On February 12, 2019, the Oregon Senate passed the nation’s first state-wide rent control bill. While its aim was to protect renters from landlords who have abused rental prices from major rent increases and potential for eviction without a reason, the long-term impact on the economy is troublesome.

The bill was primarily comprised of two measures. One was to cap annual rent increases to 7% plus inflation in buildings more than 15 years old, and the other was to prohibit no-cause evictions for tenants. The reason the two were packaged in the same bill was to prevent landlords from using whatever tool that remains legal to push out tenants. The bill passed 17-11.

While the goal of protecting tenant rights is a good one, this bill is particularly troublesome because it is a broad measure that doesn’t take into consideration the subtle nuances that will have a major impact on the Oregon economy. Essentially, it’s a reaction to the abuse of rental prices in Portland, which now landlords across the state will have to pay for.

The immediate impact will be the limits on eviction. Before the passing of the bill, landlords rushed to be able to evict tenants who were late on payments or had broken the terms of their lease, such as by having pets in a no-pet rental. Now, landlords will not only have to provide valid reason for the eviction, but they will also be required to give 90 days notice and pay the tenants one month’s rent. This has led some landlords in the state to no longer want to own property in Oregon, if they are required to pay a tenant to move out. This same concern will discourage investors from wanting to purchase older properties.

The impact of the rent increase limits will be felt, as well. Often, landlords raise capital for property improvements by increasing rent. Now, affording important improvements will be much more difficult, which, in certain circumstances of older buildings, may put the building – and tenants – at greater risk.

The other major concern of property owners is the slippery slope that could ensue from the 7% rate cap. 7% could soon become 5%, which could then become 2%. And, some investors believe that once it gets below 7%, future developers and investors may be deterred from working in the state of Oregon.

It seems as though this bill, while well intentioned, failed to address the complexities of commercial real estate and its impact on the economy of the state. What are your thoughts? Please share in the comments below!

Here are some useful FAQ’s about the bill from Oregon Realtors. Click here to download the PDF with the full summary.

FAQ

When will the changes go into effect?|

Senate Bill 608 has an “emergency clause” and thus becomes effective once signed by Governor Brown. We anticipate this could be as early as March 1, 2019.

If I have a transaction that closes after the law goes into effect, can the new owner evict the tenants?

Depends. Generally, you may only evict for a tenant cause or a “qualifying reason for termination” under of the enumerated circumstances that the law provides. Once you become an owner of qualifying rental property, you become a “landlord” whose conduct is governed by the bill and you should review both the current law and existing tenant contracts of the property you’re purchasing. However, the law does allow for specific circumstances under which a landlord, including a new landlord, could evict a tenant landlord-based reasons including significant renovations, demolitions, safety, or owner-occupancy.

How does this impact closing timelines for rental occupied properties where the new owner will occupy the residence?

The closing date in the sale of real property is a construct of contract law between the parties and thus would not be affected by the new law which governs landlord-tenant relations. However, displacing a current tenant (and thus effectuating the intent of new owner who would like to move-in) is another issue (because notwithstanding the transaction between the buyer and the seller, the tenant has their own rights subject to their lease agreement and current law). If the tenant is a week-to-week tenant, or a month-to-month tenant within the first year, you have some flexibility to displace them without cause (so long as you give them the specified amount of notice) and certain circumstances apply. If the current tenant is a month-to-month renter who has been occupying for more than a year or is under a fixed term lease, evicting a tenant is subject to more regulations. Fixed-term leases will always continue, unless there is a tenantbased reason (failure to pay rent) for eviction. On a month-to-month tenancy, 90-days’ notice and the payment of relocation expenses (1-month’s rent) will be required.

I heard that the law caps rent increases, but that cities and counties will be able to set high rent caps if they want?

There are no exceptions for cities and counties, and therefore the rent increase cap would apply to the entire state equally. Further, any local ordinances that conflict with the statewide cap on rent increases would likely be preempted by the legislature’s acts. We advise seeking legal counsel to determine where estate and local laws may conflict and the potential impact of such a situation.

When it says that it applies to buildings 15 years or older, when does that date start? Is it rolling?

The time period is calculated by the difference between when a notice of rent increase is sent out and when a certificate of occupancy was issued for the dwelling unit.

Does selling your home count as a for-cause or no-cause eviction?

The bill is intended to provided protections for tenants. Thus, if a home owner wishes to sell their home, this law would have no effect on that transaction (which is between the buyer and the seller) unless the rights of a tenant are affected. Fixed-term leases will always continue, unless there is a tenant-based reason (failure to pay rent) for eviction. On a month-to-month tenancy of under a year, a no-cause notice may be issued with 30-days’ notice. On a month-to-month tenancy of over a year, 90-days’ notice and the payment of relocation expenses (1-month’s rent) will be required.