Can the Government Regulate How Much Rent I Can Charge for My Residential Housing Unit?

Can the Government Regulate How Much Rent I Can Charge for My Residential Housing Unit?

Some residential rental units, usually in multifamily buildings, are subject to rent-control laws that strictly regulate how much a landlord can charge, and the amount and frequency of rent increases. These laws also tend to impose restrictions and procedural safeguards on the eviction process, usually making it more difficult to evict tenants. Any property owner in a community with rent controls should seek the advice of a seasoned real estate lawyer to understand the impact of these laws on rental properties and leases. It is equally important to consult with a skilled real estate attorney if you are even considering purchasing residential rental property in a rent-controlled community to understand if and how the tightly regulated system will affect your investment.

History

Rent control was originally part of federal law enacted during the emergency housing shortage after World War II. Rent-control laws in most locales no longer require emergency situations; such laws are seen as a proper exercise of government police power in most situations. These laws have undergone continual constitutional challenges, but usually are upheld if they contain certain safeguards for the property owner.

Nowadays, federal, state or local rent-control laws may apply in a given community. Only a handful of states' codes impose rent control. Local rent control is most common in areas of California and New York. In New York, there are over one million regulated units. However, a majority of states forbid their local units of government from enacting rent-control laws.

Legal Issues

Rent-control schemes and related rent-stabilization laws can be incredibly complex. For example:

• If a landlord runs afoul of limits on rent and evictions, it can cost him or her dearly in fines, money damages and legal fees.
• Property owners may be subject to extensive recordkeeping requirements.
• It can even be difficult to determine whether a particular building is regulated.
• A landlord may be required to continuously renew a rent-controlled lease except under very narrow circumstances.
• Sometimes rent-controlled units can be transferred or willed to tenants’ relatives, keeping them in the same families for even decades.
• Having property removed from rent-controlled status can be a monumental undertaking, depending on the applicable law. Sometimes, as in New York, one legal scheme applies to older properties and another to newer properties.
• Because of the almost perpetual nature of some rent-controlled tenancies, property buyers may take over units with pre-existing rent-controlled leases. There may already be litigation or other problems with some of these tenants that new owners inherit.
• Property owners may be limited in their ability to demolish buildings.
• Property buyers need to be careful not to unknowingly inherit responsibility for violations of law by the previous owner.
• The effect of rent-control regulation on a mixed-use building of commercial and residential units under one roof may be complicated.
• Questions can arise about whether federal, state or local rent limits should apply to a given property. The federal control usually pre-empts the state or local law.

Pros

Rent-control laws are seen as creating affordable housing for lower-income tenants, promoting diversity and providing a safety net to those who otherwise might lose their homes when rents increase in scarce markets. Sometimes a landlord can receive tax advantages for voluntarily undertaking to comply with a rent-stabilization scheme.

Cons

Critics point out that housing stock becomes run down in rent-controlled areas because landlords find it is not cost effective to make improvements when they cannot raise the rent to recoup cost and increase profit. Non-rent-controlled property in an area of regulated rents may be particularly expensive as property owners try to make profits on their unregulated buildings. When rent controls have been abolished in an area, economic growth and expansion have followed because higher income people move in and are willing to pay top rents, stimulating the local community commercially.

Conclusion

If you are a landlord, a potential property owner or a tenant with legal issues related to rent control, be sure to carefully interview a potential real estate attorney to be sure that he or she is thoroughly familiar with your particular rent-control scheme. Rental regulation is usually administered by a government agency, and your lawyer should be accustomed to working with local rent-control officials. If you choose to purchase property in a rent-controlled district, be sure your real estate attorney drafts the sales contract and negotiates with the seller to secure the transfer of legal records related to the rental and litigation history of the building. Finally, your lawyer should draft carefully all leases, as special provisions may be required by applicable law.

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