As of February 28, 2019 rent control laws in Oregon have been enacted. Maybe you’ve read through the Senate Bill text, but find yourself more confused than when you started. We’ve tried to make an easy-to-understand summary of the changes, as listed below. Please keep in mind this is a summary and there are more details than what is listed here. We encourage you to speak with an attorney about your specific situation.
- In any 12-month period, landlords cannot increase rent more than 7% plus inflation.
- Inflation is defined by the Consumer Price Index. The Oregon Department of Administration Services will publish calculated rent maximums September 30th of each year. (Rent cap for 2019 has been set at 10.3%)
- The rent cap does not apply to properties less than 15 years old or if the landlord is providing reduced rent as part of a federal, state or local program or subsidy.
- No cause evictions are still allowed for tenants in their first year of occupancy.
- Tenants on a month-to-month require 30 days notice for a no-cause eviction in the first year.
- Tenants who have signed a fixed term lease for 1 year or less do not have to be renewed or roll over month-to-month, but 30 days notice of non-renewal is required.
- If doing a no cause eviction or not renewing a fixed term lease within the first year of a tenant’s occupancy, the landlord may not reset the rent for the next tenant at an amount greater than 7% plus inflation.
- After the first year of occupancy, when a fixed term lease expires, it must roll over to a month-to-month, unless both parties agree to another fixed term lease.
- No-cause evictions are allowed after the first year of occupancy for only the following reasons:
- If the landlord intends to demolish the dwelling unit or convert it to a non-residential use.
- If the landlord intends to undertake repairs and those repairs make the premises unfit or unsafe.
- The landlord intends to occupy the dwelling, or have an immediate family member occupy the dwelling as a primary residence.
- If the tenant has committed three or more violations of the rental agreement within a 12-month period (proper notice for each violation required).
- The landlord has accepted an offer to purchase and the buyer intends to reside in the dwelling as a primary residence.
- Notice and written evidence of offer must be given within 120 days of accepting the offer
- If the buyer intends on renting the property, the tenant cannot be given a no-cause eviction if that tenant has occupied the unit longer than 1 year. In other words, the new owner must adopt the existing tenant, even if that tenant is on a month-to-month.
- When exercising one of the qualified reasons for a no-cause eviction after 1 year of occupancy, the landlord must:
- Give 90 days notice.
- State the reason for eviction and provide any supporting facts.
- Pay tenant 1 month’s rent when giving notice (exception for landlords who have “ownership interest” in four or fewer dwelling units).
So how do these laws change how landlords manage their rentals? For most landlords, the rent control law isn’t too prohibitive because most landlords aren’t raising rent 8-10% a year anyway. The bigger concerns are the restrictions for no-cause evictions. It’s fairly common for a landlord with a poor tenant to move on by simply doing a no-cause eviction or choosing not to renew the lease. This is because proving cause in eviction court can be very difficult. Do you have hard proof of the violation? Did you give proper notice? Are neighbors willing to take off work to testify in court? Rather than chancing eviction court, most landlords were willing to wait an additional 30 days and do a no-cause eviction. That option is no longer on the table for landlords.
Therefore, landlords need to be extremely cautious in vetting potential tenants. This has always been important, but now that landlords can’t get troublesome tenants out after 1 year of tenancy, tenant screening is of upmost importance.
Secondly, that first year of tenancy is an important one. You can sign a 1 year lease with a tenant and then decide if you want to keep that tenant or not. Just be sure to give 30 day notice if you’re not going to renew the tenant’s lease or let it roll month-to-month. Pay careful attention to your tenant in that first year because after the first year, the only way you can get your tenant out is with a for-cause eviction, or with 3 rental agreement violations.
So what’s the best way to structure your rental agreement with these new laws? Some landlords prefer a month-to-month and others prefer a fixed term lease. Either can work with the new laws, but one thing is for sure, initially signing a new tenant for a fixed term lease longer than one year guarantees the only way you’ll be able to get your tenant out is with a for-cause eviction.
Whether you prefer a month-to-month tenancy or a fixed term lease for the first year, we recommend signing a fixed term lease beginning the second year. If your tenant is unwilling to sign a lease beginning in the second year, you can chose to terminate their tenancy. Being on a month-to-month with a tenant after the first year gives all the advantage to the tenant, who can leave any time, but no advantage to the landlord, who cannot end the tenancy. With a fixed term lease, the landlord at least has the advantage of getting an early termination fee (1-1/2 month’s rent) if the tenant leaves before the term ends.
When that lease ends, the new law states the the tenancy must roll over into a month-to-month unless both parities agree to a new fixed term lease. For the reasons stated above, it’s in the landlords interest to try and get the tenant to sign a new fixed term lease. This might be accomplished by offering the tenant one rent amount for month-to-month and a lower rent amount if they sign the lease (so long as the higher rent is still within the rent cap).
By using these guidelines, we believe the new laws will be relatively low impact on the landlord and the landlord can still have great success investing in real estate. Time will tell whether these laws will help the housing crisis or if perhaps they might be a cause to inadvertently push rent prices up.