We continue to track important legislative and regulatory proposals and changes in the region. Our most recent prior Alert discussed rent control efforts in Maryland, changes to the Low Income Housing Tax Credit program, eviction challenges, D.C. Housing in Downtown tax abatement, proposed TOPA exemptions, and our ongoing rent control coalition efforts. Below are some additional updates on issues affecting the multifamily industry.
Prince George’s County Rent Control Extension. On April 9, 2024, the Prince George’s County Council enacted an emergency extension to the Temporary Rent Stabilization Act of 2023, which was set to expire on April 17, 2024. The bill, CB 008-2024, will extend the 3 percent cap on residential rent increases for pre-existing tenants until October 17, 2024. The stated purpose of the six-month extension is to allow more time for drafting permanent rent control legislation. As noted in a prior Alert, the Rent Stabilization Work Group held several stakeholders meetings last year to explore alternatives. On February 27, 2024, the Work Group shared its report with the County Council. Key recommendations included (a) allowing rent increases between 4 percent and 10 percent, (b) applying rent control to vacant units, but allowing rent increases between 8 percent and 12 percent for vacant units, (c) a process for landlords to seek a fair return on investment, (d) allowances for significant capital improvements, and (e) banking of unused rent increases up to 10 percent. There are no specific recommendations for exemptions, but the report states that “fixed-date” exemptions offer more certainty to investors, as compared to a “rolling” age-based exemption.
The report presentation can be found here. It remains unclear when permanent rent control legislation may be introduced. Interestingly, on April 29, 2024, the Washington Post ran an article, “Rent caps may end in Prince George’s. Tenants are organizing a fight.” Included within this article was the following observation: “‘Three percent is not a permanent solution. We can’t continue this way indefinitely,’ Council Chair Jolene Ivey said in an interview. She warned that in a county where nearly 4 in every 10 residents is a renter, Prince George’s can’t afford to put in place polices that will scare away landlords.” It appears clear that some Council members favor moderating rent control. It also appears clear that tenants will once again advocate for continued rent control.
Montgomery County Rent Control. On January 31, 2024, the Department of Housing and Community Affairs (DHCA) issued draft regulations to implement the County’s new rent control law. Throughout the month of February, stakeholders provided comments to DHCA. On behalf of a coalition of clients, Ballard Spahr submitted detailed comments and a markup of the regulations to DHCA. Rent Control is not effective until the regulations take effect, and that requires the County Council’s approval (or failure to act). DHCA has yet to submit regulations for consideration by the County Council and therefore the rent control law continues in abeyance.
Montgomery County Rental License Fee Increase. On April 18, 2024, the Parks, Housing, and Planning (PHP) Committee of the Montgomery County Council met to discuss the County Executives’ Fiscal Year (FY) 2025 budget for DHCA. The proposed budget includes a 92 percent increase in the annual rental license fee. The PHP Committee decided to phase in the new fee over two years, with a recommendation to change the fee for FY 2025 to $76 per rental unit (up from $52 per rental unit), with the expectation that the fee would increase to $100 per unit in Fiscal Year 2026. The full County Council has not voted on the proposed DHCA budget, but with all members of PHP agreeing to a phase-in approach, it is likely the FY 2025 increase to $76 per unit will pass.
New Maryland Housing Laws. During its 2024 session, the Maryland State Legislature passed several bills impacting the housing industry that will take effect on October 1, 2024. House Bill 693—The Renters’ Rights and Stabilization Act of 2024—creates a new statewide Office of Landlord Tenant Affairs and increases the maximum surcharge from $8 to $43 for certain eviction proceedings. The Renter’s Rights and Stabilization Act of 2024 also provides a right of first refusal to purchase the property to tenants of a residential property with three or fewer individual dwelling units. House Bill 93 allows tenants who have a disability or mental disorder to limit their liability for rent, if a physician or psychologist specifies the need to move. Senate Bill 665 modifies the Maryland Condominium Act by reducing the consent threshold for amendments to a Declaration from 80 percent to 66.7 percent of unit owners listed on the current roster of a condominium association. This reduction does not apply to certain specific types of amendments, and if a developer continues to own any unit in the condominium, the Declaration can only be amended with the written consent of 80 percent of the unit owners.
Eviction Delays. We are assisting clients who are experiencing significant challenges evicting tenants for nonpayment of rent. Issues include delays in court, as well as in effectuating evictions. These serious problems have in some cases resulted in a de facto moratorium on evictions, significantly affecting the financial viability of affected rental properties. If you have experienced similar problems or want additional information on this matter, please complete this short Eviction Survey.
D.C. Tenant Opportunity to Purchase Act (TOPA). We often receive TOPA questions, including about the differences between a Notice of Transfer and an Offer of Sale. With limited exceptions, such as foreclosure sales, the transfer of an interest in a housing accommodation or of an ownership interest in an entity that owns a housing accommodation is subject to some aspect of TOPA. A transfer of an ownership interest in an entity that owns a housing accommodation “as its sole or principal asset, which, in effect, results in the transfer of the accommodation” is generally a “sale” under TOPA and requires an Offer of Sale. The Offer of Sale affords TOPA beneficiaries with the right to purchase the interest or property being sold on substantially the same terms and conditions as the third-party contract.
On the other hand, transfers of interests that do not “in effect” result in the transfer of the accommodation or where the entity does not own the accommodation as its sole or principal asset may only require a Notice of Transfer. The Notice of Transfer form explains why the transfer is not a “sale” and must be provided to the Mayor and to the tenants at the property. TOPA affords the tenants with a short period of time to challenge the Notice of Transfer, and if there is no challenge within the prescribed period, all TOPA rights lapse. In addition to the forms, the notice and delivery requirements for Offers of Sale and Notices of Transfer also differ and have the potential to delay the TOPA process if they are not handled in an effective and efficient manner.
Supreme Court Limits Takings Case Update. On April 12, 2024, the U.S. Supreme Court unanimously held in George Sheetz v. County of El Dorado that the Takings Clause of the Constitution prevents legislatures, as well as administrative agencies, from imposing permit fees that lack an “essential nexus” and “rough proportionality” to the project on which the fee is imposed. The Supreme Court’s ruling reverses a California Court of Appeal decision holding that legislatively imposed impact fees are exempt from the unconstitutional-conditions doctrine adopted in prior Supreme Court cases. The recent ruling in Sheetz settles a division among state and federal courts about whether a “legislative” exemption exists. Mr. Sheetz applied for a building permit to develop a modest single-family home. A condition of that permit required the owner to pay a $23,420 impact mitigation fee, enacted by the county, for road construction and improvements. Mr. Sheetz paid the fee under protest and then sued. After losing in the California trial and appellate courts, Mr. Sheetz prevailed in the U.S. Supreme Court, which held that legislatively imposed impact fees are subject to the same nexus/proportionality test that the Court had previously applied to administratively imposed fees.
Mixed Use Development: 7 Key Points in Drafting and Operation. On Monday, May 6, 2024, Roger Winston will be participating in this webinar sponsored by the American Law Institute. When real property is divided among commercial and residential units, conflicts can easily arise. For example, who controls and maintains common areas? Is the garage shared by all parties and, if so, who maintains it? Who pays for the loss when the damage originates in one area and affects another area? Who governs and manages the property and the various owners? How does one ensure that an owner’s investment in the property is protected when there are many others who could easily harm the property and diminish the value? These and other questions will be answered by Roger and two other panelist who are also Fellows from the American College of Real Estate Lawyers. Collectively, they have over 100 years of mixed-use experience so this promises to be a most informative program. For further information, go to ALI-CLE Mixed Use Program.
All Quiet in Howard County. In December 2023, proposals for a new rent control law (CB44-2023) and an expanded ROFR program (CB43-2023) were tabled by the Howard County Council. In Howard County, proposed legislation may only be tabled for up to 70 days and expires if no action is taken or extension approved within the 70-day period. Accordingly, both bills lapsed on January 15, 2024, as the Council voted against extending the bills or removing them from the table. Based on our recent discussions with County staff, we understand that there are still no plans to introduce replacement legislation.
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