Laws and public policy surrounding rental properties look like a modern-day Robin Hood
In many respects, landlords are called upon to use their properties for the public good and there is a price to pay if properties are not used for the benefit of all
In old ballads, Robin Hood was famous for his generous woodland feasts. With a contempt for the rich, feudal monasteries of his time, what he took from England's landowners, he would share among the poor because of the conviction that private property should be used for the public good of all.
Fast forward from the Sherwood Forest of the fifteenth century to 2020 and Robin Hood can be a spur to reflection on California laws that have a deep distrust for corporate entities, impose a limit on profit, and look to level the playing field in home ownership while penalizing owners who are not good citizens conscientious of the wider economic order.
The contempt for corporate homeowners has been long in the making
In his book, "Underwater: How Our American Dream of Homeownership Became a Nightmare," Ryan Dezember observed that in the wake of the 2008 financial crisis, corporations went on a buying spree and became landlords, renting the homes out for more than residents would have otherwise paid in rent or for a mortgage payment.
Enter the foreclosure crisis and investors converted the glut of repossessed homes into rental properties. After corporations gobbled up hundreds and thousands of homes, owner-occupied homes plummeted to the lowest levels in decades.
To prevent another corporate takeover of housing, lawmakers enacted many safeguards.
Corporate owners do not enjoy exemptions from statewide rent control
While single-family homes are typically exempt from the Tenant Protection Act of 2019 (AB-1482), this is not the case if the property is owned by a corporation, real estate investment trust, or LLC in which at least one member is a corporation. Lawmakers were wary of these ownership structures because the actors were likely to be sophisticated enough to take advantage of loopholes and go on a buying frenzy.
Foreclosed homes are no longer allowed to be bundled together at auction and sold to a single buyer
Dubbed "Homes for Homeowners, Not Corporations," Senate Bill 1079 prevents the bulk-purchase of foreclosed homes, giving a more level playing field for owner-occupants, tenants, local governments, and housing nonprofits. Read our takes ⇾
Vacancy taxes frown on empty houses not being utilized
In locales such as Oakland, leaving a house empty will come at a price. These vacancy taxes are designed primarily to penalize speculative investors who sit on vacant parcels until such time they can make the biggest profit. From our blog: The war being waged on vacant properties ⇾
Large landlords required to report dutiful rent payments to the credit bureaus under SB 1157
When property owners faithfully pay their mortgage, it is reflected on their credit report. It seems only fair that when renters dutifully pay their rent, those payments should be notated on their credit report, as well. As of July 1, 2021, tenants in an "assisted housing development" (a multifamily rental housing development where tenants receive governmental assistance) will have the option of having their paid rents reported to a credit reporting agency, with some caveats.
The law does not apply if there are 15 or fewer units, so long as the landlord is a natural person and not a corporation, real estate trust, or LLC in which at least one member is a corporation. Once again, we see that these entities are pariahs and that renters are given an opportunity to have their status elevated to that of home ownership. We delved deeper into the law here →
AB 889 gets reincarnated
After dying in 2021, this bill was brought back to life in 2022 and would require that corporate and institutional landlords report to the Secretary of State the owners of the corporation or LLC that rents out property. This is sold as being in the interest of transparency, but it's really about identifying “greed-fueled speculators” and deciding who gets to buy what.
There’s more
Debt service and property tax pass-throughs have also gone the way of the dinosaur, we said in this blog, because of the natural distrust of speculators and corporations that are perceived to be most able to recoup costs and investments.
We can go on, but let’s pivot to other measures that are designed to upend the traditional meaning of property ownership.
COPA
We're not talking about Barry Manilow’s Copacabana. San Francisco's Community Opportunity to Purchase Act (COPA) gives a vetted pool of qualified nonprofits dedicated to affordable housing the first opportunity to make an offer on multi-family properties when the owner intends to sell them. Furthermore, the nonprofit can match or beat the offer of other private buyers who come to the trough.
In a 2019 webinar with our friends at ZEPHYR real estate, we attempted to make sense of the law beginning to take shape at the time and express some of our reservations.
You'll get some argument from Krista Gulbransen, the Executive Director of the Berkeley Property Owners Association. Gulbransen doesn't couch her words in explaining the fallacies of this position.
"The TOPA legislation is a deliberate attempt to devalue rental property in the hopes that it will become “affordable” to the tenants that live in. The unaffordability in the Bay Area is not due to the “greed” of rental housing providers, but rather due to the longstanding issue of lack of supply. The continued attack on owners – especially mom and pop landlords – is despicable, and we will do everything to protect the rights of those owners to capture the value of the asset."
In It Together Oakland, a band of small housing property owners, is not enamored of TOPA either. Calling themselves former tenants and champions of "real home ownership," it calls TOPA a false promise and makes a scathing indictment of the measure here.
Based on its introductory video, though, we can only conclude the group consists of sensible people with no agenda other than looking for balanced approaches to solve the affordable housing dearth, and so TOPA just may not be a sound policy.
Our own concerns at Bornstein Law
These types of “First Right of Refusal” mandates - in whatever flavor they are introduced - adds a new layer of complexity and delay in an already complicated regulatory regime. We also warn buyers, sellers, and real estate professionals that liability could await when aggrieved nonprofits or tenants feel that they got left out of the loop when an eligible property is on the eve of being listed or feel slighted in subsequent negotiations.
Tenants should absolutely have a voice in the rental relationship and a trajectory for upward mobility. We are very concerned about our unhoused neighbors, as well. What alarms us are the tactics and language being used to advance the agenda of tenants’ advocates.
We've always said that there is a right way and a wrong way to do things. When landlords encounter problematic tenants, proper legal protocols must be followed when transitioning tenants out.
"Self-help" eviction measures like harassment cannot be used by a landlord to drive out the tenant, but it strikes us as a double standard that tenants can use a rent strike to resolve differences. Landlords cannot take matters into their own hands, but it seems that tenants have the license to do so.
In Oakland's Fruitvale neighborhood, neighboring tenants got together and decided to withhold rent payments to make a statement. It worked - the landlord was coerced into selling the building to a community land trust. You can get the full scoop here →
We've always said that there is a right way and a wrong way to do things. When landlords encounter problematic tenants, proper legal protocols must be followed when transitioning tenants out.
"Self-help" eviction measures like harassment cannot be used by a landlord to drive out the tenant, but it strikes us as a double standard that tenants can use a rent strike to resolve differences. Landlords cannot take matters into their own hands, but it seems that tenants have the license to do so.
Read our related blog: Push in San Francisco to give union-like protections to tenants →
The genesis for this, or at least the fuel to the fire, has been the Moms4Housing Movement
The Robin Hood philosophy that all property should be used for the public good is epitomized by the viral Moms4Housing cause. After a group of homeless and marginally housed mothers occupied a vacant Oakland property, they put a target on the backs of real estate investors with empty homes.
Although prominent politicians stopped short of calling for squatting in vacant properties, many of them applauded the movement and paved the way for reform.
What’s on the legislative agenda for 2022?
We are encouraged that homelessness is a topic top of mind for lawmakers and that there has been unprecedented spending in attempts to solve this intractable problem.
That being said, tenant protections that have been floated recently have used the homeless crisis to argue for more stringent tenant protections. If a person is a tenant, then by definition they have housing - a tenant cannot be homeless. Yet terms of homelessness and displacement are being invoked in an attempt to push through new laws governing landlord-tenant relationships.
This is a clever marketing strategy. After all, who can be against a law called “Homeless Prevention Act,” or something along those lines? At first blush, the way some laws are coined are hard to argue with. Until you go through the details of the law.
The marketing strategy now is to not address the legitimate homeless crisis. It is to enact proactive policies that avert homelessness, at the expense of owners’ rights.
Take, for instance, SB 649, a proposed bill that would require landlords renting a unit to give preference to applicants who are local residents at risk of displacement. Key term, local.
What if a prospective tenant is far away and submits a rental application? If the landlord rents to someone not currently residing close by, are they in violation of the law because the selection of the tenant does not conform to the goal of using property to solve the woes of a particular neighborhood? And let's say they do not find a rental applicant at risk of displacement to be the most desirable of candidates. If they deny the application, will they be violative? Who, exactly, is considered at risk anyway?
There is an ever-expanding definition of protected classes under fair housing laws and perhaps those who are at risk of losing housing will join this club.
Talking finances
SB 140 lays the groundwork for the California Dream For All Program, an initiative aimed at making home ownership more affordable. This may entail the state chipping in to pay for 50% of the down payment for Californians who otherwise do not have the resources to qualify for a mortgage. How to pay for such an ambitious program? Tax everyone, and this would seem like a progressive tax with property owners standing to pay more than their fair share.
SB 848, meanwhile, would give renters a substantial tax credit. It seems reasonable enough to put more money into the pockets of renters, but the question is where the state will recoup this money, and once again, property owners will be largely footing the bill.
Parting thoughts
While it is said that Robin Hood took from the rich and gave to those less fortunate, the reality is many rental property owners are struggling. They are owed tens of thousands of dollars in rent debt, and still others are subject to baseless defense claims in eviction lawsuits made all the more unseemly because the tenant is represented by a free attorney.
We welcome the opportunity for tenants to ascend to home ownership, but this goal should not be at the expense of the property owner’s rights. Ironically, as our industry partners have stated eloquently in many venues, the anti-landlord measures in place or being contemplated only drive up the cost of housing and make it less likely for renters to attain home ownership.
Bornstein Law is drawn to Robin Hood because of his spirit of rebelling against the established order. We are not in medieval times, but we are in an era where the political rhetoric falls squarely on the side of tenants.
With the existence of comparatively little advocacy for landlords, Bornstein Law looks to breathe some Greenwood magic to protect the rights of property owners.