The circumstances with rent control and other regulations remind me of the 1960s in New York City.
My grandfather owned some rent-controlled apartment buildings in New York. As time went on, the cost of maintenance and taxes exceeded the rental income. This was accelerated because the tenants would destroy plumbing fixtures to be able to claim that the apartment wasn’t habitable. When not habitable, the tenant did not have to pay rent. The fixture would be repaired and the tenant would break it again. There was no way to evict the tenant and there was no way to derive sufficient income to pay the mounting costs of the apartments. No one would buy the apartments. So … my grandfather gave his building to the City to stop his losses.
Even the City was not able to keep up with the cost of maintaining the apartments and eventually, many years later, they were torn down.
Los Angeles is heading the same way. Landlords certainly don’t want to invest in rental property if there is no way to assure that they can collect rent. If you own rental property, you may find that your tenants will not pay and you cannot evict them. These properties become a drain on the landlord’s income.
At some point, we will have to ask ourselves what can we do to protect ourselves? Landlords should start making the evaluation now about when and how to dispose of the properties that are not at least breaking even. If there is no prospect to make money or sell the property, a landlord should dispose of the property as quickly as possible. Or … if they can sell it for something now, it might be a good idea.
A problem is what does the landlord do with the mortgage if there is one? One could try to give the property to the mortgage holder, but this may be difficult.
Are there other ways to deal with properties that are not paying for themselves? If you cannot sell you can quitclaim the property. The question is who do you quitclaim it to?
Quitclaim Property to the Tenants?
My first thought would be to quitclaim the property to the City. Now, the maintenance and the taxes are the City’s problem. I suspect that the City will be as incompetent at running the apartment as NYC was in the 1960s.
My second thought would be to quitclaim the property to the County. While I believe the County is more competent than the City, it isn’t much different than quitclaiming to the City.
Thirdly, would be to quitclaim the property to the State of California. It would be very amusing to see what the State would do with the property, but I believe that the three governments would not differ much in the way they worked with the gift of property. Of course, the landlord would be off the hook.
My favorite option would be to quitclaim the property to the tenants! This has the positive result of the new owners having to deal with cost and maintenance issues. In theory, the new owners would be on the hook for taxes, instead of tax money being spent on them if the government gets the property.
Then there is the reverse condemnation approach. The landlord would sue the government for illegal taking. In order to do this, landlords would need to get together to have a chance at being successful.
We need to get together now to push for reverse condemnation. This is a Federal issue and should be brought in Federal Court because it is the State that is illegally taking your property.
[Editor’s Note: Sad state of affairs, huh? Please know that the above ideas do not reflect the opinion of AOA.]