By Giacomo Valentini1
As of writing this article, for the first time in several years landlords in California do not face the risk of prosecution for price gouging whenever they raise the rent on new or existing tenants by more than 10%.
Penal Code Article 396, also known as the anti-price gouging law prohibits increases in prices over 10% within 30 days of a declaration of a state of emergency at national, state, county or local level. It applies to goods sold in stores, services such as clearing up services, construction, emergency supplies and so on, and also crucially applies to housing leases of 12 months or less.
For a landlord, this could bring some serious consequences. While in most cases, a 10% limit on rent increases is above the cap set in the state rent control law, it can create problems in some specific situations. A typical case would be in a jurisdiction which has a local rent control law with a cap of, say, 3%, which has been in force for many decades. If in such a jurisdiction a long-term tenant vacates a unit where they were paying a very low rent, the landlord might wonder whether they can increase the rent by more than 10% if a state of emergency has been declared. Between at least 2017 and October 2022, this has been the case continually, with one ne emergency overlapping with the previous one.
The matter is delicate since the law is part of the penal code, and entails criminal prosecution and sentences of up to one year in jail or a $10,000 fine. While attorneys would be able to better assess the detailed workings of the law, a quick analysis of the text suggests that there might be some leeway for landlords to manoeuvre. The law states that ¨it is unlawful for any person, business, or other entity, to increase the rental price advertised, offered, or charged for housing, to an existing or prospective tenant, by more than 10 percent.¨ So, for instance, an apartment currently advertised for a certain amount cannot be advertised for more than 10% above that amount if a state of emergency is declared. In other words, it would seem that the crucial comparison would be between the period immediately preceding the emergency and the 30 days that followed the declaration of that emergency.
It’s important for landlords to take all this seriously, and to be cautious when dealing with large rent increases, especially at times of an emergency declaration. Given the past record, it’s likely that the current lack of emergency declarations is the exception rather than the rule, and we will soon find ourselves in a new period where code 396 will once again apply.
Look it up: the California Office of Emergency Services (OES) has a constantly updated page where it provides the current price gouging protections for the whole of California: https://www.caloes.ca.gov/office-of-the-director/policy-administration/legal-affairs/price-gouging/
1 Giacomo Valentini is a property Manager in Santa Monica