than the annual allowable increase; to be successful he or she will have to demonstrate that the rent-increase limits do not allow for a fair return on investment. The landlord must use the maintenance of net operating income (MNOI) methodology when petitioning, which is further explained in Section 11 of the petition.

 

Just Cause for Eviction

 

The just cause for eviction section of ballot Initiative (Section 5) includes the following “just causes” to evict a tenant household that currently occupies a unit:

  • Failure to pay rent;
  • Breach of Lease;
  • Nuisance;
  • Illegal Activity;
  • Failure to give access;
  • Necessary and substantial repairs requiring temporary vacancy;
  • The owner of the property wants to move in;
  • Withdrawal of the Rental Unit Permanently from the Rental Market;
  • Vacating an unpermitted rental unit;
  • Subtenant in sole possession;
  • Refusal by the Tenant to Execute new Lease;

 

Additionally, the landlord must provide six times the current fair market rent as relocation assistance to affected Tenant households if one of the following “just causes” is present:

  • Vacating an unpermitted rental unit,
  • The owner wants to move in,
  • Necessary and substantial repairs requiring temporary vacancy,
  • Withdrawal of the unit permanently from rental market

 

If the household includes qualified tenants, the relocation assistance increases. Additionally, if a tenant household is displaced from a rental unit due to inability to pay rent increases in excess of 10 percent in an twelve-month period, the landlord must pay relocation assistance if he or she receives a written request within 15 days of the delivery of the notice of rent increase. Here, fair market rent refers to the rent for a similar Rental Unit in Santa Cruz County as determined by the U.S. Department of Housing and Urban Development.

 

You can read a more detailed analysis of the Just Cause for Eviction portion of this ballot measure here: http://schneiderestates.com/just-cause-for-eviction/

 

Exclusions

 

Both short-term vacation rentals and rental units in which the tenant shares a bathroom or kitchen with the landlord if the house is the primary residence of the landlord are exempt from both the proposed rent control and just cause for eviction laws.

 

The following are excluded solely from the proposed rent control laws:

Any rental unit that is exempt from regulation for rental rates pursuant to state law (largely the Costa-Hawkins Rental Housing Act), including

  • Single Family Residential Homes,
  • Condominiums (with some restrictions),
  • Units built after 1995.

 

Note: there is now a State-wide ballot measure to repeal Costa Hawkins, which would mean the properties above will be subject to Measure M if passed int law. You can read about this Statewide ballot measure here.

 

Conclusions

 

Rent Control battles are being fought around the state, and have landed in the City of Santa Cruz. While rent control appears to ameliorate the pressures of high-cost housing that many tenants around the state feel, it will likely have negative long-term consequences on our local housing market. Read why here.

 

We are closely following this issue as it evolves, you can find additional news about the Santa Cruz Rent Control and Just Cause for Eviction Measure and related topics here. 

 

If you are a property owner or investor in the Santa Cruz City limits, and would like to discuss your options, feel free to contact me at 831-600-6550.

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