Below is an update on several matters affecting multifamily properties in the region.
Recent Rent Control Measures
In February each year, the Montgomery County Executive establishes Voluntary Rent Guidelines (VRG). Pre-COVID, the VRG established the maximum recommended percentage rent increase for existing residential leases in the County. Previously, the VRG were voluntary guidelines for landlords. Now, due to emergency legislation, the VRG are mandatory for lease renewals prior to August 15, 2022.
In February, the County Executive established the 2022 VRG limit of 0.4 percent, and residential rent increases are limited to once every 12 months. This new VRG limit represents a 1 percent decrease from the 2021 VRG limit of 1.4 percent, despite an increase in many operating costs as well as greater demand for rental units in the County. A number of clients have expressed understandable frustration with the 2022 VRG limit. We are arranging a virtual meeting with County Council member (and County Executive candidate) Hans Riemer this month. If you would like to participate in this virtual meeting, please let us know.
Note that the City of Gaithersburg and the City of Rockville are independent municipalities–which means that they may choose to adopt the County’s position on rent control and other legislation–or not. As confirmed on their website, the 2022 VRG limit is mandatory in the City of Gaithersburg (similar to the rest of the County), so landlords with multifamily properties are not permitted to increase the rent above 0.4 percent until August. On the other hand, while the 2022 VRG was adopted by the City of Rockville, it remains voluntary, so landlords in the City of Rockville may increase the rent above 0.4 percent.
New PILOT Opportunities
Multifamily owners participating in the DHCA payment in lieu of taxes (PILOT) program receive a tax abatement in exchange for providing affordable units at their property. Historically, Montgomery County set an annual limit for the PILOT program ($19 million in FY 2021), and that significantly limited the availability of this tool to support affordability objectives.
The Montgomery County Council recently passed legislation to eliminate the cap on new PILOTs. We are in the process of discussing with DHCA the content of affordable regulatory agreements DHCA may require in return for a PILOT. Regulatory agreements also may have other material benefits for owners. For example, since the PILOT covenants run with the land, there may be less incentive for the County or Housing Opportunities Commission to exercise or assign rights of first refusal (ROFRs) on properties with PILOT agreements.
PRINCE GEORGE’S COUNTY
New Affordability Goals May Impact ROFRs
We recently advised of the uptick by the Prince George’s County Department of Housing and Community Development (DHCD) in exercising and assigning ROFRs. A link to that alert can be found here. We are having ongoing conversations with representatives of DHCD and the County Executive’s office about alternatives to meet their new affordability objectives, without adversely impacting the sale of multifamily properties. The DHCD representatives appear to be willing to allow sellers and buyers to bypass the ROFR process if some common ground can be reached regarding affordability. The representatives emphasized that each deal has different attributes, but they are open to discussing affordability agreements (including PILOTs) that may be mutually beneficial to DHCD and owners.
MARYLAND RENT CONTROL
We are also monitoring rent control legislation at the State level in Maryland. HB 551 proposes a 2 percent cap on rent increases each year for leases of a year or more and 1 percent every six months for month-to-month leases, subject to certain exceptions. Notably, these restrictions would not apply to units with market rent rates in excess of $2,250 per month. This bill was introduced on January 31, 2022 and we will provide an update if this passes.
DISTRICT OF COLUMBIA
TOPA Time Periods Tolled (Again)
On February 3, 2022, Mayor Muriel Bowser approved legislation which tolled timelines under the DC Tenant Opportunity to Purchase Act (TOPA). Registration and negotiation time periods under TOPA were tolled retroactively from January 5, 2022, through February 15, 2022. This unanticipated extension caused confusion and consternation for all. We hope this will be the last time we’ll have to deal with TOPA extensions.
If you would like to learn more about any of these topics, please contact Roger Winston or another member of Ballard Spahr’s Mixed-Use, Condominium, and Multifamily Development Team.
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