On Tuesday, February 13th, the Santa Cruz City Council passed temporary rent freeze and a just cause for eviction ordinances for certain rental properties within the city limits (see exceptions below). This sudden action was in response to community-member complaints that, given the impending threat of a rent-control moratorium on the November ballot, landlords have an incentive to raise rents and evict tenants to guard against losses should new laws come into effect. The following summarizes the current and proposed rent control and just cause for eviction laws.

 

Rent Freeze and Just Cause for Eviction Ordinance Summary

 

Rent Freeze Ordinance

 

The rent freeze ordinance stipulates that annual rent increases may not exceed 2%. Fines for violations can reach $4,000 and the tenant has the right to civil remedies.

 

The following are exempt from the freeze (but are still subject to the just cause for eviction ordinance):

  • Single-family dwelling units;
  • Condominium and Townhouses;
  • Rental units with an initial certification of occupancy dated after February 1st, 1995 as pursuant to the Costa-Hawkins Rental Housing Act.

 

It is possible to petition the rent-increase ceiling if an owner believes that it deprives him/her of the ability to receive a “just and reasonable” return on investment.

 

Just Cause for Eviction Ordinance

 

The just cause for eviction ordinance stipulates that one of the following reasons must be present for a landlord to terminate a rental agreement:

  • 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

 

In the following scenarios, properties will be exempt from the just cause for eviction ordinance:

  • A Rental Unit which constitutes the Landlord’s sole rental property;
  • If the Landlord lives on site in: the same residence; a duplex; or a single-family residence with an accessory dwelling unit.

 

Find the full ordinance here.

 

When They Terminate

 

Both of these temporary measures will terminate if and when any of the following happen:

  • A rent stabilization and/or just cause for eviction measure is not placed on the ballot for November 2018, on September 1, 2018.
  • The rent stabilization and/or just cause for eviction measure is not approved by a majority of the voters for the November 2018 election.
  • If a rent stabilization and/or just cause for eviction measure is approved by a majority of the voters, these temporary measures will be in effect until the new respective law becomes active.

 

To read more about the current law, including Frequently Asked Questions, please visit the city webpage on this topic, found here.

 

You can read more about the actual meeting and arguments for and against these measures in this Santa Cruz Sentinel article.

 

Petition for Rent Control and Just Cause for Eviction: Ballot Initiative for November 2018 Ballot

 

The petition currently in circulation, which proposes to establish long-standing rent control and just cause for eviction regulations is called the “Santa Cruz Rent Control and Tenant Protection Act”. You can also find the full text of the petition and corresponding Ballot Initiative using this link. 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.

 

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.

 

Read a detailed explanation of this section of the ballot initiative, and how it will reduce property owners’ right to re-possess their property here.

 

Conclusions

 

On a statewide level, assembly members are proposing similar legislation. This year, one Assembly member has attempted to pass a bill that would repeal the Contra-Hawkins Act.  It died after failing to gain support by members of the the Assembly Housing and Community Development Committee. Since then, another bill has been announced would put a “just cause” requirement being put in place on the statewide level, making it harder to evict tenants. 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.

 

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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