Some of you may have heard about Oregon being the first state in the Union to pass statewide rent control. Our governor has signed Senate Bill 608 into law and it is now in effect. What does this mean to you as an owner, a landlord, or an investor? Allow me to share some points and data courtesy of the Oregon Association of Realtors’ summary guide.
The effects of this bill passing have yet to play out. While all states are struggling with lack of supply of rentals and housing in and of itself, some people believe rent control will help the situation, while others are sure it will stunt the market, with some landlords choosing to sell or not rent at all. Shortage of land is the crux of the matter and I am encouraged that this is being looked into. In the meantime, statewide rent control laws will lead to increased awareness, questions, and perhaps changes in deposits and fees landlords collect when leasing to a tenant.
SB 608 amends and defines tenancies, lays out steps for landlords to follow regarding rent increases, and addresses eviction standards. It eliminates no-cause evictions after the first year of occupancy. Landlords are still protected in evicting tenants for cause, such as nonpayment of rent or violation of the rental agreement. The law also adds new for-cause eviction capabilities, such as if the landlord sells the home to a new owner, makes significant repairs or renovations, or decides to occupy the home that they own. Fair enough.
If a landlord uses any of the newer landlord-based eviction provisions, they must pay relocation expenses, although small landlords who rent four or fewer units are exempt from this rule. The other exception is for landlords who live on the same property as the tenant (two units or less)—they may still use a no-cause eviction at any time.
After the first 12 months of occupancy, a fixed-term lease will automatically roll over to month-to-month unless the landlord delivers a termination notice. The exception to this is if the tenant has violated the terms of the rental agreement three separate times during a 12-month period, with written warnings given for each violation. My recommendation for all landlords and tenants is to keep excellent records. Tenancy laws provide many protections for both tenants and landlords and they are quite involved. Landlords in Oregon now have additional steps to follow to avoid sticky situations.
Additional changes in the new law address caps on rent increases. Landlords may increase rent by no more than 7 percent plus the change in the Consumer Price Index in a 12-month period. SB 608 does maintain current laws regarding rent increases as they relate to maintaining the rent for the first year of a month-to-month tenancy and the requirement that landlords give 90 days’ notice of rent increases thereafter.
What happens if you list your rental for sale and a new owner plans to occupy the property? While this is an important issue under the previous stipulations, it is recommended that you review the lease agreement between the current owner and tenant thoroughly, since the tenant has rights subject to their lease agreement and current law. If tenants are month-to-month within the first year, owners have some flexibility to displace them without cause so long as proper notice is given.
Additionally, if you are an owner-landlord in the City of Bend, be aware that in December 2016, the City Council voted 5–2 to require an increase in notice from 60 to 90 days from landlords to tenants for no-cause termination of month-to-month residential units after one year of occupancy. This is important to understand to allow proper notice.
For example, if you are selling a home and are required to give the tenant a 90-day notice with cause and you have waited until two weeks prior to closing, you, my friend, have a heart-palpitation issue on your hands. Why? If the buyer is purchasing the property as a primary residence but you are obligated as the seller to meet the terms of the lease, the buyer runs the risk of mortgage fraud in that their loan is for a primary residence. They are required by lending laws to have possession of the property within 60 days of closing.
If you buy an investment property and you accept the tenant at closing, you become a landlord governed by SB 608, and you should review both the current law and existing tenant contract on the property you’re purchasing. The new law does cover circumstances for a new landlord to evict a current tenant as a landlord-based reason.
With this new law, it is vitally important to review lease agreements and any other terms current landlords have with their tenants.
This outline scratches the surface of the changes in the law on a statewide level. I highly recommend consulting with a professional property management company or real estate attorney who specializes in tenancy laws to walk you through any and all questions you have regarding selling or purchasing an investment property with a current tenant. Also be sure your real estate agent has a solid understanding of the new rules to assist you in navigating the process to meet your needs, the tenant’s needs, and current laws.