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Property Management Blog

House Bill 2779 -- Rent Stabilization Proposal


Levio Poletti - Friday, February 7, 2020
Property Management Blog

On January 21, 2020, Washington State Representatives proposed an act to the Committee on Civil Rights & Judiciary that is designed to “protect tenants from excessive rent and related fees”. The act appears to be a state-wide rent stabilization measure. Here, we will summarize all of the proposed changes, and will provide a perspective on how this act, if passed into law, could affect you as a Washington State landlord.

This act seeks to:

  1. Add a new section to chapter 59.18 RCW
  2. Amend RCW 59.18.140
  3. Add a new section to chapter 43.31 TCW
  4. Repeal RCW 35.21.830 and RCW 36.01.130


1 – Add new section to chapter 59.18 RCW
This new section mandates that a landlord may freely increase a tenant’s rent by only 3% above the base rent. If they want to increase the rent by more than 3%, then they must provide the tenant with a written notice between 180 – 220 days before implementing the increase. The maximum that a landlord will be able to increase rent within a 12-month period will be by either a) 5% + consumer price index above base rent, or b) 10% above base rent.
The tenant has the right to terminate the tenancy at any point before the increase takes place. Up to the date of departure, the tenant will only be required to pay pro rata rent. Additionally, late fees for past due rent cannot exceed 0.005% of the monthly/periodic rent.


 2 – Amend RCW 59.18.140
This amendment requires landlords to provide tenants with a written 60-day notice for rent increases, if the increase is at or below 3%. For rent increases greater than 3%, landlords must provide a 180-day notice, as per the new section that was addressed above.


3 – Add new section to chapter 43.31 RCW
On January 20th of every year, starting in 2021, the department of commerce must update and publish the maximum allowable rent increase, as is allowed by this act, covering the time period between June 1st, and May 31st of the following year. As mentioned above, the maximum rent increase cannot exceed a) 5% + consumer price index above base rent, or b) 10% above base rent.


4 – Repeal RCW 35.21.830 and RCW 36.01.130
In which the act repeals a number of “Controls on rent for residential structures”

Predicting the long-term effect of rent-stabilization measures on both landlords and tenants is notoriously difficult. While a number of studies have reported on the results of rent control, few have focused on rent stabilization. The perspective offered below is a vague prediction of the potential results of this measure.  


Impact on landlords
An article published by Bisnow on January 29th of this year reported the average rent increase for the past year at 3.8% -- lower than it has been in a while. Up until 2018, year-over-year rent increases floated around 5%, and was as high as 11.2% in May of 2016. If you are a landlord, then this act may provide a strong incentive for you to limit the increase in your rates at 0.8% below the market average. If this trend of deceleration continues and brings the market average below 3%, then you may increase your rents at or above the market average, without having to inform your tenants 180-220 days in advance of a rent increase.


If this plan is enacted, and you do plan on increasing your rent by more than 3%, then you will need to make sure you can make a plan for this tenant and the unit which they occupy that extends at least 220 days out into the future; because this time lapse is quite long, you may want to consider revising the contracts that you establish with future tenants in a way that provides you with something of an insurance policy should problems arise within those 7-month time intervals that would take place after a rent increase that would exceed the 3% mark.


A more extreme version of this proposal is being pushed for Seattle by City Councilmember Sawant. Sawant’s bill, however, is rent control, and it is much more strict. Rent increases would only be able to increase according to the inflation rate – at this point in time, that would average around 1.7% year-over-year. Additionally, Sawant’s bill wouldn’t allow landlords to convert rentals into condominiums, or exit the rent control loophole in other ways. The bill addressed in this article reflects the “rent control” laws passed in Oregon and California. Both Oregon and California’s laws’ allow for landlords to increase their rates at a certain percentage above the inflation rate (7% in Oregon, and 5% in California), and both avoid the tricky task of denying landlords the ability to circumvent the policies through the loopholes of condominium-conversion or building reconstruction. At this point in time, the bill addressed in this article does not have a set date for when it may be put to a vote.


Advice from Seattle Property Management CEO and Established Real Estate Expert Dave Poletti:
The obvious impact of these bills would require a much more stringent application acceptance requirement for potential tenants which in the end will make it much more difficult for tenants to gain acceptance to available housing. The harder you make it on landlords, the harder it will be for tenants to qualify for available housing. Unfortunately, the current Seattle Mayor and Seattle City Council simply do not understand the impact that these bills will make. It will cause the opposite effect on their goal of affordable housing unfortunately for everyone.


Sources
https://www.bisnow.com/seattle/news/multifamily/seattle-rent-price-increases-slowest-in-8-years-102711


https://www.orcainfo-com.com/uploads/HB2779RentControl.pdf


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