Montgomery County Council Enacts Onerous Rent Control

Our prior Alerts discussed two very different legislative rent control proposals in Montgomery County, Maryland. The goal of one proposal was to prevent rent gouging in a manner that would not discourage investment in new and existing multifamily housing. The second proposal was far more onerous and may have a material adverse impact on housing production, supply, and affordability. Regrettably, the Council passed the more onerous proposal.

When rents are constrained and landlord expenses continue to accelerate, landlords are compelled to find other means of sustaining economically viable business operations. During the 1970s, the County briefly imposed rent control. Because this rent control made many properties no longer financially viable, some properties were converted to condominiums, resulting in thousands fewer rental units. Will that happen again? Or will landlords choose to demolish and rebuild, so as to achieve greater density with far fewer naturally occurring affordable units? Will the level of maintenance of existing multifamily properties decline because of the cap on rents? Will contemplated capital improvements be put on hold? It is interesting to note that both the City of Gaithersburg and the City of Rockville opposed Bill 15-23.

Here’s a recap of what the Council enacted:

• Bill 15-23 limits annual rent increases to CPI-U plus 3%, but with a cap of 6%. This cap applies to existing tenants as well as units after they are vacated. The law limits current and future rents on all units, whether occupied or vacant.
• Landlords will be permitted to “bank” the amount by which of any rent increase permitted by law is not levied; the banking rent adjustment is capped at 10%.
• Buildings constructed within the last 23 years, as well as buildings substantially renovated within the last 23 years, are exempt. This appears to be a “rolling” 23-year exemption. Thus a building constructed in 2000 is exempt this year, but that exemption goes away in 2024.

Unlike the rent control law in Prince George’s County (which sunsets in April 2024), there is no sunset for Bill 15-23.

The Council considered over 13 amendments to the bill during the hearing on this bill, at times voting on orally proposed concepts without reviewing specific language. Significant details were punted to regulations—including how to set rent for vacant units and how to treat fees that may be separate from rent. It appears that Bill 15-23 becomes effective 90 days after it is signed by the County Executive, but implementation is deferred until regulations have been adopted and approved by the Council.

We continue to receive inquiries about pursuing legal actions to challenge Bill 15-23. We are in the process of evaluating the merits and strategies for such legal actions, as well as potential landlord strategies for mitigating the consequences of Bill 15-23.

Stay tuned and contact Katie Noonan or Roger Winston if you have any questions or suggestions.

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