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Over the past five years there have been new laws passed in Portland and Oregon targeting the residential rental market. Not surprisingly there is a good deal of confusion in the owner occupied ADU community about how this legislation impacts their properties. This article will provide context on the passage of these laws, inform ADU owners how the laws affect their properties, and give guidance on how owners can best stay in compliance.
In particular we’ll examine:
Starting in November 2015 it has been the objective of the City of Portland “that all Portlanders, regardless of income level, family composition, race, ethnicity or physical ability, have reasonable certainty in their housing, whether publicly assisted or on the private market.” This policy arose from the City Council declaring a Housing Emergency on October 7, 2015, which has now been extended through April 2021.
As a result, the City of Portland passed ordinances that significantly redefined the relationship between residential landlords and tenants. This in turn put pressure on state legislators to act, leading to the passage of legislation in 2019 that created the first state-wide rent control measures in the country.
Before jumping into the discussion of the new legislation let’s take a brief look at the primary state law dealing with residential rental property. The Oregon Residential Landlord and Tenant Act (ORS Chapter 90) is Oregon’s foundational law governing landlord-tenant relations. First enacted in 1973 and most recently amended in 2019 it covers all non-owner occupied property used for residential purposes. ORLTA attempts to provide a comprehensive legislative framework and codifies rental agreement terms, types of lease agreements, habitability requirements, allowable fees, the handling of security deposits, essential services, reasonable accommodations, eviction proceedings, and tenant rights across Oregon. The new Portland and Oregon measures build off of ORLTA to expand tenant protections.
Portland Chapter 30.01 Affordable Housing Preservation and Portland Renter Protections are aimed at enhancing tenant rights in the private rental market. While Chapter 30.01 deals with a wide-range of subjects – from Federal Preservation Projects to tax-subsidies for developers of low-income housing – we’ll be focusing on Section 30.01.085 pertaining to Rental Relocation Assistance and city-wide rent control measures. On March 7, 2018 these measures were made permanent by the City Council.
Following Portland’s passage of these measures the Oregon legislature decided to act at the state level and on February 28, 2019 Governor Kate Brown signed Senate Bill 608 into law. SB 608 was an attempt to “provide immediate relief to renters struggling to keep up with the rising rents in a tight rental market” (Kate Brown, 2/28/19). In addition to setting caps on annual allowable rent increases the law also updated termination notices, provides protection from no cause evictions for tenants after the first year of occupancy, amended rental increase notice periods, and addressed the applicability of the law to owner occupied ADUs.
Portland has two additional ordinances taking effect March 1, 2020. Referred to as the Fair Access In Rent (FAIR) Ordinances, the city’s intention is to encourage inclusive rental practices by lowering potential barriers to housing.
The first ordinance (No. 189580), will create a city code (specifically “Evaluation of Applicants for Dwelling Units”) that imposes new rules and limitations regarding the application process, the content of rental applications, and screening and evaluation processes for tenants. ADU owners have been granted a conditional exemption, the specifics of which I’ll discuss below.
The second ordinance (No. 189581) imposes new rules and limitations regarding security deposits a landlord may require, how the landlord must hold and account for a security deposit, what a landlord may deduct from a security deposit, and how the condition of the dwelling unit is documented during occupancy. There are no exemptions for ADU owners and it will apply to all landlords in the city.
I’ll also cover the Residential Rental Registration program which created a requirement that all residential property owners register their property with the City and pay an annual fee of $60 per unit.
First, a few caveats. As a licensed property manager in Oregon I’ve spent a good deal of time studying these regulations and their applicability to ADUs. I am not, however, an attorney and the information in this article is for informational purposes only and does not constitute legal advice. You shouldn’t rely on any information in this article without engaging a lawyer directly to obtain professional advice. Second, the exemptions I’ll discuss below apply to owners whose primary residence is on the same property as their ADU. If you don’t live on the property (i.e. if both the main dwelling unit and the ADU are occupied or rented by someone that is not the owner) then those properties are treated as rentals and the exemptions below aren’t applicable. Again, if you have any questions about this speak with a real estate attorney specializing in landlord-tenant issues.
Historically ADU owners have had a more flexible approach to rental agreements. Tenants are often part of the owner’s social circle and owners don’t want to be viewed as traditional landlords. It’s a community that hopes to foster a more egalitarian model that eschews the landlord-tenant hierarchy. In Oregon though, as the Oregon Residential Landlord Tenant Act makes clear, “all agreements, written or oral, which include terms and conditions concerning the use and occupancy of dwelling units or premises” are binding. So while some of the new laws carve out exemptions for ADUs their owners and renters must still operate within the landlord-tenant framework. This means you need a lease. And a proper legally-tested lease! If you aren’t using a lease you need to speak with a property manager (ahem, I know a good one) or an attorney.
For example, Fixed Term leases are great for ADU owners who have a tenant staying for a limited time – say three or six months. They allow for a fixed end date to the lease and give clarity to both the tenant and landlord. Notice periods need to be honored, which I’ll cover below, but in general these are the best leases for owners with non-permanent tenants.
SB 608 and ADUs
These are the key areas of SB 608 that pertain to ADU owners:
Termination notices without cause during the first year of occupancy
Leases fall into three categories based on their length: week-to-week, month-to-month, and Fixed Term. These are the termination notice periods for a tenant’s first year of occupancy:
Week-to-week: 10 days before the termination date specified on the notice.
Month-to-month: 30 days before the termination date specified on the notice.
Fixed Term: During the term… “not less than 30 days prior to the specified ending date for the fixed term.”
There are no grounds for early termination without cause during a Fixed Term lease. As the law states: “In Fixed Term landlord may only terminate tenancy for cause and with notice.”
Termination notices without cause after the first year of occupancy
SB 608 is largely focused on extending tenant rights against “no cause” evictions after the first year of tenancy. The bar is now much higher for a landlord to terminate a tenancy without cause, although ADUs are granted an exemption. The ADU exemption is as follows:
“If the tenancy is for occupancy in a dwelling unit that is located in the same building or on the same property as the landlord’s primary residence, and the building or the property contains not more than two dwelling units, the landlord may terminate the tenancy at any time after the first year of occupancy:”
Rental Increase Notice Periods & Maximum allowable rent increase
Notice periods for informing the tenant of a rental increase have been lengthened and there are new stipulations about when a landlord can raise rent. These are the notice periods:
Month-to-Month and Fixed Term:
Annual rent increases are capped statewide at 7 percent plus the Consumer Price Index for All Urban Customers, West Region (All Items). The maximum allowable rent increase for 2020 is 9.9%. There is an exemption to this that should apply to a large number of ADU owners. As SB 608 Section 2. (7) makes clear, if the first certificate of occupancy for the dwelling unit was issued less than 15 years from the date of the notice of the rent increase then rental increases aren’t capped.
Chapter 30.01.085 and ADUs
Chapter 30.01.085 are the Portland Renter Additional Protections dealing with termination notices, maximum allowable rent increases, and Rental Relocation Assistance. Much has been made of Rental Relocation Assistance as it forces landlords to pay housing assistance to tenants in the event of a no cause eviction or rent increase above 10% (Keep in mind that Oregon rent increases for any property older than 15 years are capped at 9.9% for 2020 so an increase above that, even if allowable within Portland, would be illegal at the state level). Rental Relocation Assistance levels are: $2900 for a studio or single room occupancy (SRO), $3300 for a one-bedroom Dwelling Unit, $4200 for a two-bedroom Dwelling Unit, and $4500 for a three-bedroom or larger Dwelling Unit.
The good news is that ADUs have been granted an exemption from the Rental Relocation Assistance. This applies to owners that live on the same site as their tenants. Owners can live in the Primary Dwelling Unit or ADU to get the exemption.
The bad news is that in order to be eligible for this exemption the Landlord must meet the following criteria (quoted from https://www.portlandoregon.gov/phb/74544).
A Landlord is only exempt from paying mandatory Relocation Assistance if the Landlord meets the following requirements:
ADUs aren’t exempted from any other provisions of the law and if the landlord doesn’t follow this protocol or fails to comply “with any of the requirements set forth in Section 30.01.085 shall be liable to the Tenant for an amount up to 3 times the monthly rent as well as actual damages, Relocation Assistance, reasonable attorney fees and costs.”
Owners must follow the new “no cause eviction” termination notice periods which are 90 days across the board regardless of lease type (month-to-month or Fixed Term). If you have a tenant on a Fixed Term lease you must give them notice at least 90 days before the termination date designated in the notice. As the code makes clear “a Landlord that declines to renew or replace an expiring Rental Agreement is subject to the provisions of this Subsection.”
Fair Access in Renting (FAIR) Ordinance No. 189580 and ADUs
This is a quick one, thankfully! ADU owners are granted a blanket exemption from the Evaluation of Applicants for Dwelling Units ordinance if the following criteria are met:
Tenancies where the Applicant would occupy an Accessory Dwelling Unit, as defined by PCC 33.205, that is subject to the Act in the City of Portland so long as the owner of the Accessory Dwelling Unit lives on the site., or Tenancies where the owner occupies the Accessory Dwelling Unit and the Dwelling Unit the Applicant would occupy is on the site.
Fair Access in Renting (FAIR) Ordinance No. 189581 and ADUs
The Screening Deposit Ordinance will apply to all landlords in Portland and no exemptions exist for ADUs.
If the landlord requires pre-payment of last month’s rent the security deposit can’t be more than half of one month’s rent. If the landlord doesn’t require pre-payment of last month’s rent the security deposit can’t be more than one month’s rent. There is an allowance for “conditional approval” leases enabling landlords to collect an additional deposit that’s frankly so convoluted it’s best to refer to Portland City Code 30.01.086 directly if the situation arises.
In the rental agreement, the landlord must provide the name and address of the banking institution where security deposit and/or pre-payment of last month’s rent will be held. Within two weeks of receiving funds, the funds must be placed in a separate holding account. As in ORLTA, property managers are required to maintain Client Trust Accounts for security deposits to ensure that co-mingling of funds doesn’t occur. Self-managing landlords will be given the option to hold funds in a checking, savings, money market, or client trust account.
If interest is accrued from the security, it must be paid to the tenant when the deposit is refunded. The landlord may deduct up to 5% of accrued interest for administrative costs.
The ordinance also proposes a new framework for accounting for the state of the property, including fixtures, appliances and any landlord private property onsite. This requires extensive documentation of the premises and a good deal of collaboration between the tenant and landlord. The City has produced this brochure which provides information on how the program will work, but all landlords should familiarize themselves with the entire ordinance.
Portland Residential Rental Registration program
The Residential Rental Registration Program was passed on July 25, 2018 by the City Council as Ordinance No. 189086. The Council declared “it is in the City’s interest to maintain an updated and reliable inventory of residential rental housing unit locations within the City.” so the project was funded to create a database of rental units and implement an annual fee of $60 per unit payable by the property owner. ADUs are not exempt from the registry and fees are due by April 15th for the preceding tax year. Additional information on registering and paying, as well as the required Tax Form can be found at https://www.portlandoregon.gov/phb/78319.
This set of laws may seem confusing and scary to the uninitiated, but landlording can still be a highly rewarding experience. Most will find that many of the rules discussed here deal with edge cases and their day-to-day experience in ownership is relatively simple. My company, Chroma Property Management, provides a suite of services for ADU owners in Oregon including tenant screening, background and credit checks, application processing, and lease preparation starting at $250 per unit. Please feel free to contact me at firstname.lastname@example.org. I’d love to discuss your property and how Chroma can work for you.