California legislation that would expand the state’s emergency rent restrictions to long-term leases and change how businesses defend certain price increases has cleared the Legislature and is now on the governor’s desk.
SB 1365, by Sen. Ben Allen, D-Santa Monica, would amend Penal Code Section 396, California’s price-gouging law. The Senate concurred in Assembly amendments on a 27-10 vote Aug. 31 and ordered the measure enrolled.
An earlier version also would have expanded the authority of certain city attorneys to bring cases under California’s Cartwright Act. Lawmakers removed those antitrust provisions in August, but the changes affecting rental housing and the Penal Code remained.
Long-term leases would lose exemption
Penal Code Section 396 generally bars rental housing providers and other businesses from raising prices by more than 10% after a covered emergency declaration. Current law defines covered housing as rental housing with an initial lease term of no longer than one year.
SB 1365 would eliminate that one-year limit, bringing rental housing under the emergency restriction regardless of the initial lease term. The bill also would revise how qualifying repair and improvement costs may justify an increase above 10%. To be clear, however, if a long-term lease was signed prior to the emergency declaration, the rent increases in the lease can be applied.
The bill makes clear how landlords can recoup their costs of repairs or improvements made to the property during an emergency. The bill provides that the landlord can increase the rent above the 10% cap if they show that (1) an increase was contractually agreed to by the tenant prior to the proclamation or declaration; (2) the increase was directly attributable to additional costs for repairs or additions beyond normal maintenance incurred within the year prior to the proclamation or declaration and either of the following is true:
- The housing was rented, advertised for rent, or offered for rent at the time the costs were incurred.
- That person can prove that within a year before the proclamation or declaration, the intent to offer the housing for rent within six months of the repair or addition already existed.
CAA warns of compliance and criminal risks
The California Apartment Association and allied business and housing organizations opposed SB 1365. In a coalition letter, they argued that SB 1365 expands the law beyond its intended purpose. As they noted, Penal Code Section 396 was designed to prevent sudden and opportunistic rent increases based on prices immediately following an emergency. They argued this represents a fundamental shift from targeting bad actors to broadly regulating lawful pricing decisions. They also argued that SB 1365 creates unnecessary overlap with existing laws. California already has extensive renter protections, including statewide rent caps under AB 1482, local rent control ordinances, and existing emergency price gouging restrictions. Expanding Penal Code Section 396 adds another layer of regulation without addressing a clearly defined gap, increasing compliance complexity and the risk of inadvertent violations under a criminal statute.
Those concerns carry additional weight because a violation of Penal Code Section 396 can be prosecuted as a misdemeanor. The existing statute allows penalties of up to one year in county jail, a fine of up to $10,000, or both.
