November Multifamily Alert

As a follow-up to our recent alert, here are some updates on regional and national legislative activity impacting real estate:

Rent Control Coalition Update

In response to the latest wave of rent control measures, Ballard Spahr was recently retained by a large group of stakeholders to evaluate these rent control laws. We have been watching the Supreme Court of the United States to see if it will grant certiorari to one or both of the Takings Clause challenges to the New York rent control law. Once SCOTUS has acted, we will discuss opinions with these stakeholder clients. In the interim, we continue to advise clients on strategies and options for complying with these new laws, as well as means to provide input on the forthcoming regulations.

Howard County Housing Bills

A number of new housing bills were recently introduced at the request of Howard County Executive Calvin Ball. Bill 43-2023 would allow for assignments of the County’s right of first refusal (ROFR) to qualified entities, similar to Prince George’s County. In addition to significantly expanding the ROFR pool, Bill 43-2023 would extend the current 45-day deadline for exercising the ROFR to 50 days. In the past, Howard County has generally acted promptly on ROFR matters, but that could now change. Bill 44-2023 is Howard County’s foray into the world of rent control and would limit rent increases to the lesser of 5 percent plus the Consumer Price Index (CPI), or 10 percent. Units exempt under Bill 44-2023 would include new construction and projects offered for rent for less than 20 years, facilities owned by nonprofit housing providers, and local, state and federal low-income housing tax credit (LIHTC) projects. Bill 44-2023 would also establish a workgroup to study the effectiveness of rent control and to make a report and recommendations prior to the expiration of the bill on January 1, 2028. These bills, among others, were considered at the legislative session of the Howard County Council on Monday, November 6, at 7 pm. Interested parties can send written testimony on the County Council website.

Montgomery County ROFR and Rent Control Update

As discussed in our prior alert, recently introduced Expedited Bill 38-23 proposes to allow for the assignment of County ROFR rights to “qualified entities” – similar to the existing ROFR process in Prince George’s County and the one now being proposed in Howard County. As originally drafted, the process for qualifying and selecting eligible assignees and other important aspects of the expanded ROFR process are to be established by the County Executive. We are meeting with members of County Council staff to advocate for several important changes. The bill is being reviewed in December by the Planning, Housing and Parks (PHP) Committee before being considered by the County Council. We are preparing comments to the PHP Committee.

Also, as noted in our prior alert, Bill 15-23 was passed by the County Council and became effective last month. However, the law also provides that new rent control requirements “must not apply, and must not be enforced” until the enabling regulations take effect. The Department of Housing and Community Affairs (DHCA) does not plan to enforce the law until the regulations are adopted. DHCA is required to submit proposed regulations by January 23, 2024, which will then be subject to public comment and County Council approval. DHCA recently issued formal guidance confirming additional details on the implementation of the law. It is important to note that a narrow window of opportunity may still exist for mitigating the impact of this new law when it becomes fully effective next year. 

Montgomery County Building Energy Performance Standards (BEPS) Regulations

On November 1, 2023, Montgomery County issued proposed regulations for BEPS which, if implemented, would establish minimum energy performance thresholds for many existing buildings. The BEPS Regulations are based on benchmarking data gathered under the County’s 2022 Energy Benchmarking Law, which requires owners of buildings with 25,000 gross square feet or more to track and report their energy use. Using the data collected, the County identifies within the BEPS Regulations specific performance standards for each building type. If a covered building consists of more than one building type, the BEPS Regulations propose a formula to calculate the area-weighted performance standard that the building must meet. Buildings can also obtain a renewable energy allowance, which will credit all electricity use generated from onsite renewable energy systems, such as solar facilities, to meet their performance metric. 

If a building owner cannot meet the performance standards set forth in the BEPS Regulations, the owner may submit a proposed building performance improvement plan (BPIP) to the County Department of Environmental Protection (Department) that demonstrates the reasons the owner cannot comply. The BPIP must also identify which energy improvement measures the building owner will implement and the predicted annual energy savings that will result from implementation. If approved, the BPIP will be recorded as a covenant in the County land records and the building owner will be deemed to comply with the BEPS Regulations if it complies with the requirements specified in the BPIP. If the Department rejects the BPIP, the building must satisfy the BEPS Regulations or be considered noncompliant. Comments on the proposed BEPS Regulations can be submitted to the Department through November 30, 2023. To learn more about BEPS requirements in Maryland and the District of Columbia (DC), check our recent alert on Commercial Building Energy Compliance and Reporting Deadlines.

Alexandria Zoning for Housing

On November 1, 2023, the Alexandria Planning Commission unanimously endorsed the City’s new Zoning For Housing (ZFH) plan. The ZFH plan represents a sweeping overhaul of the City’s zoning ordinances with the goal of expanding housing production and affordability and addressing past and current barriers to equitable housing access. According to City calculations, the ZFH plan would result in up to 2,838 new units in the next decade. This number represents only a fraction of the estimated 320,000 units of affordable homes needed region-wide by 2030. Alexandria would be the second jurisdiction in Northern Virginia to try zoning reform to create more housing. Earlier this year, the Arlington County Board voted to end single-family zoning and to allow small multifamily buildings in an attempt to grow the “Missing Middle.” Alexandria City Council will conduct a hearing on the ZFH plan during its first legislative meeting on Tuesday, November 14, 2023, with another public hearing on November 18, and a vote expected at the second legislative meeting on November 28, 2023.

Guidebook on Commercial to Residential (CTR) Conversions

The Biden-Harris Administration recently released a guidebook (Guidebook) that provides an overview of federal programs, loans, grants, guarantees, and tax incentives available to support CTR conversions. The Guidebook highlights key new resources that will make CTR conversions more affordable and impactful in terms of emission reductions, and includes a list of programs that can be used for CTR conversions with detailed program descriptions of each. The Guidebook builds on efforts to increase housing supply and affordability through the White House Housing Supply Action Plan, which aims to reduce barriers in building affordable housing, expand financing for projects, and promote CTR conversions in communities across the country. For example, the Department of Housing and Urban Development (HUD) will award Pathways to Removing Obstacles (PRO) Housing grants of up to $10 million to jurisdictions with acute affordable housing needs that are working to identify and remove barriers to housing construction and preservation.

Federal Trade Commission (FTC) New Proposed Rule on Fees

The FTC recently issued a notice of proposed rulemaking (Notice) to promulgate a trade regulation entitled “Rule on Unfair or Deceptive Fees” which would prohibit unfair or deceptive fees across many industries, including rental housing. As to rental housing, the Notice states:

Rental Housing Fees

Comments from individual consumers about rental housing fees stated that leasing companies advertise monthly rents that do not include fees for mandatory ancillary services that unexpectedly and significantly increase renters’ monthly expenditures. The comments stated that leasing companies do not always identify the purpose of these fees. Consumer and policy groups noted that landlords do not adequately disclose many unavoidable fees or fail to explain the purpose of fees, and supported a rulemaking pertaining to fees in connection with rental housing, including apartments, house rentals, and manufactured housing communities (MHCs). The National Consumer Law Center (NCLC) conducted a survey of legal services and nonprofit attorneys that identified many unavoidable fees faced by tenants, and recommended that the FTC require that online platforms for rental advertisements disclose all fees, including fees charged before and after signing rental leases. Private Equity Stakeholder Project supported enhanced fee disclosure requirements and upfront disclosure of the costs of goods and services to protect consumers and the economy at large. The comments also recommended that the FTC investigate unfair or deceptive practices related to housing fees and provide guidance on fees. The comments also recommended that a rule prohibit certain rental-related fees as invalid per se because they are exploitative and target captive renters who often come from vulnerable groups. The comments stated that fees make rental housing even more unaffordable and jeopardize access to future housing and financial stability.

We are reviewing this proposed rulemaking and will provide further updates.

DC Attorney General Sues Landlords

DC's top local law enforcement official has filed a lawsuit against property management software company RealPage and more than a dozen of the city's largest landlords, alleging they colluded in a scheme to inflate apartment rents. The 47-page lawsuit filed by DC Attorney General Brian Schwalb in the Superior Court of the District of Columbia on Wednesday, November 1, says the companies violated the District of Columbia Antitrust Act. It asks for a jury trial and seeks to secure financial compensation for the city and residents and prevent the companies from engaging in “anticompetitive behaviors.”

Please contact us at CondoMultifamilyTeam@ballardspahr.com if you have any questions related to any of these matters.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.