Rent Control Regulations and Federal Legislation Alert

If you have been following our recent Alerts, you are aware that the multifamily industry has been subject to a series of chilling legislative actions and proposals. Today’s Alert focuses on two very recent high-profile issues: (1) the issuance of proposed rent control regulations in Montgomery County, Maryland, and (2) new federal legislation seeking to curtail algorithmic pricing.

Rent Control Regulations Issued The Montgomery County Department of Housing and Community Affairs (DHCA) published draft regulations on January 31, 2024, to implement the County’s new rent control law. As described in a previous Alert, Bill 15-23 was signed into law in October 2023, but by its terms, the rent control requirements “must not apply, and must not be enforced” until the enabling regulations take effect. The proposed regulations aim to address the following:

1. Troubled or At-Risk Properties – Notwithstanding the rent increases otherwise permitted under the rent control law, unless specifically approved by DHCA, no rent increases are allowed for properties designated as “Troubled” or “At-Risk” pursuant to Section 29-22(b) of the County Code. The regulations do not address the process for implementing rent increases when a property comes off the Troubled or At-Risk list. 
2. Capital Improvements Surcharge and Fair Return – The proposed regulations include somewhat complicated and confusing processes for a landlord to request an increase above the permitted rent increase to cover the cost of capital improvements to a regulated unit (defined as a unit subject to rent control) or to obtain a fair return on investment. In either case, landlords must provide notice to tenants by first class mail of landlord’s application for Capital Improvements Surcharge or Fair Return surcharges, at the time of application and again upon receipt of the County’s decision on the application. The regulations do not impose any deadlines on DHCA to issue a decision on an application. However, if a landlord undertakes capital improvements prior to DHCA’s approval of its application for a Capital Improvements surcharge, then the landlord is not eligible for such surcharge.  
3. Substantial Renovation – The new law provides that a unit in a building that was “substantially renovated” in the last 23 years is exempt from rent control subject to the terms of the regulations. The regulations provide that for a property to qualify for this exemption, the landlord must submit a detailed application to DHCA and provide notices to tenants. Although the language of the law indicates that the exemption could apply to substantial renovations that took place prior to the effective date of the rent control law, the regulations indicate that the exemption applies only if a landlord submits an affidavit to DHCA within 30 days of completion of the work and DHCA approves the same. 
4. Fees – The regulations provide that the landlord of a regulated unit may only collect the following fees: (a) application fee not to exceed $50 per household, (b) late fee in an amount subject to County law if payment is 10 days late, (c) lost key fee of up to $25, (d) secure storage fee not to exceed $3 per square foot per month, (e) limited internet and cable television fees, and (f) limited vehicle and bicycle parking fees. No pet fees are permitted, though an owner can require the tenant to post an additional deposit of up to $100. None of these fees are indexed. Except to the extent governed by other County laws, these fee restrictions do not apply to properties that are exempt from rent control. 

The comment period for the draft regulations ends March 1. The County Council then has 60 days to approve or disapprove the regulations. If approved, the regulations—and by extension the rent control requirements—take effect upon approval or a later date identified by the County Council. We continue to review, analyze, and interpret these proposed regulations on behalf of our clients.

We are also preparing a series and questions and comments to submit to DHCA. Written comments can be submitted to Scott Bruton by email at Scott.Bruton@montgomerycountymd.gov or mail to Scott Bruton, Department of Housing and Community Affairs, 1401 Rockville Pike, 4^th Floor, Rockville, Maryland, 20852. We will also discuss these regulations tomorrow during our ULI Washington Executive Conversation with Montgomery County Council President Andrew Friedson.

Federal Multifamily Legislation. Another important matter we have been tracking and reporting on is regulatory scrutiny of and class action litigation challenging algorithmic pricing for rental housing. A group of Democratic senators has introduced antitrust reforms targeting algorithmic pricing, citing proliferation of computer-generated pricing in the residential housing market as a key motivation. Current antitrust laws require proof of an explicit agreement to impose liability for price-fixing. Senator Amy Klobuchar, D-Minn., a primary sponsor along with Democratic Senate colleagues, on February 2 announced the Preventing Algorithmic Collusion Act, saying the legislation would close this so-called “loophole.” Instead of requiring proof of an explicit agreement, the bill would presume an agreement when competitors share information through a pricing algorithm to raise prices. The Act would require disclosure of algorithmic pricing and authorize audits by antitrust enforcers. The bill would also prohibit firms from using rivals’ competitively sensitive information to train pricing algorithms, and require the FTC to study the impact of pricing algorithms on competition. Senator Klobuchar is also co-sponsoring a bill specifically targeting residential property owners and managers: the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act. It would prohibit property owners from contracting with any company that “coordinates rental housing prices and supply information” and ban such coordination among property owners.

We will continue to provide updates to these and other initiatives and issues impacting the multifamily industry. Please let us know if you have any questions or suggestions at CondoMultifamilyTeam@ballardspahr.com. 

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