Oregon Rent Control Law Impacts More Than Just Renters

On March 22, 2019, with a retroactive effective date of February 28, 2019, Oregon bill SB 608 became law. More commonly known as the new Oregon Rent Control Law, SB 608 updated the regulations for rent increases allowed from landlords to tenants in the state of Oregon. Primarily, the law protects tenants from rapid rent increases and requirements to vacate without due cause. However, a lot of people may not realize that the law has additional aspects which will impact real estate transactions.

Rent Control Aspects of Oregon's Law

The portion of the law that's received most media attention is the rent control part, which limits rent increases. Landlords can only raise rents once per year for tenants. Rent increases are capped at 7 percent plus the yearly change in the consumer price index (CPI). However, properties built in the past 15 years are exempt from the 7 percent plus CPI limit. Landlords have a 15-year allowance between the day the occupancy certificate is issued and the day they're subject to the rent increase cap. The cap also applies to landlords who evict a tenant without cause (in the first year of month-to-month tenancy). Essentially, Oregon's rent control law ensures that landlords can't evict tenants without cause just so they can raise the rents past the limit for their new tenants.

Month-to-Month vs. Fixed-term Lease

The majority of the clauses in SB 608 affect month-to-month tenancies. However, it's important to note that the law specifies that fixed-term leases will automatically roll over to month-to-month after the first 12-month occupancy elapses. Specifically, this means if a new fixed lease is not executed upon expiration of the first lease, then all aspects of Oregon's rent control law will affect those tenants and landlords as well because they'll be considered in a month-to-month tenancy.

Changes to Eviction Timeline

A large portion of the changes to the Oregon rent control law actually has nothing to do with rent control whatsoever. These changes center around the eviction timeline a landlord must adhere to whenever they want to terminate a month-to-month tenancy. For instance, during the first 12 months of occupancy, a landlord may terminate the tenancy without cause with a 30-day notice. Following the first 12 months of occupancy, a landlord may only evict a tenant for cause, with 90 days' notice, by using an existing tenant-based reason or by using one of the four new landlord-based reasons.

Qualifying Landlord-based Eviction Reasons specified in Oregon's Rent Control Law:

• The landlord has agreed to sell the unit to someone who plans to occupy the home. Tenants must receive evidence of the planned sale, along with notice, no more than 120 days from the sales contract execution date.
• The landlord or one of their immediate family members will move in, and the landlord does not own a similar unit in the same building they could move into instead.
• The landlord has plans to repair or renovate the unit. Additionally, for this reason to be eligible, the unit has to be unfit or unsafe for someone to live there.
• Plans exist to demolish the unit or convert it to non-residential use in a reasonable time. However, the law does not define how long is "reasonable."

If a landlord ends the rental agreement instead of the tenant, they have to specify the qualifying reason and give supporting facts in the termination notice. The landlord also has to pay the renter relocation expenses equal to one month's rent. Although, it's worth noting the relocation expenses rule does not apply to landlords who manage four or fewer units.

Oregon's Rent Control Law Changes Affect Real Estate Transactions

Now that we've outlined the basic changes involved with the law, how does this affect real estate transactions? There are two main types of transactions affected; transactions for properties that will remain rental properties, and transactions for properties that will be occupied by the new owners.

Properties to remain rentals:

When someone buys a rental property and plans to keep it rented out, they become the new landlord. The seller cannot require the tenants to vacate, so if the buyer had specific tenants in mind ahead of time, this can limit their options. The buyers become the new landlords, which means they can only end the rental agreement using one of the four qualifying landlord reasons listed above. The desire to change tenants is not one of the listed reasons. Therefore, if someone's looking to buy a rental property and already has specific tenants in mind, they would need to buy a property that isn't currently tenant occupied.

Properties to be occupied by the new owners:

For properties that are currently set up as rentals, but will be occupied by the new owners, the new rent control law has quite an impact. Since landlords are now required to give 90 day's notice to vacate, the law affects closing timelines. While the law itself does not affect the closing date, mortgage regulations do. A mortgage for a primary residence requires buyers to occupy the home within 60 days of closing the transaction. Consequently, closing dates will have to push further out to satisfy the law and the occupancy timeline requirements.

Takeaway Points From Oregon Rent Control Law Changes

• Buying a home you plan to live in, and need a rapid closing? Either avoid tenant occupied homes or prepare for closing delays.
• Landlord selling your rental property? Be aware of the changes to the law and how they can impact your transaction.
• Real Estate agent? Ensure you've set up an appropriate timeline for closing the transaction.

The changes to the law are to protect tenants. Ultimately though, they affect a lot more parties when a real estate transaction is involved.

Do you have questions about how Oregon's rent control law changes might affect you? Fill out the form below or contact us today!