Rent Control – Bad for Landlords, Tenants, and Portland

Fair Rent Portland (“FRP”) has a proposal on this coming Tuesday’s ballot (Portland Question No. 1, not to be confused with State-wide No. 1, regarding a casino in York County), seeking to implement what it calls “rent stabilization,” a term they use to avoid calling it what it actually is: rent control. Their proposal contains a number of provisions that, if enacted, would be added to Portland City Code and would change the landlord-tenant landscape drastically. As a whole, it’s a terrible proposition, filled with illegal changes to the law and provisions that are equally bad for landlords and tenants alike, which is why Portlanders should vote NO on Portland #1 on Tuesday. That being sad, that shouldn’t be the end of the discussion. Within the proposed ordinance, there are some good ideas that shouldn’t be tossed out entirely, and are worth exploring further.

TL,DR: FRP’s proposal (Portland No. 1) would have severe negative consequences for tenants, landlords, and the City, and would be an expensive legal nightmare for the City to implement. Parts of it are illegal, and the parts that aren’t benefit developers, not Portland tenants. Vote NO on Portland #1, but keep the discussion going.

THE GOOD

A Landlord-Tenant Commission. One great idea proposed in the measure is the creation of a landlord-tenant commission to deal with issues between landlords and tenants. This isn’t a novel idea, or even their idea, as I’ve long been proposing that Portland create such a commission, based on my past experiences with the Commission on Landlord-Tenant Affairs in Montgomery County, Maryland. That commission, which has existed for decades, and has helped countless landlords and tenants resolve issues, is an excellent model and should be the starting point for creating such a commission here in Portland. If properly formed, a commission like that could address many of the landlord-tenant issues that inevitably come up over the course of a lease, and resolve them before they become bigger problems or evictions. It’s worked wonderfully for both landlords and tenants in Montgomery County, and a similar type of commission here could help keep cases out of the District Court’s already overworked forcible entry and detainer (a.k.a. evictions) docket by resolving landlord-tenant issues short of eviction. Unfortunately, the commission proposed in FRP’s ballot measure falls far short of such a commission; what they propose would be a tenant-biased commission, with limited legal authority that’s unlikely to survive court scrutiny.

Tying Rent Increases to Tangible Economic Factors. Another decent idea contained in the proposal is the concept that rent increases be tied to some external economic factor, like the City’s raising of taxes. Having been a tenant for twenty years, I understand the anxiety that comes towards the end of a lease when you don’t know if the landlord’s going to raise the rent, and if so, by how much. Being able to better predict what that increase might be would alleviate that stress. Also, tying rent increases to the City’s increases in taxes brings accountability into the equation – if your rent goes up significantly because the City Council raised property taxes, you can voice your disapproval at the ballot box, and vote out those responsible. But here, the proposed ordinance goes too far, legally prohibiting landlords from raising rent beyond the stated percentage, and requiring them to petition a tenant-heavy “Rent Board” to do so, when it would be more effective (and less likely to face legal challenges) as a guideline, departure from which would require justification by the landlord. Again, this is something that could be addressed by a properly-formed landlord-tenant commission, something this proposal fails to create.

THE BAD

A Biased Commission. The landlord-tenant commission FRP proposes is heavily weighted in tenants’ favor. By having a five-person commission comprised of four tenants and one landlord (that’s the makeup suggested within the ordinance’s text; in reality it could be staffed entirely by tenants or entirely by landlords), it’s not hard to see how an unbalanced commission would be biased. Any decision rendered by a commission with more tenants than landlords, or vice versa, would be immediately appealed as biased, and for good reason. Appeals under this proposal would be to the Superior Court, creating yet another step for both landlords and tenants that would significantly add to both sides’ costs and expenses, as well as prolong final resolution of the issue. If Portland’s going to have a landlord-tenant commission, it should be a seven-person panel: three landlords, three tenants, and one person that’s neither. Cases would be heard by a panel of at least three commissioners, one from each group, that way there’s a fair and unbiased group evaluating every situation. Here, the proposal lacks the legal framework necessary to properly form a commission or for it to operate, leaving a myriad of issues and gaps to be filled in, while offering no mechanism to address them.

Needlessly Complex. It’s complicated – and by that I mean the ordinance itself. There are provisions for calculating “base rent” and “banking” rent increases that landlords don’t take, “discontinued covered units,” “consolidation of covered units,” and additional terms and concepts that are confusing even to seasoned attorneys. It seems like it’s intentionally confusing to create pitfalls and traps for landlords to unwittingly fall into, and be penalized for, simply for not being able to understand the complexities of the ordinance. It’s going to be just as difficult for City staff to interpret and implement the provisions, and the more confusion there is, the more litigation is going to spring from it, ultimately accomplishing the exact opposite of what this type of ordinance should do.

It Encourages Immediate Rent Increases, and Brings Private Business into Public Purview. The ordinance would require landlords to put on record with the City what they are charging for rent in each unit as of November 1, 2017. For one thing, this means disclosing private information which the City has no need or right to know; what two people agree to in a private contract shouldn’t be subject to public scrutiny. More worrisome is that the mere existence of this ballot measure strongly encouraged landlords to significantly increase their rents before November 1, on the chance this ordinance passes. Since the amount of rent as of November 1 would become the benchmark rent for that unit, landlords who had the opportunity to raise their rent before that date would have been foolish not to have done so, as their ability to raise rent if needed is put in question by even the specter of this ballot measure passing.

It Adds Costs While Preventing Landlords from Recouping Them. The ordinance would limit a landlord’s ability to raise rent, while simultaneously proposing to raise landlords’ costs in the form of increased apartment registration fees. Currently, the registration fee is $35 per unit; the ordinance proposes an increase to $60 per unit, and would require landlords to petition the Rent Board in order to increase their rent to recoup those additional costs, or others, such as the recently-implemented stormwater runoff charges. Sure, a $25 increase may not seem like a lot, but it’s nearly double the original fee, which was only instituted a few years ago, and is an additional fee on top of taxes, insurance, maintenance, and all of the other costs associated with owning and maintaining a building. For owners with multiple units, that gets extremely expensive quickly.

Rent Control Doesn’t Work.
They intentionally call it “rent stabilization,” but make no mistake, it’s rent control, a term they don’t want to use because it’s been proven time and time again that rent control doesn’t work. I won’t belabor here a point already made a thousand times over, so take it from sources like Business Insider (“[It] is actually a well-known phenomenon among economists, on both the left and the right, [that] rent control doesn’t work. It doesn’t help the poor. It helps the rich.”), The Economist (“In places where demand for urban housing is rising, a more effective policy is to build more housing.”), and Forbes (“It’s a standard point among economists that rent control doesn’t work. … In a field as contentious as economics, 93% agreement is about as far as you’re going to get. It’s equivalent to asking 1^st graders whether kittens are cute.”)

THE UGLY

Buildings Built in 2017 or Later Would Be Exempt. The elephant in the room that nobody’s talking about is the provision whereby any residential rental property constructed after January 1, 2017 would be completely exempt from the law. That means all of the units in the new buildings that Portland so desperately needs would be 100% exempt from this and would be able to charge whatever rent they wanted, and increase their rents at their whim. This is incredibly bad for two major reasons: first and foremost, these are the new housing units that the City’s residents badly need, but those that truly need them would be priced out immediately. This virtually guarantees that all of those new buildings would be rented only to those with perfect credit and deep pockets, not those that need affordable housing. This ordinance, as proposed, would help the very wealthy, while keeping new, clean, and most importantly, safe housing out of reach of those who need it the most. Second, this provision is about as anti-competitive as it gets, which means it would be likely to face additional legal challenges on that basis. By allowing new building owners to charge whatever they want and raise rents as much as they want, whenever they want, while preventing others from doing the same simply because of when their building was constructed, this gives an unfair competitive advantage to the new developers. Where there are two units identical in size and amenities, the owner of the older building would be penalized by this law, by having to petition a tenant-heavy Rent Board to raise rents to cover increasing costs, while the new building owner would be free to increase rent exponentially every year, without any justification, and without having to beg a commission to do so. The end result of this proposal would be that the new building owners get a massive windfall from the housing market, while those that own older buildings – some of the oldest rental properties in the country, buildings that the City insists on keeping historically accurate, and have much higher maintenance and repair costs – would be hamstrung by this law. If the owners of the older buildings can’t afford to make necessary repairs, they won’t, and rather than be fined by the City for code violations, they’re more likely to take the units off the rental market and sell them as condos, taking more rental units out of circulation. That’s the exact opposite of what an ordinance on housing should accomplish. In fact, this provision is such a boon for developers, it raises questions as to whether this is truly a citizen proposal, or one backed by big developers, since they’d be the only ones benefitting from enactment of this proposal.

It’s an All of Nothing Approach. By proposing this as a ballot initiative, rather than as legislation for the City Council to consider, FRP is forcing an “all or nothing” approach. Because of the way Portland City Code is written, should voters decide to enact this, the City Council would be legally prohibited from suspending, or even amending, any of it for a period of five years. That’s one hell of a trial period for an ordinance that contains provisions that aren’t only bad for everyone involved, but are outright illegal. It’s understandable that the renters’ advocacy groups were disappointed when the City Council didn’t enact some of the other proposals put before it recently, but that’s the very role of the City Council. It debated the provisions, had the City’s attorney research the legalities of the proposals, and adopted as much of them as the Council, in their judgment, believed were both necessary and legal. Pushing a complex ordinance solely into the voters’ hands, while simultaneously tying the City Council’s, is a recipe for disaster. Proposals like this need thorough research and debate, input from all interested and affected groups, and considerable discussion by those educated not only about landlord-tenant issues, but implementation of the law. That is the role of our City Council; it’s what they are charged with doing by the City Charter, and it’s what Portland residents voted them to do – so let them do that. Forcing legislation onto the books without any debate about whether they’re even legal is incredibly irresponsible and dangerous, and is only going to cause more conflict, litigation, and expense for the City and its residents.

Much of the Ordinance is Illegal. The ordinance purports to preempt Maine law on evictions by adding steps and requiring landlords to first go through a “Rent Board” before “evicting” a tenant. But, just as the proposal tries to say “rent stabilization” is not rent control, it improperly substitutes the word “evictions” where it should be referencing “non-renewal of leases,” which is a completely separate beast than evictions. (See my piece on The Legal Fiction of the No-Fault Eviction). Not renewing a lease is not an eviction, and landlords can’t be required to petition a “Rent Board” for permission to not renew a lease, but that’s exactly what this proposal would require: unless the “Rent Board” approves a landlord’s request to not renew a lease, the tenant has a never-ending lease, something which has long been legally prohibited. The U.S. Constitution protects an individual’s right to freely enter into contracts, and City Code can’t subvert that by requiring landlords to enter into perpetual contracts by forcing renewals of leases. Just as a customer can’t force a car dealer to lease them a car beyond the expiration date of the lease, a tenant (or an ordinance) can’t force a landlord to continue to rent to tenants beyond the expiration of that lease. Once the contract (lease) expires, it’s up to the parties to decide whether they want to enter into a new one (renewal) or not (non-renewal). Applied to residential leases, that’s not an eviction, that’s simply not renewing a contract, and it’s both the tenants’ right, and the landlords’ right, to decide not to renew. It’s the same as leasing a car: when the lease is up, you return the car to the dealer. In that instance, you don’t say your car was repossessed. Similarly, when a lease is up, the apartment is returned to the landlord. That’s not an eviction, it’s simply non-renewal of the lease. If an ordinance is going to force one party to enter into a contract unwillingly, the contract isn’t valid, and it can’t be enforced as legal. Imagine if an ordinance proposal came from landlords to do the same thing – allow landlords to force tenants to renew leases when the tenants wants to not renew and leave. That wouldn’t be fair, would it? So why should the converse be permitted? Legally speaking, it isn’t. That provision, if enacted, would instantly give rise to legal challenges, forcing the City to either spend hundreds of thousands of dollars in legal fees trying to fight those challenges, or walk away from enforcing those portions of the ordinance entirely. Numerous other provisions in the proposal run counter to Maine’s well-established laws on landlord-tenant issues, specifically on evictions, and would also face immediate legal challenges – challenges it would be unlikely to survive, but nevertheless cost the City countless taxpayer dollars to litigate these cases.

THE FIX

It’s not all doom and gloom. It’s always encouraging to see citizens band together and try to fix problems, like addressing the availability of safe, affordable housing for Portland residents. As much as I strongly oppose implementation of the ordinance as written, I truly hope the efforts put forth and advocacy are a catalyst in changing the landlord-tenant landscape here in Portland, as we’re a growing City, and our laws need to grow with it. There are some good ideas being put forth by this one group, but we are a City of many, and we input from all to develop ordinances that work for everyone. With research, debate, compromise, and cooperation, I believe that a reasonable, and implementable ordinance can be developed that helps those that need it without putting unnecessary, expensive, or illegal restrictions on others. First and foremost, vote NO on this problematic proposal, and work with various groups that represent all affected parties – tenants and landlords alike – to craft a more cooperative, and thought-out ordinance, to be presented to the Portland City Council, and go through the proper legislative process, including (or excluding) the following:

• First, a version of the proposed commission should be created, using the Montgomery County Commission on Landlord-Tenant Affairs as a model. Make the commission balanced by staffing it with the same number of landlords and tenants, and one or more persons that are neither, to serve as neutral fact-finders.
  
• Second, give the commission primary jurisdiction over landlord-tenant issues normally investigated by Portland’s Housing Safety Office – safety issues, smoke detectors, fire exits, rodents, plumbing problems, lack of heat, leaky roof, etc. – and give the commission the authority to issue legally-binding decisions, appealable to the District Court. This would give both landlords and tenants a fair venue to be heard (that isn’t as intimidating or expensive as the District Court), and prevent these smaller issues from becoming evictions, as they often do when they go unresolved.
  
• Third, forego any provisions that would require landlords to go through the commission in order to non-renew a lease. They are illegal and unconstitutional, and would only cause lengthy and expensive legal battles for the City. Non-renewal of a lease isn’t an eviction, and where there are evictions, the forcible entry and detainer process is already adequately covered by Maine law.
  
• Fourth, make the rent increase percentage a guideline, not a legal limit. Have the commission issue a recommended allowable percentage increase each year, and require landlords who are seeking to increase rent in excess of that percentage state the reasons for doing so in the rent increase notice. Any increase beyond the recommended percentage, and without permissible justification, would be presumptively prohibited, and the tenant could challenge it via the commission. Any rent increase at or below the recommended increase would not be subject to challenge.
  
• Fifth, keep the apartment registration fee the same, for now. It was just implemented a few years ago, as were the stormwater runoff fees, so trying to force yet another fee increase on landlords now would be a tough pill to swallow. Moreover, as to the $35 that landlords are paying now, there’s no accountability for how that money is being spent, or that it’s even being used to address the housing safety issues it was allegedly assessed to address. Keep it at $35, keep those funds separate, and use them to pay for the expenses of creating and operating the commission. If it turns out that’s insufficient, then the City should look for other ways to trim costs to implement this, such as combining redundant or overlapping offices, and making more efficient use of the City’s inspectors and fire department. Creating additional costs to landlords while simultaneously preventing them from recouping those costs isn’t fair.
  
• Last, and most certainly not least, a revised ordinance should be crafted and presented to the City Council for debate, research, and if the Council deems it appropriate and legal, enactment. Citizen initiatives are a great way of making known issues that need to be addressed, but the crafting and implementing of laws is best left to those voted into office to do just that. They take into consideration those things that a one-sided political action group does not – the voices of others, the over-arching effects of the proposed legislation, and crucially here, the legality of the laws being proposed.
  

This country’s already divisive enough as it is, and this proposed ordinance would further drive a wedge between landlords and tenants in Portland, pitting them against each other. Instead, we should be working together to come to a solution that works for everyone – tenants, landlords, and the City being tasked with regulating the relationship between them. A no vote on this ballot measure isn’t a vote against tenants, it’s a vote against implementing a legal nightmare that would benefit only developers, and would cost landlords, tenants, and the City itself, countless amounts of time and money in dealing with the legal migraines this proposal would create.

My call to action is twofold: (1) Vote No on Portland #1; and (2) don’t let your NO vote on Tuesday be the end of this issue. Talk to your City Council member about this. Landlords and tenants, talk to each other, beyond “Where’s the rent?” or “Fix my toilet.” Start a dialogue. Work to create a new ordinance, and include everyone in the discussion, landlords and tenants alike. Don’t frame these issues as landlords vs. tenants, but rather, look at it as a community issue that requires everyone to work together, not against each other, to find a solution that works. This proposal is the exact opposite – it’s been drafted solely by one side, it’s anti-small landlord, and contains provisions that would actually hurt tenants, as well as cause expensive legal entanglements for the City. It would bad for landlords, bad for tenants, bad for the City, and ultimately bad for Portland taxpayers, regardless of whether you’re a landlord, a tenant, or neither. Vote NO on Portland #1, but keep the discussion going.

About the author: Regan A. Sweeney is a Portland attorney, with an active landlord-tenant practice, among other practice areas. He is one of the few attorneys to represent both landlords and tenants, based on his belief that landlords and tenants shouldn’t be opposing parties, and that cooperation is the best way towards progress. Regan has always had an interest in safety, having worked as a Trial Attorney at the U.S. Consumer Product Safety Commission before opening his own practice in Portland, and along with his local practice, he counsels companies both foreign and domestic on creating safer products.