Rent Restrictions Remain
As many states are seeing surges in COVID-19 (coronavirus) cases, many operators have asked whether it is permissible to implement normal rent increases for both current and prospective tenants. The answer to that question is: it depends.
The first inquiry is whether your state has a price gouging restriction in effect. Most states do. Although these laws differ, they generally put a cap on raising prices for certain goods and services above a certain percentage from the amount charged immediately preceding an emergency declaration, subject to certain narrow exceptions. Some of these laws are clearly applicable to self storage, some clearly are not, and others are uncertain in scope.
These price gouging statutes are “activated” by a declaration of a state of emergency by either the Governor or the President. Many Governors’ powers are limited to only declare a state of emergency in 30-day intervals. As such, while an operator may see that their applicable emergency order is set to expire on a certain date, it is likely that it will be extended given the uncertainty surrounding the COVID-19 pandemic. The current “expiration” date is likely more a reflection on the limitation of the Governor’s power, not that the state envisions that the disaster will conclude then.
Further, operators must remember that many states’ price gouging laws are activated by Presidential action too. President Trump declared a national emergency on March 13. That declaration remains in effect indefinitely. As such, before any rent increase is considered, an operator must look to see if the President has lifted the national emergency declaration as well as whether the Governor(s) of the states within which you operate has lifted the state emergency declaration – and not just the shelter-in-place or similar order, as discussed below.
State of Emergency Declarations vs. Stay-at-Home Orders
Importantly, a declaration of a state of emergency is different from a stay-at-home order that required individuals to limit movement outside of their residence except for essential activities during the early stages of the COVID-19 pandemic. While lifting of stay-at-home orders ensures that storage operators may continue to remain open for business, they are not the controlling orders for purposes of potential rent increases.
The President and Governors traditionally declare a state of emergency when they believe a disaster has occurred that is severe enough that it will require the government to deploy resources to states, cities, and counties on a more expedited timeline. Oftentimes, these orders will permit the President and Governor to bypass certain laws and regulations that would otherwise be applicable, recognizing that time is of the essence. A state of emergency could be declared for hurricanes, wildfires, blizzards, numerous other natural or man-made disasters, or as is currently the case across the country, the COVID-19 pandemic.
These orders generally do not require a citizen to take particular action. However, as outlined above and among other things, many states of emergency declarations trigger the state’s price gouging laws. Unlike a state of emergency, the stay-at-home orders required citizens to refrain from activities. Again, for purposes of any potential rent increases operators must look to relevant state of emergency declarations. Do not assume that because your state has lifted its stay-at-home order that price restrictions do not remain operative. Most states of emergency, and by extension the price going laws, are still in effect and will likely continue to be for some time.
How Do the Statutes Practically Work?
While the price gouging laws are intended to prevent nefarious actors from excessively profiting from disaster (e.g., selling hand sanitizer for $200 a bottle), their impact and practical effect extends beyond those examples.
Although no SSA member would intentionally raise their rental rates dramatically during a declared state of emergency, the laws may affect an operator’s ability to implement even standard rate increases. Operators must pay close attention to the language of the relevant statute. Some statutes are what we refer to as “hard cap” statutes. Those state statutes limit price increases on a firm percentage basis.
For example, in California, an operator may not charge a rental price greater than 10 percent more than the amount charged immediately preceding the declaration, subject to certain narrow exceptions. If a California operator charged $100 for a unit immediately preceding the declaration and raised the rent to more than $110 during the state of emergency, the operator may be in violation of the law.
Other states take a different approach. For example, in Tennessee, upon the declaration of a state emergency, it is unlawful to charge “grossly excessive” prices for food, construction services, emergency supplies, storage services or other vital goods or services. “Grossly excessive” is not a defined term. Therefore, it is more ambiguous as to what constitutes such as increase and by extension what the permissible parameters are for certain rent increases. Operators should be reasonable.
Importantly, many of these laws create so-called strict liability offenses. In other words, it only must be proven that the unlawful rate increase occurred, without a valid exemption provided by the law, not that an operator had a specific intent to violate the law or “gouge” the tenant.
Beyond specific price gouging laws, many states’ Attorneys General have announced that they will pursue action against gougers under various consumer protection laws. For example, the Illinois Attorney General announced that the state will pursue price gouging claims under the Illinois Consumer Fraud and Deceptive Business Practices Act. The Attorneys General from Washington, Vermont, Indiana, and Colorado have made similar statements. As such, even if an operator is in a state without a specific price gouging statute, they must be cognizant of other statutes that may be applicable and may limit price increases during and after the pandemic. In these states, again, operators should be reasonable.
During the COVID-19 pandemic, members should consult with their legal counsel regarding the application of their state’s pricing laws before changing rental rates for both current and prospective tenants. Given how dynamic the current situation is, members should also frequently monitor announcements and statements from federal, state, and local officials that could extend, modify, or revise their state of emergency as the COVID-19 situation changes.
For a general overview of all 50 states price gouging laws, click here
For an overview of the current “expiration” dates of applicable price gouging laws, click here
For additional restrictions operators must comply with related to lien sales, lock outs, and late fees, click here