The Apartment Association of Greater Los Angeles’ partial win in its lawsuit against the City of Los Angeles may ease the financial burden and risk for local multifamily property owners to a degree but it’s a drop in the bucket for what the industry wants.
The lawsuit involved two ordinances enacted by the city that went into effect in March 2023: the Relocation Assistance Ordinance and the Eviction Threshold Ordinance. AAGLA argued both violated state law. The California Appellate Court agreed with AAGLA for the relocation ordinance, which mandates landlords provide relocation support for tenants in non-rent controlled apartments displaced by lawful rent increases. The trade group lost on the threshold ordinance, which says a landlord cannot evict a tenant until they’re behind on one month of “fair market rent,” regardless of what the tenant’s rent is.
In Los Angeles city, that equals $2,085 for a one-bedroom unit.
The offices for the Los Angeles mayor and city attorney did not respond to The Real Deal’s request for comment on the decision.
AAGLA is weighing options on future litigation to further challenge the threshold ordinance.
Daniel Yukelson, CEO and executive director of AAGLA, said his members were pleased that the appellate court sided with the organization partially — given the California Superior Court initially ruled with the City of Los Angeles on both ordinances. He says this will give operators “the flexibility to create pricing that meets their ongoing operating costs.”
Even so, Yukelson made clear that broader challenges caused by the city’s regulatory environment remain.
“It’s not just these two ordinances that are the problem,” he said. “It’s a pile of ordinances that have been put in place… It’s been death by a thousand cuts.”
Yukelson, who said he owns a four-unit apartment building in the city, said mom-and-pop landlords bear the brunt of these regulations.
Looking at the last five years, he compared AAGLA’s membership to a “leaky bucket” with more and more members selling off their properties and leaving the business as profitability — or even staying afloat — gets tougher.
“We’re seeing a lot of these old time owners just leaving, and their kids don’t want to take over the business because it’s just too complicated and there’s too much legal risk in it,” he said.
With the mom and pop owners exiting, oftentimes, whoever buys the property may pivot to a condo or non rental housing so that they can avoid all the hassle, Yukelson said, which further contributes to the rental housing crunch.
David Saghian, first vice president at multifamily investment brokerage Lyon Stahl, recalls “frustration mixed with fatigue in terms of the L.A. investment environment” in day-to-day conversations with multifamily operators and investors in the city around the time these two ordinances were taking effect — which happened to be a week before Measure ULA came into force.
Measure ULA applies a 4 percent tax on all real estate transactions within the City of Los Angeles starting at $5.3 million and increases to 5.5 percent on deals of $10.6 million or more. The tax is currently being discussed by a city ad hoc committee for possible revision.
“They felt like (those ordinances) were another layer and a broader pattern of L.A., making it more difficult for apartment ownership, and also less predictable,” he said.
Saghian also emphasized the heightened impacts for mom-and-pop landlords.
“It’s hard for mom-and-pop landlords to live up to these regulations or the risk… and more and more are selling to institutional buyers who see an opportunity to take over or developers looking to redevelop,” Saghian said.
And while deals are still happening in preferable neighborhoods of L.A., Saghian notes many of the city’s regulations — particularly ULA — are driving investment into other areas such as Ventura County and Santa Barbara. Investors need a higher return to justify investing in L.A., he said.
If it weren’t for ULA being in the picture, Yukelson said the court’s decision on the relocation ordinance could spur more development because it gives owners the assurance that they won’t see rent control restrictions for 15 years. Yet with ULA, he and Saghian don’t think this will necessarily be enough incentive.
For the eviction threshold, which the court upheld, Yukelson points to instances of bad actors he said he’s heard about anecdotally from his work at AAGLA. Because landlords can’t seek eviction until the full-month’s worth of fair market rent threshold is reached, they can be stuck accepting partial rent with no real recourse options, he said.
Yukelson said the majority of tenants and landlords alike are good actors but “we’ve seen instances where tenants withhold a couple of hundred dollars a month in the rent payment.
“They could string an owner along for an entire year possibly depending on what the rent is before an owner could take any action,” he said.
A system where tenants can be late for rent or come up short of their full payment impacts a landlord’s operational abilities because their bills for the property — be it insurance, mortgage payments or property taxes — are still due on time.
“A lot of these smaller, multifamily owners are not institutions. They’re families or small partnerships relying on the property’s income to operate,” Saghian said.
Both Saghian and Yukelson said “balance” is key to mitigating tenant and landlord legal tension.
“At the end of the day, owners, operators and investors want to know that the rules are balanced, predictable and legally sound,” Saghian said.
Read more
Politics
Los Angeles
Landlords win “partial victory” in challenging LA rental laws
Residential
Los Angeles
LA landlords brace for new rent control limits
Commercial
Los Angeles
AG sues SoCal real estate family, claims landlord exploits tenants