On July 18, the Montgomery County Council passed a comprehensive rent stabilization bill that will limit annual rent increases for rental housing in the County.
The law is not expected to go into effect until sometime next year, but there are several provisions and exemptions in the bill that small landlords should be aware of so they can begin preparing to comply with the law.
The AAP has taken the liberty of summarizing the most important provisions of the law to give you a better understanding of how the law will impact you, your property and your tenants.
Before the rent stabilization law can go into effect, the Montgomery County Council will need to adopt regulations tied to the legislation. The regulations will need to be written, advertised and then approved by the County Council. At present, the expectation is that the law will go into effect in late spring of 2024, likely in May or June.
Rate of Annual Rent Increases
The new law centers around the provision that annual rent increases will be limited to the lesser of: (1) the local Consumer Price Index for all urban consumers (CPI-U) plus 3%, or (2) 6% of the annual rent. In other words, if a landlord charges an annual rent of $12,000 per year ($1,000 per month), they will only be able to increase the rent up to $720 per year ($60 per month) under the new law.
Exemption for Newer Multifamily Buildings
The law includes an exemption for multifamily housing that has been offered for rent for less than 23 years old. For example, if a multifamily building was first offered for rent on January 1, 2010, the rent stabilization law would not apply to the building until January 1, 2033. To give another example, if a new multifamily building were to be offered for rent beginning in 2030, under the bill, there would be no limit to the annual rent increases until 2053.
Exemption for Buildings with 2 or Fewer Units
The law exempts landlords that own 2 or fewer rental units in Montgomery County. Therefore, rental properties with 3 or more rental units are subject to the new law. Or to put it another way, if a landlord were to own two apartment buildings with 2 rental units each, they would be subject to the law as they cumulatively own more than 2 units of rental housing in Montgomery County.
Exemption for Buildings That Have Been Substantially Renovated
The law exempts multifamily buildings that have been substantially renovated within the last 23 years. Substantially renovated is defined as permanent alterations which are equal to at least 40% of the value of the building.
Banking Unused Increases
Finally, the law allows landlords to “bank” some, unused increases for future years. A “banked amount” is the amount of an annual rent increase allowance that a landlord previously did not use to increase rent on the unit. However, the banked amount cannot exceed 10% of the base rent. For example, if a landlord chooses not to increase the rent in 2024, they may bank and later use that increase for 2025.
Some provisions of the rent stabilization law such as the renovation exemption will be further defined when the Department of Housing and Community Affairs (DHCA) releases the draft regulations. Montgomery County DHCA is working to establish a new office dedicated to rent stabilization and the new law in Montgomery County. We will continue to update our members as we get more information.
If you have immediate questions about how the rent stabilization law will impact your properties, don’t hesitate to contact the AAP at email@example.com