California’s anti-price gouging law seeks to protect tenants from price gouging during declared emergencies at the federal, state, county, and municipal level. Promulgated at Penal Code section 396, the law takes effect for thirty (30) days, unless extended, after an emergency declaration, largely limiting price increases for materials, goods, services, including residential rental listings, and rent. California Penal Code § 396(f). Recognizing that emergencies may create rental conditions unfairly favorable to property owners, the California Legislature seeks to protect tenants from any unscrupulous landlord that dramatically increases rent amid an emergency as supply may be constrained, or demand increased.
California Penal Code achieves this goal by limiting rent increases above ten percent (10%) for thirty (30) days, unless further extended, following the proclamation of a state of emergency declared by the President of the United States, or the Governor of California, or upon the declaration of a local emergency by an official, board, or other governing body. California Penal Code § 396(e). This limitation on rent increases also applies to residential rental listings and verbal or written offers to rent a unit made to a prospective tenant privately. Id. However, the law permits a greater rental price where the property owner proves that the increase is directly attributable to repair costs or beyond-normal maintenance amortized over the rental term necessitating an greater increase, or that the tenant agreed to the increase before the state of emergency declaration. Id. Otherwise, they must adhere to Penal Code section 396’s limitation on rent increases.
The Court of Appeal recently published an opinion pertaining to the effective date of California Penal Code section 396 anti-price gouging limitation. In Western Manufactured Housing Communities Associations v. City of Santa Rosa, the Court of Appeal was tasked with determining whether Penal Code section 396’s 10 percent rent increase limitation applies at the time of the declaration of emergency, or an amount authorized under the local ordinance at any given time. Given the length of the declared state of emergency – approximately four (4) years – the selected interpretation carried significant financial impacts for the property owner and the hundreds of tenants leasing space at the property.
In an opinion affirming the trial court order grounded in somewhat different, though overlapping rationale, the Court of Appeal determined that Penal Code section 396 ultimately prohibits a rent increase of more than ten (10%) percent during a declared state of emergency at the time of the declaration of emergency, and not an amount authorized under the local ordinance at any given time. Further, the Court of Appeal reasons, once the state of emergency declaration expires and section 396’s restraints expire, mobile home park owners may not recoup from California tenants all rent increases otherwise authorized by the local ordinance but prohibited – here denied by the City of Santa Rosa’s Rent program – based on section 396 using a baseline that assumes annual increases tied to the Consumer Price Index had been permitted in full during the emergency. Holding otherwise, would negate the entire purpose of Section 396 and render the statute meaningless.
Click here to read Western Manufactured Housing Communities Associations v. City of Santa Rosa.