(The Center Square) – California Attorney General Rob Bonta’s office told The Center Square that leases longer than one year in duration are not subject to the ongoing rental housing anti-price-gouging rules in effect through March 8.
“Penal Code Section 396’s subdivision (e) does not apply to leases greater than one year in duration,” said the attorney general’s press office in response to an inquiry from The Center Square.
Penal Code Section 396’s subdivision (e) has been the matter of contention due to the limits it places on the pricing of rental homes that can be far less than pre-disaster market rates.
Section 396 stipulates that homes that have been on the market in the past year cannot have their listing prices increased by more than 10% above pre-disaster levels — including those that are already leased out — and that homes that have not been listed in the past year can only be rented at a maximum of 160% of fair market value, as determined by HUD based on ZIP code and the number of bedrooms, regardless of whether or not the home is a single-family house or an apartment.
As first reported by The Center Square, these fair market value limits are significantly lower than pre-disaster rents, especially in the areas adjacent to the now largely destroyed Pacific Palisades — home to large, wealthy families that may not be able to fit into an apartment.
In 90402 in Santa Monica, for example, which neighbors the Pacific Palisades, the 160% of FMV for a three-bedroom home is $6,736. The cheapest three-bedroom home for sale in the ZIP code is $2.9 million, meaning a buyer would pay a roughly $20,000 per month mortgage, and that the home would have rented for about $10,000 per month before the fire, meaning the FMV is only two-thirds of the pre-fire market rate.
Typically, Section 396 is in effect for rental housing prices for 30 days after a disaster declaration — California Gov. Gavin Newsom issued his declaration for Los Angeles County on Jan. 7 — but separate clauses for Section 396 can be extended by executive order.
Newsom’s executive orders have expanded 396 rules for rental housing through March 8, 2025, and for materials and services through Jan. 7, 2026; materials and services largely cannot be priced at more than 10% above pre-disaster levels unless businesses can document increased costs of doing business.
While initial coverage of the rule led real estate professionals to shy away from offering leases even at pre-fire levels, the attorney general’s clarification could allow for leases longer than one year to respond to current market conditions. However, this solution still could leave families in a bind if they only need short-term rentals as their homes are brought back to working order from smoke damage, or simply need utilities turned back on; these families may have limited options until the rental housing order ends on March 8.
