Rent Increases During the Coronavirus Emergency Part II: Avoiding Violations Under California’s Anti-Price Gouging Statute
In my earlier article, Profiting From Fear: What You Need to Know About Price Gouging During the Coronavirus Emergency, I discuss price gouging and how the anti-price gouging statute, California Penal Code 396 (“CPC 396”), protects buyers of goods and services deemed vital and necessary for the health, safety and welfare of consumers. Part II of the article provides guidance to landlords on the parameters applicable to acceptable price increases and focuses attention on the application of CPC 396 to rental housing and related issues.
California Penal Code 3961
As it pertains to housing, defined as “any rental housing with an initial lease term of no longer than one year,” price gouging occurs when a landlord increases the rent of an existing or prospective tenant by more than 10 percent of the previously charged or advertised price following an emergency or disaster declaration for a period of 30 days.2 A residential landlord is only allowed to increase rent in excess of 10 percent if “the increase is directly attributable to additional costs for repairs or additions beyond normal maintenance that were amortized over the rental term that caused the rent to be increased greater than 10 percent or that an increase was contractually agreed to by the tenant prior to the proclamation or declaration” (CPC 396(e).) Further, landlords are prohibited from evicting a tenant and then re-renting the property at a rate that the landlord would have been prohibited from charging the evicted tenant under the statute (CPC 396(f).)3
Residential landlords must make certain to understand how rent pricing works under CPC 396, since “rental price” is defined as any of the following:
- For housing rented within one year prior to an emergency or disaster declaration, rental price is the actual rental price paid by the tenant;
- For housing not rented at the time of the emergency or disaster declaration, but rented, or offered for rent, within one year prior to the declaration, rental price is the most recent rent offered before the declaration;
- For housing rented at the time of the emergency or disaster declaration that becomes vacant during the declaration, and is subject to an ordinance, rule, regulation or initiative adopted by a local government entity that sets a limit on what a landlord may charge for rent, rental price is the actual rent paid by the prior tenant or 160% of the fair market rent established by the U.S. Department of Housing and Urban Development, whichever is greater;
- For housing not rented or offered for rent within one year prior to the time of the emergency or disaster declaration, rental price is 160% of the fair market rent established by the U.S. Department of Housing and Urban Development;
- For housing advertised or rented on a daily basis, the daily rental price may not be increased by more than 10 percent following an emergency or disaster declaration; and
- For housing advertised or rented on a daily basis prior to an emergency or disaster declaration, but then offered on a full-time or monthly basis following the declaration, the rental price may not exceed 160% of the fair market rent established by the U.S. Department of Housing and Urban Development.
Residential landlords, like ordinary sellers of goods or services, who engage in the practice of price gouging face potential criminal prosecution that could result in fines up to $10,000 and/or a year in jail.4 Additionally, those who violate the statute could also face private individual or class action lawsuits.
It is important for landlords to keep in mind these limitations on rental housing. The coronavirus presents unique challenges to parties on both sides of the lease, and careful consideration of these matters is important. You can also consult with an attorney by emailing [email protected] or contact our office directly at 949-854-7000.
1 It is important to note that CPC 396 is not the same as the Tenant Protection Act of 2019, a law that recently passed which limits yearly rent increases and evictions in certain types of rental housing.
2 The time limit may be extended for 30 day periods, as needed.
3 Many California municipalities have implemented a temporary moratorium on residential evictions due to the financial hardship brought on by the coronavirus pandemic. A full list of jurisdictions that have imposed or are considering temporary eviction prohibitions can be found at CAA’s COVID-19 resources page.
4 The statute does not preempt local ordinances from prohibiting the same or similar conduct or from imposing more severe penalties.