Targeted Rental Licensing Programs: A Strategic Overview

American Bar Association Section of State and Local Government Law 2016 Spring Meeting Targeted Rental Licensing Programs: A Strategic Overview Presented by Jessica A. Bacher Chair, Distressed Properties Sub-Committee, Land Use Planning & Zoning Committee Chair, Land Use Planning & Zoning Committee Executive Director & Adjunct Professor of Law Land Use Law Center Pace University School of Law Clinic Lecturer, Yale School of Forestry and Environmental Studies Author Allison Sloto Pace University School of Law, J.D. Candidate 2016 Yale School of Forestry & Environmental Studies, M.E.M. Candidate 2016 April 7-10, 2016 Intercontinental Hotel San Juan, PR

Targeted Rental Licensing Programs: A Strategic Overview I. Background A. Why Have a Rental License Program? i. Across the United States, local governments are experiencing difficulties in ensuring a sufficient stock of safe, well-operated, and well-maintained rental housing. This is especially so for municipalities that struggle with social and economic distress. After the 2008 mortgage crisis, widespread foreclosures left many single-family homes vacant and falling into disrepair. 1 Many of these dwellings have ultimately become wellmanaged rental properties, but not all landlords are responsible property owners. ii. iii. iv. Local governments, using their delegated powers to regulate property for the health, safety, and welfare of their residents, can ensure that all landlords maintain their properties in a safe and responsible manner. The means for municipalities to accomplish this is through the municipal regulatory framework, the sum of the ordinances, administrative systems, and operation practices the municipality uses to foster responsible landlord behavior and sound, well-managed rental housing in the community. 2 The goal of enacting such regulations is not to eliminate or punish landlords, but rather is to heighten the quality of rental housing stock in the community as well as ensure that landlords are responsible managers of safe and healthy properties. The traditional view of renting is as a type of residential use. However, communities should consider rental properties as a business, with the concept of a rental license being analogous to a license to do business. Just as many businesses need to pass health and safety inspections in order to maintain standards, so too should rental properties be licensed to assure housing quality within the community. v. Tenants also can contribute to problems associated with rental properties. To encourage tenant cooperation, municipalities can supplement rental license laws with initiatives that establish a 1 See, e.g., Chris Isidore, Homes in foreclosure top 1 million, CNNMONEY (June 5, 2008), http://money.cnn.com/2008/06/05/news/economy/foreclosure/?postversion=2008060514. 2 Alan Mallach, Raising The Bar: Linking Landlord Incentives and Regulation Through Rental Licensing, CENTER FOR COMMUNITY PROGRESS (2015), available at https://www.metroplanning.org/uploads/cms/documents/raising-the-bar.pdf. 2

community-wide dialogue about safe, decent rental housing. Additionally, localities can implement education and training programs for tenants and landlords; provide mediation facilities for landlord-tenant disputes; create a landlord-tenant forum that helps all parties move past the frustrations and misperceptions among these groups; engage the court in this process because of its central role in both evictions and code enforcement actions; involve the county department of social services in regular dialogue to better understand provisions for rental housing assistance and ensure accountability in maintenance of rental units in a safe and inhabitable condition; explore the healthy homes and housing movement that advocates for local partnerships that address the substandard livings conditions of many urban neighborhoods, which affect minority and low income households; 3 and work closely with landlord associations to develop model lease agreements with stated property maintenance responsibilities for both landlords and tenants. B. What is a Residential Rental Licensing Program? i. Generally: A residential rental-licensing program is put in place by a local government to require property owners to apply for and obtain a rental license prior to leasing their properties. 4 The principal function of such a program is to protect and promote the health, safety, and welfare of tenants and to prevent the deterioration of housing stock by enforcing property maintenance codes. The program requires property owners to submit an application to obtain a rental license. 5 The City or Town then inspects the property prior to approving the application. There are three different types of rental licensing programs: no licensing, universal rental licensing, and targeted rental licensing. ii. iii. No Licensing Program: Municipalities operating without a licensing program must rely on building inspectors and the court system to assess fines for problem properties. Universal Rental License: a. All owners of rental properties must annually re-apply for a license, pay associated fees, and undergo an inspection. This is the case no matter how compliant the landlord was in terms of maintenance and safety. There is no landlord rating system upon which to base the renewal of the license. 3 See generally, Who We Are, THE NAT L CTR. FOR HEALTHY HOUSING, http://www.nchh.org/who-we-are.aspx (last visited Feb. 25, 2016). 4 Silvana Hackett, Rental Licensing To Achieve Compliance, CTR. FOR URBAN AND REGIONAL AFFAIRS, UNIV. OF MINN. (2012), http://www.ci.roseville.mn.us/documentcenter/view/11028. 5 Id. 3

b. The benefit of this scheme is that it guarantees all rental units are subjected to annual inspections and license renewals, precluding the possibility of code violations. iv. Targeted Rental License (also known as a performance-based license): a. Unlike a universal rental license program, the targeted rental license program is not a one-size-fits-all scheme. Properties are categorized based on the number of code violations (and in some municipalities, by the amount of criminal activity), in order to distinguish compliant from non-compliant property owners. b. Cooperative property owners are rewarded based on their continuing record of compliance (zero or few code violations and instances of criminal activity), with incentives such as paying reduced licensing fees and undergoing less frequent property inspections. 6 c. On the other hand, non-compliant property owners with recurring code violations and criminal activities carried out on their properties will be subject to more frequent application renewals and inspections, as well as higher fees. d. Additionally, a targeted rental license program can incorporate the Crime-Free Housing Program, thereby reducing the level of criminal activity in rental units. An increasing number of communities have chosen to incorporate this program into their licensing systems after the 2008 mortgage crisis, as a means to address the scavengers, squatters, and gangs perpetuating criminal activities in vacant homes. The program trains law enforcement agency coordinators, who then train landlords and certify properties in their respective cities. 7 Implementation of the program relies on the inclusion of a crime-free addendum to the leases for all residential properties. 8 Benefits of the program include reduced police calls, the creation of a more stable resident base, and the reduction of potential civil liability. 6 Tool 6: Good Landlord Incentives, CTR. FOR COMMUNITY PROGRESS, http://www.communityprogress.net/tool-6- -good-landlord-incentives-pages-212.php (last visited on Feb. 25, 2016). 7 Crime Free Certified Trainer, INTL. CRIME FREE ASSOCIATION, http://www.crime-freeassociation.org/trainer_certification.htm (last visited on Feb. 25, 2016). 8 Crime Free Programs A Brief History, INTL. CRIME FREE ASSOCIATION, http://www.crime-freeassociation.org/history.htm (last visited on November 8, 2013). 4

1. There are three phases to the Crime-Free Housing Program. 9 Phase I consists of an eight-hour property manager/owner training. 10 Phase II is a Crime Prevention through Environmental Design Survey (CPTED) conducted by police on the property. 11 Phase III is the crime free commitment, where landlords pledge in a written commitment to screen tenants, conduct regular property check-ins, and otherwise put forth their best efforts to keep their property free from crime. 12 II. Understanding The Municipal Regulatory Framework A. A successful municipal regulatory framework for a targeted rental license system consists of the municipality s ordinance, as well as enforcement mechanisms and a rental property information system. Elements of a successful program include: 13 i. Landlord Registration/Licensing Ordinance: at minimum, landlords should be required to register in a municipally-run registration system. Ideally, the municipality will implement a licensing system, which requires not only landlord registration, but conditions that registration on meeting health and safety inspections. ii. Mechanisms to Ensure the Landlord Is Registered/Licensed: enforcement procedures are needed to make sure that the landlord complies with the registration/licensing ordinance. iii. Rental Property Information System: a database of rental properties in the community containing information about code violations, police calls, and tax/fee payment status allows municipalities to quickly target problem properties and efficiently use their resources to remedy the issue. iv. Strategic Code Enforcement: proactive, targeted enforcement that is part of a municipal action plan to bring properties into compliance is much more effective than a complaint-driven scheme, where enforcement is reactive. 9 Crime Free Rental Housing: Keep Illegal Activity Off Rental Property, INTL. CRIME FREE ASSOCIATION, http://www.crime-free-association.org/rental_housing.htm (last visited on Feb. 25, 2016). 10 Id. 11 Id. 12 Id. 13 Mallach, supra note 2, at Table 1. 5

v. Compliance-Oriented Fee Structure: fees should be focused on attaining maximum landlord compliance by rewarding responsible landlords, and should not be seen as a revenue stream. III. Case Studies for Best Practices A. Brooklyn Center, Minnesota: operates a comprehensive, performance-based rental licensing program, which designates properties as belonging to one of four different rental license categories (Type I, Type II, Type III, and Type IV Provisional) based on the condition of the property and number of nuisance calls. 14 The better the landlord s practices, the lower the rental licensing fees and inspection requirements. 15 Conversely, noncompliant landlords are required to obtain a license type that imposes more onerous standards. i. Type I licenses are issued for three years and require a minimum of one inspection every three years. Phase I of the Crime-Free Housing Program is recommended. ii. Type II licenses are issued for two years and require a minimum of one inspection every two years. Phase I of the Crime-Free Housing Program is required. iii. Type III licenses are issued for one year and require a minimum of one inspection every year. Phases I and II of the Crime-Free Housing Program are required. iv. Type IV provisional licenses are issued for six months and require a minimum of one inspection every six months. Phases I, II and III of the Crime-Free Housing Program are required. B. State of Utah: authorizes municipalities to establish Good Landlord Programs 16 (where landlords who responsibly maintain their properties are entitled to reductions in rental license fees). i. See, e.g., the City of Ogden, Utah, which operates a Good Landlord Program that provides financial incentives for landlords who demonstrate reductions in crime and code violations. 17 14 Brooklyn Center, Minn., Mun. Code ch. 12, 12-901; City of Brooklyn Center, Minn., Rental Dwelling Licensing Program, http://www.cityofbrooklyncenter.org/documentcenter/home/view/277. 15 See Rental Dwellings, CITY OF BROOKLYN CENTER, MINN,, http://www.cityofbrooklyncenter.org/index.aspx?nid=316 (last accessed Feb. 24, 2016). 16 See What Is The Good Landlord Program, UTAH HOUSING COALITION, available at https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&ved=0ahukewis5- Sa95HLAhXJdj4KHQ0bCqMQFgg4MAQ&url=http%3A%2F%2Fwww.utahhousing.org%2Fpublicpolicy%2Fitem%2Fdownload%2F93_25c264a957b4dcf44479226eec6154b3&usg=AFQjCNFH6Aw3nMfbeC5 nxetaxs4swu84sq&sig2=a3okjfqq6j-fs3uv_o4qwq. 6

C. City of Milwaukee, Wisconsin: uses a universal rental licensing program, which only encompasses certain portions of the City that are of particular concern (in terms of housing quality/crime). 18 However, the City does run a landlord training program to encourage property maintenance and lower crime rates. 19 IV. Resources for Further Information A. Alan Mallach, Drafting Rental Regulation Ordinances In Illinois Municipalities: A Short Guide For Local Officials, CENTER FOR COMMUNITY PROGRESS (2015), available at http://mayorscaucus.org/wp-content/uploads/2015/10/rental-licenseordinance-guide_final-for-website.pdf. B. Alan Mallach, Raising The Bar: Linking Landlord Incentives and Regulation Through Rental Licensing, CENTER FOR COMMUNITY PROGRESS (2015), available at https://www.metroplanning.org/uploads/cms/documents/raising-the-bar.pdf. C. Alan Mallach, Meeting the Challenge of Distressed Property Investors in America s Neighborhoods, LOCAL INITIATIVES SUPPORT CORPORATION (2010), available at http://www.lisc.org/docs/publications/102010_distressed_property_investors. pdf D. Dealing with Problem Property Owners, in BUILDING AMERICAN CITIES TOOLKIT, CENTER FOR COMMUNITY PROGRESS, available at http://www.communityprogress.net/problem-property-owners-pages-201.php. E. Sarah Treuhaft, Kalima Rose, & Karen Black, When Investors Buy Up the Neighborhood: Preventing Investor Ownership from Causing Neighborhood Decline, POLICYLINK (2010), available at http://www.frbsf.org/communitydevelopment/files/ci_treuhaft_et_al.pdf. 17 See The Good Landlord Program, CITY OF OGDEN, UTAH, http://www.ogdencity.com/en/doing_business/business_licensing/good_landlord.aspx (last accessed Feb. 24, 2016). 18 See Frequently Asked Questions for Residential Rental Inspection (RRI) Program, CITY OF MILWAUKEE, WISC., http://city.milwaukee.gov/dns/rri#.vskaemcnhcc (last accessed Feb. 24, 2016). 19 See Landlord Training Program, DEPT. OF NEIGHBORHOOD SERVICES, CITY OF MILWAUKEE, WISC., http://city.milwaukee.gov/landlordtraining#.vtehwlktguk (last accessed Feb. 24, 2016). 7

Exactions and Impact Fees W. Andrew Gowder, Jr. Charleston, S.C.

Rhode Island Builders Assn v Town of Coventry

Rhode Island Development Impact Fee Act Based on the actual costs incurred to expand or improve public facilities or upon reasonable estimates of the costs to be incurred. Any calculation must be in accordance with generally accepted accounting principles (GAAP). Before the assessment of any impact fee, a town is required to conduct a needs assessment to determine which public facilities will receive the impact fees collected.

RIBA v Coventry: Facts Coventry passes 2000 Impact Fee Ordinance establishing Impact Fee of $7596 for each new residential unit. In 2010, Coventry amended the Impact Fee Ordinance altering the apportionment of the Impact Fee. In 2011, Plaintiffs file suit challenging the amount of Impact Fee assessed under the 2010 ordinance because it does not meet test of enabling act.

RIBA v Coventry: Decision Standing, Res Judicata. Prior consent judgment in 2007 does not preclude further impact fees, so Coventry Land also subject to 2010 ordinance. Voluntary Payment Doctrine. A genuine issue of fact exists as to whether payment of fees was voluntary: without paying it, owner would not have been able to develop and could have lost property. Validity of Ordinance. Act only required towns to reasonably estimate the impact of new developments on current facilities; mathematical certainty is not required. To be determined at trial whether Impact Fee bears a reasonable relationship to the needs created by the new development

Exactions: The Nollan/Dolan test [A] unit of government may not condition the approval of a land-use permit on the owner s relinquishment of a portion of his property unless there is a nexus and rough proportionality between the government s demand and the effects of the proposed land use. Koontz v. St. Johns River Water Mgmt. Dist., 133 S. Ct. 2586, 2591 (2013)

Sammartino v Planning & Zoning Comm n of Town of Andover

Sammartino: Facts A Dwight Merriam Special X2: a four lot subdivision of 7.77 acres Commission grants application with conditions, including for the provision of fire protection by cistern or sprinkler system under Andover s subdivision regulations. Landowner appealed, the regulation is beyond the Town s authority and requiring a cistern constitutes an exaction under Nollan/Dolan.

Sammartino: Decision The Commission s requirement for a water source for fire protection does not conflict with the State Fire Marshal s statutory authority, so no conflict or preemption. This land use regulation does not effect a taking: Within police power: one who chooses to engage in subdividing land chooses to be subject to reasonable regulation of local planning commission Where the requirement is uniquely attributable to the subdivider s activity, it is a permissible exercise of police power. Here the requirement of a cistern for fire suppression is a reasonable land use regulation within the police power and not an exaction/ taking.

Common Sense Alliance v Growth Management Hearings Board

Common Sense Alliance: Facts Appeal by proponents and opponents of San Juan County s critical area ordinances

Common Sense Alliance: Nollan/Dolan unconstitutional conditions? Alliance and Pacific Legal Foundation argued that buffers required by the habitat ordinance imposes inflexible blanket rules, like requiring a water quality buffer or protection of all trees within 110 feet of aquatic critical areas. They argue these do not meet the Nollan/ Dolan test and are unconstitutional conditions.

Common Sense Alliance: Decision Nollan and Dolan involved site-specific permit decisions. No precedent for invalidating a land use ordinance of general application Legislative determinations does not present the same risk of coercion as adjudicative decisions. First question under Nollan/Dolan cases: whether the government demands an exaction that would be an unconstitutional taking outside the permitting process. No interest in land taken as a result of requiring buffer: owner can use for all authorized purposes and exclude others.

Common Sense Alliance: Summary Site-specific flexibility was built into the ordinances through exemptions, buffer averaging and the reasonable use exemption. The County s use of best available science establishes the reasonable necessity of buffers to protect habitat and demonstrates a proportional relationship between the impacts of development and the measures adopted to mitigate it. The ordinances do not violate the unconstitutional conditions doctrine.

Bridge Aina Le a v State Land Use Commission

Bridge Aina Le a Challenge to reclassification of land from urban use to agricultural use

Bridge Aina Le a: Facts 1060 acres in South Kohala, on the island of Hawaii In 1987, private purchaser petitioned from agricultural use to urban use. LUC approved on the condition that 60% of homes be built as affordable units. (a minimum of 1000 affordable homes). In 2009, LUC ordered Bridge as new owner to complete a certain number by a deadline. In 2010, Bridge built the required number of units, but allegedly missed the deadline, so LUC reclassified the land to agricultural use.

Bridge Aina Le a: Decision Bridge argues affordable housing condition is an unconstitutional condition. Court decides claim was decided by Hawaii Supreme Court in earlier state administrative appeal, so barred by issue preclusion. Material question of fact remains on claim that affordable housing condition is a Penn Central or Lucas taking. Remanded to trial court for further decision.

Cal. Bldg. Indus. Assn v City of San Jose

City of San Jose Another affordable housing challenge: Is inclusionary zoning ordinance an unconstitutional taking?

City of San Jose: Facts San Jose s inclusionary housing ordinance requires all new residential developments of 20 or more units to sell at least 15% of the for-sale new units at a price that is affordable to low or moderate-income households. Plaintiffs challenge this requirement as an exaction on developer s property under the takings clause of the US and California constitutions, under the unconstitutional conditions doctrine.

City of San Jose: Decision A city has broad authority under its police power to regulate the use of real property so long as the regulation bears a reasonable relationship to the public welfare. There can be no unconstitutional conditions claim without a government exaction of property. A predicate for these claims is that the government could not have constitutionally ordered the person asserting the claim to do what it attempted to pressure the person into doing. This ordinance does not require the developer to give up a property interest or pay a fee that would be a taking outside the permitting process. It places a restriction on use by limiting the price for which the developer may offer some units for sale. Rather than an exaction, the ordinance is permitted police power regulation of land.

City of San Jose As Dwight reported, this case was appealed to the Supreme Court in a widely anticipated decision.

City of San Jose: Epilogue Supreme Court of US denies certification. Justice Thomas writes in concurrence.