By Sonal Imbulamure As wildfires devastate communities across Southern California, the rental housing market faces a critical challenge. With thousands displaced and seeking temporary housing, local and state authorities are emphasizing the enforcement of laws against price gouging. Landlords should take note of these legal mandates to avoid severe penalties and uphold ethical practices in this difficult time. What Constitutes Price Gouging? Under California Penal Code § 396, price gouging occurs when landlords increase rental prices by more than 10% after declaring a state of emergency. This prohibition applies to all rental properties, including short-term leases and sublets. Exceptions to this rule may exist if a landlord can demonstrate that their cost of providing housing has increased by more than 10%. The price gouging law expressly provides for residential tenancies in California Penal Code § 396(e), which states that: Upon the proclamation of a state of emergency declared by the President of the United States or the Governor, or upon the declaration of a local emergency by an official, board, or other governing body vested with the authority to make that declaration in any city, county, or city and county, and for 30 days following that proclamation or declaration, or any period the applicable authority extends the proclamation or declaration, it is unlawful for any person, business, or other entity, to increase the rental price, as defined in paragraph (11) of subdivision (j), advertised, offered, or charged for housing, to an existing or prospective tenant, by more than 10 percent. However, a greater rental price increase is not unlawful if that person can prove that the increase is directly attributable to additional costs for repairs or additions beyond normal maintenance that were amortized over the rental term that caused the rent to be increased greater than 10 percent or that an increase was contractually agreed to by the tenant prior to the proclamation or declaration. It shall not be a defense to a prosecution under this subdivision that an increase in rental price was based on the length of the rental term, the inclusion of additional goods or services, except as provided in paragraph (11) of subdivision (j) with respect to furniture, or that the rent was offered by, or paid by, an insurance company, or other third party, on behalf of a tenant. This subdivision does not authorize a landlord to charge a price greater than the amount authorized by a local rent control ordinance. (California Penal Code § 396(e)). Evictions of a residential tenant with the intent and purpose of later re-renting at a higher rental price may also be unlawful during this time and could be an affirmative defense for a tenant facing an unlawful detainer action, which was filed during the emergency as provided in California Penal Code § 396(f) which provides that: It is unlawful for a person, business, or other entity to evict any residential tenant of residential housing after the proclamation of a state of emergency declared by the President of the United States or the Governor or upon the declaration of a local emergency by an official, board, or other governing body vested with the authority to make that declaration in any city, county, or city and county, and for 30 days following that proclamation or declaration, or any period that the proclamation or declaration is extended by the applicable authority and rent or offer to rent to another person at a rental price greater than the evicted tenant could be charged under this section. It shall not be a violation of this subdivision for a person, business, or other entity to continue an eviction process that was lawfully begun prior to the proclamation or declaration of emergency. (California Penal Code § 396(f)). Accordingly, price gouging laws aim to protect vulnerable individuals and families from exploitation during emergencies, ensuring they have access to essential goods and services, including housing. Legal Penalties for Price Gouging Violating California’s price gouging laws can result in: 1. Criminal Charges: Price gouging is considered a misdemeanor, punishable by up to one year in jail and/or a fine of up to $10,000. 2. Civil Penalties: Violators may face additional fines of up to $5,000 per violation under California’s Unfair Competition Law. 3. Restitution and Remedies: Courts can order landlords to provide restitution to affected tenants and halt any illegal practices. FAQs for Landlords Q: Does the 10% cap apply to all rental agreements? Yes, the law covers all rental agreements, including month-to-month leases, fixed-term leases, and vacation rentals. Q: Can I increase rent if I’ve incurred higher costs due to wildfire damage? Landlords can exceed the 10% cap only if they can substantiate increased operational costs, such as repairs or additional utility expenses directly linked to the disaster. This is a high bar and it would be prudent to seek legal counsel to see if you qualify. Q: How long does the price gouging restriction remain in effect? The restriction applies for 30 days after the state of emergency is declared. However, it may be extended by local or state authorities to 180 days. The current statewide emergency due to the wildfires was declared on January 7, 2025. Ethical Practices During Emergencies Landlords have a vital role in supporting their communities during times of crisis. While the legal framework sets boundaries, adopting ethical practices fosters goodwill and long-term trust with tenants. Recommendations include: • Maintaining Transparency: Clearly communicate any legitimate cost-based rent increases to tenants. • Offering Flexibility: Consider short-term lease options to accommodate displaced individuals. • Engaging in Community Support: Partner with local organizations to provide housing for wildfire victims. • Seek Legal Counsel: Ensure any rent increases on properties do not violate current laws and regulations. Provide ethical housing but protect your rights as a landlord by seeking review of rental agreements by legal counsel to prevent any future misunderstandings. Resources for Landlords 1. California Attorney General’s Office: Detailed FAQs on price gouging ( https://oag.ca.gov/consumers/pricegougingduringdisasters#3C). 2. Penal Code Section 396: Full legal text regarding price gouging ( https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PEN&sectionNum=396). 3. MLS Guidelines: Additional insights on responsible property management during emergencies. 4. California Governor’s Office of Emergency Services: List of emergencies and counties with price gouging restrictions currently in effect. https://www.caloes.ca.gov/office-of-the-director/policy-administration/legal-affairs/price-gouging/ Conclusion The ongoing wildfires underscore the importance of fair and lawful practices in the rental market. TLD Law advises landlords to familiarize themselves with applicable laws, exercise caution when adjusting rents, and prioritize ethical standards. By doing so, landlords can contribute to community resilience while avoiding legal complications. For further guidance on compliance or legal representation, don’t hesitate to get in touch with TLD Attorney Sonal Imbulamure at [email protected].