There have been a number of new regulatory developments since our prior Alert, including updates on Prince George’s County rent control, Montgomery County tenant protections, Montgomery County Right of First Refusal (ROFR) expansion, Building Energy Performance Standards, and our Coalition efforts on rent control as well as the Montgomery County rent control regulations. Below are some further updates impacting multifamily properties:
Prince George’s County Rent Control Extension. On February 27, 2024, the Prince George’s County Council introduced an emergency act to extend the Temporary Rent Stabilization Act of 2023, which is set to expire on April 17, 2024. If passed, CB 008-2024 will extend the current 3% cap on residential rent increases until October 17, 2024. The stated purpose of the six-month extension is to allow more time for drafting permanent rent control legislation. As noted in a prior Alert, the Rent Stabilization Work Group held several stakeholders meetings to explore new legislation. On February 27, 2024, the Work Group shared its report with the 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 between 8% and 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 compared to a “rolling” age-based exemption. The report presentation can be found here. There will be a public hearing for CB 008-2024 on April 9, 2024, at 1:30 pm, followed by a vote of the County Council. It is unclear when permanent rent control legislation may be introduced, but it appears that CB 008-2024 has ample support to be enacted.
Coalition Efforts to Address Montgomery County Rent Control Regulations. On March 12, 2024, members of the Coalition met with Montgomery County Department of Housing and Community Affairs (DHCA) Director Scott Bruton to discuss the Coalition’s suggested changes to the proposed regulations. Following that meeting, we prepared a consolidated markup of the regulations incorporating comments from the Apartment and Office Building Association (AOBA), the National Association for Industrial and Office Parks (NAIOP), and the Greater Capital Area Association of Realtors (GCAAR). After DHCA considers feedback received during the public comment period, it will propose regulations to the Montgomery County Council for its review and approval. The County Council will then have up to 60 days to approve or disapprove the regulations. If approved, the regulations—and by extension the rent control law—take effect upon approval or at a later date identified by the County Council. On the other hand, if the regulations are rejected by the Council, they must be returned to DHCA for further consideration and revision before they can be resubmitted and/or adopted. DHCA has advised that it will not process any applications related to substantial renovations, fair return, or capital improvements until regulations are adopted and the new law takes effect. In an effort to amplify our concerns with the proposed regulations, we met with leaders of the Montgomery County Economic Development Corporation (MCEDC) to discuss the potential economic impacts of the new rent control law. The Coalition continues to reach out to community leaders and stakeholders to minimize adverse impacts of rent control. If you are interested in joining this effort, please contact Katie Noonan.
Rockville Considering Rent Control. Some of the harshest critics of Montgomery County’s rent control law have been stakeholders in the municipalities located within the County, such Gaithersburg and Rockville. Because they are politically independent, these municipalities can choose to adopt or reject County laws (or to adopt alternative laws). In July 2023, the Rockville City Council sent a letter to the Montgomery County Council opposing the new rent control law because it “may inadvertently serve to delay the creation of new affordable housing, challenge property owners to perform regular care, cause inadvertent tenant turnover, and may encourage landlords to increase rents by 6 percent every year.” That same month, the Gaithersburg City Council and Mayor sent a letter to the County Council arguing that rent control will not make housing more affordable and that “we are concerned that this bill will have the opposite effect, potentially doing profound damage to the housing market and the local economy—and, more importantly, diminishing the quality of life for our renter community.” Recent elections do not seem to have changed things in Gaithersburg. Meanwhile in Rockville, the Mayor and City Council recently decided to add agenda items relating to rent control for discussions later this summer.
Prince George’s County Eviction “Moratorium.” We are assisting clients who are experiencing significant challenges evicting tenants for nonpayment of rent. Issues include delays in courts, as well as delays in effectuating evictions. These serious problems have essentially resulted in a constructive moratorium on evictions, significantly influencing the financial viability of affected rental properties. If you have experienced similar problems or want additional information on this matter, please let us know.
D.C. Housing In Downtown (HID) Tax Abatement Final Rulemaking. On Friday, March 22, 2024, the District Deputy Mayor for Planning and Economic Development (DMPED) released a Notice of Final Rulemaking and a Request for Application to accompany the new HID Tax Abatement Law. The HID Tax Abatement Law applies to conversions of non-residential properties to rental apartments as well as condominiums. The HID Tax Abatement Law provides three incentives for property owners converting their properties: (i) a 20-year tax abatement, (ii) limited exemptions from the Tenant Opportunity to Purchase Act (TOPA), and (iii) relief from First Source Agreement requirements. Eligible properties must yield a minimum of 10 housing units during the abatement period and be located in portions of DuPont Circle, West End, Foggy Bottom, Penn Quarter, Chinatown, or East End. Additionally, eligible properties, for the duration of the abatement period, must make either 10% of the housing units affordable to families earning not more than 60% of the median family income (MFI), or 18% of the housing units affordable to families earning not more than 80% MFI. The total amount of tax abatements that the Mayor can approve is subject to the availability of appropriated funding as well as specified caps. Property owners who receive the tax abatement will be exempt from TOPA for the first sale of the property within 10 years after issuance of the certificate of occupancy for the development, and exempt from the First Source Agreement requirement for conversion related construction of the property. The HID Tax Abatement Law applies to conversions of non-residential properties to rental apartments as well as to for-sale condominiums.
Downtown D.C. Tenant Opportunity to Purchase Act (TOPA) Exemption Proposal. On February 26, 2024, Mayor Bowser unveiled the Downtown Action Plan, drafted by the Downtown D.C. and Golden Triangle business improvement districts. One feature of this plan is a 10-year TOPA exemption for new housing that is not replacing existing housing. The TOPA exemption would only apply to buildings in the Downtown D.C. and Golden Triangle business improvement districts. Currently, the Bowser administration is deciding which, if any, of the proposals in the Downtown Action Plan’s recommendations to accept. Any changes to TOPA would require approval of the D.C. Council. The Downtown Action plan includes many other proposals to revitalize downtown D.C. The recommendations include increasing flexibility in building codes and Building Energy Performance Standards, adjusting tax classifications of new multifamily developments, and improving the condominium warranty claims process.
Low Income Housing Tax Credit (LIHTC) Limit on AMI/ Rent Increases. On January 10, 2024, the U.S. Department of Housing and Urban Development (HUD) proposed new restrictions on area median income (AMI), including a 10% limit on increases for LIHTC properties. HUD is expected to release a final rule including the 10% limitation during the week of April 8, 2024. LIHTC rent rates are based on the incomes of tenants in relation to the AMI. This notice adds an express stipulation that the annual income limit increase may never exceed 10%. Under the prior rule, rent increases were capped at the higher of 5% or twice the percentage change in national median family income. Now there is an absolute 10% limit. If incomes significantly increase, the 10% absolute cap could limit the rents that can be charged by owners of LIHTC projects.
Prince George’s Security Camera Mandate. As noted in a prior Alert, the County Council recently passed CB 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. CB 66-2023 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 remains unfunded, as no appropriations were earmarked for this purpose in the 2024 or 2025 fiscal budget.
Urban Land Institute (ULI) Spring Meeting. The ULI Spring Meeting will be in New York next week. Katie Noonan and Roger Winston will be there and they would welcome the opportunity to meet with you. If you would like to do so, please reach out to them. Roger is giving a presentation on…you guessed it: rent control!
National and State Politics and Policies. We have reported previously on the Blueprint for a Renters Bill of Rights and noted above the Low Income Housing Tax Credit (LIHTC) rent cap at the federal level and several multifamily regulatory bills pending in Maryland. Former Maryland Governor Hogan announced recently that he is running for Senate in Maryland. Larry Hogan was a very popular and well-respected Governor. Our clients had many favorable interactions with him on real estate and business issues when he was Governor and have expressed their support for him for Senate. We are hosting a reception for him Monday evening, April 8, in Chevy Chase Maryland. If you would like to attend this reception or contribute to his campaign, please click this link.
We will continue to provide updates on these and related issues and initiatives and to advocate on behalf of our clients and the multifamily industry. Should you have any questions or comments please reach out to CondoMultifamilyTeam@ballardspahr.com.
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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.