Rent Control, ROFR, TOPA, and Other Multifamily Regulatory Updates

Regulation of the multifamily industry appears to be continuing. Our most recent Alert discussed Maryland Governor Moore’s proposals for the Renters Rights and Housing Stabilization Act of 2024; rent control updates; our Rent Control Coalition efforts; Right of First Refusal (ROFR) bill in Montgomery County; ROFR in Fairfax County, Virginia; TOPA reform rumors; the DC Proactive Inspection Act; the Prince George’s security camera mandate; and option to fight back. Here is a link to that Alert. Below is a further update on legislative activities in the region affecting multifamily properties:

Montgomery County Rent Control

As described in a previous Alert, Bill 15-23 was passed by the Montgomery County Council in July 2023 and signed into law in October 2023. The new law stipulates that 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) issued formal guidance indicating that it does not plan to enforce the law until the regulations are adopted. We understand that DHCA plans to publish rent control regulations in the County Register on February 1, 2024.

Montgomery County ROFR Expansion

Following up on a prior Alert, the Montgomery County Planning, Housing, and Parks (PHP) Committee met on January 22, 2024, to discuss Expedited Bill 38-23, which would allow the County to assign ROFR rights to “qualified entities” — similar to the existing ROFR process in Prince George’s County. One proposed change to Bill 38-23 included permitting offers to be submitted electronically, which was approved by PHP. Another approved amendment would require DHCA to issue a nonbinding notice of intent within 10 days of receiving a complete ROFR submission.

We have been advocating for other changes, too. For instance, if the County is going to expand the ROFR law in a manner that may chill multifamily investment, they should also simplify and shorten the process, including removing the tenant ROFR right for buildings with 20 or more units. To our knowledge, in the 43 years since the enactment of this law, tenants have never exercised a ROFR for a building of 20 or more units. The current situation where every transaction must wait at least 45 days to see if the tenants organize is completely unnecessary. It is extremely rare for tenants to organize; but if they do, the tenant organization has up to 135 days to post a deposit (or much more likely, walk away). There does not appear to be any legitimate basis for a tenant ROFR, especially if the ROFR will now be available to third parties. Unfortunately, at this time, the PHP Committee has not been willing to include this very reasonable change to the legislation.

Two other important changes were proposed. The first was whether a contract buyer should be entitled to reimbursement of its reasonable costs if the ROFR is exercised. The second was whether the County should be required to offer the same affordable housing incentives and subsidies to the contract buyer as to any third party ROFR assignee. The PHP Committee did not express interest in reimbursing the contract buyer if the ROFR was exercised, and they did not discuss requiring the County to offer the same terms to the contract purchaser.

At the end of the discussion, the PHP Committee unanimously decided to recommend Expedited Bill 38-23 for full consideration by County Council with the approved amendments and the possibility of adding an exemption for properties subject to Low Income Housing Tax Credit (LIHTC) requirements. Potential means of advocating before the County Council are discussed below. We also intend to raise this during our meeting with Council President Andrew Friedson on February 7, 2024.

Urban Land Institute Washington (ULIW) Executive Conversation on Rent Control

As noted in many of our Alerts, rent control continues to be a significant concern for the multifamily industry, as existing laws are implemented and additional jurisdictions ponder rent control. As previously reported, as part of ULIW’s Executive Conversations series for Full Members, Ballard Spahr will host a program at our DC office (1909 K Street NW) on February 7, 2024. Our featured guest for this program will be Montgomery County Council President Andrew Friedson. This program provides an opportunity to discuss better informed means of encouraging the production and preservation of quality affordable housing. This program is currently sold-out, but please let us know if you would like to attend and we can place you on a waiting list. Here is a link to current registrants. This should provide a good forum for thought-provoking discussion.

Prince George’s Security Camera Mandate

The County Council recently passed Bill 66-2023, requiring 24-hour security cameras in multifamily buildings of 100 or more units. Some of the requirements include installing cameras that have a minimum 1080p resolution and a 180-degree field of view at all entrances, exits, and common areas, such as parking lots. We understand that compliance with this law may be very expensive. The bill also provides that the Director of the Office of Management and Budget (OMB) may award a one-time rebate up to $5,000 to any multifamily facility that is subject to this new law for expenditures pertaining to the security camera requirements. However, we have been advised by OMB that the rebate is currently unfunded because no appropriations were made in the 2024 fiscal budget.

Prince George’s County Rent Control

As noted in a previous Alert, last year the Prince George’s County Council passed a temporary Rent-Stabilization Act that is set to expire in April 2024. The Rent-Stabilization Act limits residential rent increases by 3% for existing tenants during this 12-month period. A Rent-Stabilization Work Group established by the County Council has been meeting on a monthly basis to make recommendations for new rent stabilization legislation prior to the current Act expiration. Details of the final January 12 Work Group Meeting are available online. At the end of the final meeting, Council Member Krystal Oriadha hinted at the introduction of legislation for permanent rent control, but did not provide details for the timing or specifics of the legislation. Potential means of advocating before the County Council are discussed below.

DC Housing In Downtown (HID) Tax Abatement Program

On Friday, January 26, 2024, the District Deputy Mayor for Planning and Economic Development (DMPED) proposed regulations to accompany the HID Tax Abatement law discussed in our prior Alert. The HID program provides a 20-year tax abatement, an exemption of the First Source Agreement requirement for construction, and a 10-year exemption from the Tenant Opportunity to Purchase Act (TOPA). Eligible projects satisfy a minimum affordable housing set aside of (a) 10% of units affordable to households earning 60% or less of Median Family Income (MFI) or (b) 18% of units affordable to households earning 80% or less of MFI. For those wishing to comment before the comment period ends on February 26, 2024, go to the DC regulations page here. You can also send your comments to DMPED by mail or email at Olivia.Jovine@dc.gov.

Rent Control Coalition

Once again this week, the Supreme Court chose not to grant or deny certiorari in either of the New York rent control cases we have been following. However, the Court denied a petition for certiorari challenging a Seattle, Washington law that prohibits residential landlords from asking about the criminal history of prospective tenants. (The case is Yim v. City of Seattle, No. 23-329). The denial leaves in place existing law providing that property rights are not “fundamental rights” under the US Constitution that are subject to a higher level of judicial scrutiny. A grant of certiorari and a contrary decision on this question might have opened new avenues for challenging rent control law.

Another petition for certiorari has been filed on behalf of landlords challenging a municipal law under the Takings Clause of the Fifth Amendment. The case challenges an eviction moratorium enacted at the beginning of the COVID-19 pandemic by the City of Seattle. The landlords claim that the moratorium was a physical taking without just compensation under the 2021 Supreme Court case Cedar Point Nursery v. Hassid. The Ninth Circuit ruled that the moratorium was not a taking. The Eighth Circuit applied Cedar Point to strike down a similar moratorium in St. Paul, Minnesota in 2022. So the petitioners argue the Supreme Court should take this case to clear up the conflict between the Eighth and Ninth Circuits. A decision invalidating the Seattle moratorium would be a victory for landlords.

TOPA Reform Rumors

The recent ULIW Future Forum included discussions regarding the many challenges facing the District of Columbia, as well as possible remedies to address these challenges. One item discussed was potential changes to the onerous TOPA law in DC. The goal of reforming TOPA is to encourage investment in new and existing multifamily housing. If you are interested in being part of the conversation, please let us know.

Mad as Hell

As we continue to help clients mitigate the impact of the constraints and burdens discussed above, the limited purpose of the Rent Control Coalition to date has been to investigate the validity of new rent control laws. But as noted in the Alert, there are many other legal and regulatory burdens affecting multifamily housing, as evidenced by the frequency and content of these Alerts. We continue to work directly with many stakeholders directly impacted by these laws and regulations. Several stakeholders have inquired as to the viability of pursuing one or more collective efforts. We are reminded of this famous clip from Network. The challenge we see with pursuing one or more advocacy efforts is the multitude of issues that impact different stakeholders in different ways. For instance, the strategies for addressing the new Montgomery County ROFR proposal are different than those applicable to the Montgomery County Rent Control Regulations or the pending changes to the Prince George’s rent control law. We are planning a virtual meeting the week of February 12, 2024, to get further input from impacted stakeholders as to the viability of new advocacy efforts. If you are interested in attending, please let us know.

Let’s End With Some Good News

The state fire marshal rescinded its requirement for sprinklers in older buildings, based on an opinion from the attorney general that the regulations were improperly adopted. They have instructed local counties that they can require sprinklers but only if the local authority determines that the specific building has conditions warranting that action. State legislation has been introduced which will require notice to tenants about the lack of sprinklers and will set up a working group to look at this issue during 2024.

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