Prince George's County Rent Control Extension/BEPS/Montgomery County Rent Control Updates

Our recent Alert focused on the D.C. Housing in Downtown program, the Montgomery County Right of First Refusal legislation, rent control in Montgomery and Prince George’s Counties, the SCOTUS rent control challenge denial, and our advocacy efforts. Since that Alert, there have been some important updates and new developments affecting the multifamily industry, which are discussed below:

Prince George’s County Rent Control

On February 27, 2024, an emergency act to extend the Temporary Rent Stabilization Act of 2023 was introduced to the Prince George’s County Council. If passed, Council Bill 008-2024 will extend the current 3% cap on residential rent increases, set to expire April 17, 2024, until October 17, 2024. The purpose of the six-month extension appears to be to allow more time for drafting permanent rent control legislation. As noted in our previous Alert, the Rent Stabilization Work Group has been meeting regularly to explore long term rent control strategies. On February 27, 2024, the Work Group shared its report with County Council. Key recommendations in the report include (a) allowing rent increases between 4% and 10%, (b) applying rent control to vacant units, but allowing rent increases of 8%-12% 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 up to 10%. There are no specific recommendations for exempting properties, but the report states ‘fixed-date’ exemptions offer more certainty to investors, while ‘rolling’ age-based exemption ensure that all or most properties are subjected to rent control. The report presentation can be found here. It is unclear when or if permanent rent control legislation will be proposed but it appears likely that Council Bill 008-2024 will pass, giving the Council more time to consider permanent rent control legislation.

Montgomery County Tenant Protection and Notification

On March 5, 2024, Bill 7-24 was introduced to County Council with the goal of expanding disclosures and protections for tenants. The bill requires insurance notices, automatic sprinkler notices, and emergency plan notices for lease agreements; conspicuous notice of the building representative reachable at all times; and a building emergency safety plan approved by the Department of Housing and Community Affairs (DHCA). Leases will be required to notify tenants whether the landlord’s insurance policies provide coverage for tenant’s personal belongings and the lease must specify if renter’s insurance is required. Leases would also be required to notify tenants whether the building is fully protected by an automatic sprinkler system, and include the emergency safety plan. The emergency safety plan would include an evacuation map, the location of fire extinguishers, the type of fire alarm system installed, the point of contact or type of communication the landlord will use during and after the emergency, and details regarding alternate housing for when tenants are displaced by an emergency. A public hearing for the bill has not yet been scheduled, but it is anticipated that the Planning, Housing, and Parks Committee will review the bill before it is put up to the County Council for a full vote.

Montgomery County Rent Control Regulations

On behalf of numerous landlords we represent, we submitted detailed comments to DHCA and all councilmembers regarding the proposed rent control regulations. This week we will meet with DHCA Director Scott Bruton to discuss our comments and recommendations, and this will be followed by meetings with key members of the County Council. We are also meeting with the Montgomery County Economic Development Corporation and the Mayor of Gaithersburg to discuss the impact of rent control on economic development. We continue to develop strategies for communicating our message and the importance of revising the proposed regulations. There is strength in numbers, and we need your help. If you are interested in being part of this effort, please contact Katie Noonan.

Rent Control Coalition

The Rent Control Coalition, consisting of 34 members, met last week and discussed next steps, in light of the U.S. Supreme Court denial of certiorari in the of New York rent control challenges together with advocacy, public relations, and legal approaches that may be helpful in Maryland. Some possible options were discussed in this recent Law360 article. If you are interested in joining this effort, please contact Roger Winston.

Montgomery County Right of First Refusal (ROFR)

As mentioned in our prior Alert, the Montgomery County Council introduced Expedited Bill 38-23, which was signed into law on February 26, 2024. Regulations are to be issued addressing the new law, but the new law, including the assignment provisions, are immediately effective. The new law allows the County to assign ROFR rights to “qualified entities,” similar to the ROFR law in Prince George’s County. The housing agencies and authorities for the cities of Rockville, Gaithersburg, and Takoma Park are designated as “qualified entities”, as are other nonprofit or for-profit entities approved by DHCA. The new law does not allow a contract purchaser to match the affordability commitment of a qualified entity, effectively allowing the County to hand a privately negotiated deal to a qualified entity even when doing so does not increase affordable housing. In addition, the new law limits deposits to 5% of the purchase price for ROFR contracts and provides that if there is a ROFR exercise and no closing under the ROFR contract, then the owner can proceed to sell the property without providing a new offer, as long as (i) the purchase price is not less than 90% of the original offer, and (ii) the closing occurs within 365 days of the original offer. The new law applies retroactively to any ROFR received by the County after January 1, 2024. These changes to the ROFR law are likely to result in additional delays, costs, and complications for multifamily transactions in the County.

Building Energy Performance Standards (BEPS)

As noted in our Alert, Montgomery County issued proposed regulations for BEPS on November 1, 2023, which would establish minimum energy and performance thresholds for many existing buildings. On January 12, 2024, the County Executive introduced Regulation 17-23, which would, if approved by the County Council, establish the use of Site Energy Use Intensity (EUI) for setting energy performance targets by major building use types, define how renewable energy will be incorporated into the BEPS performance metric, and provide for an alternative compliance approach where meeting the Site EUI is economically infeasible. The renewable energy allowance will credit all electricity use generated from onsite renewable energy systems, and ownership of the renewable energy credits is not required. Regulation 17-23 changed the definition of economic infeasibility to focus on the payback period of the improvements rather than the financial condition of the property owner. Economic infeasibility is defined as the simple payback of the energy improvement measure to meet the interim or final standard being more than 25 years. For qualified affordable housing, common-ownership communities, non-profit owned buildings, or local small business owned buildings, economic infeasibility is defined as a simple payback period of more than 10 years. Currently, the Transportation and Environment Committee is reviewing Regulation 17-23, and its latest staff report can be found here. The January 24, 2024 report contains the updated regulations based on comments received, and can be found here. Recently, the County Council extended the deadline for review of Regulation 17-23 until September 30, 2024. The Maryland State BEPS regulations, as discussed in our previous Alert, were put on hold to give the General Assembly’s Administrative, Executive and Legislative Review Committee more time to examine the economic impact of the proposed regulations. The hold will expire on March 29, 2024, but there have been indications by Maryland Department of Environment officials that the hold could be extended into May.

We will continue to provide updates to these and other issues and initiatives impacting the multifamily industry, as well as continue to advocate on behalf of our clients and the multifamily industry. Should you have any questions or suggestions please reach out to CondoMultifamilyTeam@ballardspahr.com.

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