The oil spill in in Southern California has led to a temporary cap on rent increases in Orange County.

The restrictions follow an emergency declaration by Gov. Newsom that activated California’s anti-price-gouging law.

Whenever the governor declares a state of emergency, it activates Penal Code Section 396, which makes it illegal to increase the price of many consumer goods and services, including that of rental housing, by more than 10% above pre-emergency levels.

The penal code applies the same way after the mass destruction of wildfires or earthquakes – calamities that would propel demand for housing – as it does after periods of excessive heat, drought, in the latest case, an oil spill. The law also applies uniformly across most industries, regardless of whether the emergency could lead to a high demand for particular goods and services.

“This latest emergency underscores the need to reform Penal Code Section 396,” said Heidi Palutke, CAA’s compliance, education and policy counsel. “It makes no sense that an environmental disaster in the Pacific Ocean would create a spike in demand for apartments and drive up rental rates.”

While the law protects Californians from unreasonable price hikes during times of crisis, the statute is difficult to follow, frequently applies to products unaffected by the emergency at hand, and stays in place for excessive periods. Penal Code Section 396 has been activated at least somewhere in California since at least 2017.

Further confusing matters is the penal code’s interplay with AB 1482, which prohibits rent increases over 5% plus CPI for much, but not all, of the state’s housing stock.

CAA recognizes that Penal Code Section 396 poses many challenges for rental housing providers, from varying expiration dates by county to ambiguities over the law’s application in counties unnamed in declarations to confusion over overlapping state and local declarations. CAA is exploring ways to clarify this law and better balance the needs of businesses with the rights of consumers in times of crisis. If you have been adversely affected by Penal Code Section 396, please email your experience to mnemeth@caanet.org. Your input will help CAA in its discussions with state legislators.

Where state-ordered protections against price gouging apply in California