Prince George’s County Anti-Gouging Bill and Rent Control Guidance; Montgomery County Term Limits and Troubled Properties Regulations; DC Tax Break Bill for Vacant and Blighted Properties; SCOTUS NY Rent Control Update; Algorithmic Pricing Bans; and California Voters Reject Rent Control (Again)

With another interest rate cut, the capital markets appear to be more promising for real estate transactions; time will tell how this month’s elections will impact the real estate industry. As a follow-up to our last Alert, below are some updates on legislative activity affecting the multifamily industry locally and across the country:

Prince George’s County Anti-Gouging Bill. On September 24, 2024, CB-97-2024 was introduced to the County Council. If passed, the “anti-gouging” bill would limit rent increases for units that are otherwise exempt from rent control to 15 percent of the previous base rent, including fees, during any twelve-month period. CB-97-2024 was referred to the Committee of the Whole (COW) for further review. On October 22, 2024, the COW discussed a memorandum from the Prince George’s County Office of Law, which noted a significant risk of legal challenge. After some debate, the COW released a report endorsing CB-97-2024, which is now scheduled to be considered at the County Council meeting on November 19, 2024, at 10 a.m. Stakeholders are encouraged to make their voices heard by using one of the participation options set forth in this link.

Prince George’s County Permanent Rent Control Guidance. On October 28, 2024, the Prince George’s County Department of Permitting, Inspections, & Enforcement (DPIE) published guidance on frequently asked questions (FAQs) regarding the new Permanent Rent Stabilization and Protection Act (PRSA). These FAQs address enforcement, vacancy control, affordable housing, and other exemptions. Notably, the FAQs provide that the “completion date” for exemptions for new construction and substantial renovations completed on or after January 1, 2000 is “the date that the initial certificate of occupancy for the property was issued… even if different units in a community were physically completed at different times.” This appears to be at odds with the PRSA, which simply provides that PRSA requirements do not apply to a newly constructed unit or a unit located within a substantially renovated building if the construction or renovation was completed after January 1, 2000. Subject to regulations that are anticipated to be effective on or before February 1, 2026, units constructed or substantially renovated after January 1, 2000, are automatically exempt from the PRSA; no exemption application is required.

Montgomery County Term Limits. As noted in our prior Alert, Montgomery County voters were asked to decide whether the county executive should be limited to serving two consecutive terms. The current term limit is three consecutive four-year terms. This referendum was approved overwhelmingly—meaning the term of the incumbent, Marc Elrich, will lapse in two years.

Montgomery County Troubled Properties Regulations. As we have previously reported, Montgomery County publishes an annual list of properties designated by the Department of Housing and Community Affairs (DHCA) as “troubled” or “at risk.” The County’s new rent control law prohibits rent increases for units within the properties on the list. While the County Code and regulations provide general requirements for removal from the list (correct all violations identified, submit a corrective action plan, submit at least two quarters of maintenance logs, and pass re-inspection), there remain many questions about how quickly a landlord can achieve compliance and whether a landlord can get off the list before the next list is published a year later. We continue to work with stakeholders to propose new regulations that would provide more clarity for landlords on the troubled or at risk properties lists, including how quickly landlords can get off of the list. A draft of proposed regulations could be circulated to stakeholders as early as December 2024, with the target date of sending proposed regulations to the County Council in February 2025. Given the County Council’s calendar, which includes annual budget discussions early in the year, it is possible that new regulations may not take effect until the summer of 2025.

DC Tax Break Bill for Vacant and Blighted Properties. The DC Council may soon consider legislation that would provide tax breaks for owners of vacant or blighted commercial and residential properties within the District. Introduced by DC Council Chairman Phil Mendelson on October 15, 2024, the Vacant to Vibrant Amendment Act of 2024 (B25-1003) would increase the city's authority to seize vacant and blighted properties and incentivize owners to reinvest in their properties or sell to interested parties. Currently, occupied properties in DC are taxed between $0.85 and $1.89 per $100 of assessed value, as compared to vacant properties and blighted properties, which are taxed at higher rates (i.e., $5 per $100 if vacant, $10 per $100 if blighted). B25-1003 contemplates a sliding scale for vacant properties that starts at the occupied rate and increases incrementally up to $5 per $100 by the fourth year. As an incentive, B25-1003 also provides tax abatement for the redevelopment of certain commercial properties capped at $3 million for fiscal years 2027-2029 and up to $6 million thereafter. According to the DC Department of Buildings, the legislation would affect more than 2,800 vacant properties, some 10 percent of which are estimated to be blighted. The bill will have a public hearing at 11 a.m. on November 15, 2024.

SCOTUS NY Rent Control Cases. On November 12, 2024, the U.S. Supreme Court (SCOTUS) denied certiorari in the remaining two New York rent control cases: G-Max Management, Inc., et al. v. New York, et al. and Bldg. & Realty Inst., et al. v. New York, et al. The G-Max case challenged the New York rent control law as a physical or regulatory taking under the Takings Clause of the Constitution, arguing the increased restrictions on recouping rent controlled units for the owner’s personal use and on the ability to convert rent controlled units to co-ops or condominiums unconstitutionally infringe on a landlord’s right to exclude others from their property. The Building & Realty Institution case challenged the requirement in the New York rent control law that landlords automatically offer lease renewals, with a few specific exceptions, as a physical and regulatory taking under the Takings Clause, by limiting landlords’ rights to select tenants, as arbitrary and irrational under the Due Process Clause of the Constitution, and as an impairment of existing contracts under the Contract Clauses of the Constitution. Although SCOTUS has now declined to consider rent control laws in at least five separate cases, Justices Thomas and Gorsuch have noted their belief that some forms of rent control could be constitutionally problematic. We will continue to monitor rent control related legislative and judicial matters.

Algorithmic Pricing Bans. On October 24, 2024, the Philadelphia City Council unanimously passed a bill banning the use of algorithmic software by landlords and property management companies to set rent prices and manage occupancy rates. Driving this legislation is the concern that, by collecting their customers’ proprietary price, occupancy, and inventory information and generating price and supply strategies, algorithmic pricing software companies enable landlords and property managers to inflate rent above the level the market would naturally sustain. The Philadelphia ordinance follows a similar ban enacted in San Francisco, which in July 2024 became the first city to pass an ordinance prohibiting algorithmic programs that set multifamily rents and manage occupancy levels. While it remains to be seen whether other cities will follow the lead of San Francisco and Philadelphia, these local bans arise in the context of increasing scrutiny of algorithmic pricing of rental apartments under the federal antitrust laws, and federal antitrust enforcement agencies’ skepticism about algorithmic pricing technologies generally. Landlords and property managers that use or are considering using algorithmic pricing should understand the potential legal risks associated with this tool, especially the use of proprietary information from competitors to set prices, and should consider the ways in which they are deploying such technologies. These businesses should consider drafting or revising compliance policies, providing clearer direction to employees involved in pricing and competitive analysis, and staying current with legal developments. For more information about algorithmic pricing bans, please see our full article linked here.

California Voters Reject Rent Control (Again). Last week, California voters rejected Proposition 33, which would have expanded local government authority to impose rent control measures. Prop 33 is the third attempt by AIDS Healthcare Foundation (AHF) CEO Michael Weinstein to repeal the Costa-Hawkins Rental Housing Act of 1995, which limits rent control by prohibiting local ordinances from limiting rent rates for new leases and rent increases for lease renewals in certain residential properties. Voters previously voted down similar proposals in 2018 and 2020 by 20-point margins. This time the measure was defeated in resounding fashion, with almost two-thirds projected to be “no” votes. In an attempt to avoid yet another vote on rent control, the California Apartment Association (CAA) sponsored Proposition 34, which would require that 98 percent of the revenues from a federal prescription drug discount program be used on direct patient care. Although no entity is named, Prop. 34 appears to specifically target AHF, which has spent more than $100 million on political activities. (Together, CAA and AHF have spent nearly $200 million on the two proposals, which amounts to more than half of all ballot measure spending in California this cycle). The vote on Prop. 34 remains too close to call for now, but if the measure passes, AHF is expected to file suit on grounds that it is unconstitutional because it would only apply to AHF and no other organizations in California. Perhaps the defeat of Proposition 33 will serve as a wake-up call to other public officials.

If you have any questions or want to learn more about any of these issues, please contact us at CondoMultifamilyTeam@ballardspahr.com.

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