Real Estate/Development,
LA Fires,
Consumer Protection Law
Jan. 30, 2025
Wildfire housing crisis tests California price-gouging law
In the wake of the Los Angeles fires, California's price-gouging protections are making property owners think twice about offering rentals, even as displaced residents desperately search for housing.






Daniel M. Rubin
Associate, Gibson, Dunn & Crutcher LLP

In the wake of the terrible fires in Los Angeles, media outlets
(and social media posters) have been reporting on California's so-called price-gouging
law and the incredible shortage of housing. For those who have lost their homes
in the fires, finding a new home has been a herculean task, with some finding
the price-gouging laws a major impediment. Real estate agents are apparently
even telling owners of second homes not to offer those homes for rent because "it's not
worth it."
At the same time, the attorney general has broadly warned
landlords: "Our legislature has enacted robust protections for renters during
times of crisis, and I'm committed to ensuring that those protections are
followed and respected." He's also highlighted the criminal penalties that can
accompany violations of these "robust protections," including one-year
imprisonment. And he's already filed criminal
charges against a real estate agent.
The law at the center of all this is California Penal Code
section 396. At a high level, subdivision (e) of that section makes it illegal
to increase rents by more than 10% during an emergency.
And it's not just a penal code statute. A violation of 396
"shall constitute an unlawful business practice and act of unfair competition"
under the UCL, making landlords potentially liable in civil suits as well,
including potentially via a class action.
At first blush, California's price-gouging law seems simple to
understand. But it's far more complex than it seems, and some of the provisions
make little economic sense.
How long are price-gouging protections in place? Protections
are in place for at least 30 days following the state of emergency declaration.
However, the governor, state legislature, or local officials may extend
protections beyond the initial 30-day window. Indeed, five days after Gov.
Newsom declared a state of emergency in Los Angeles and Ventura counties due to
the fires, he issued Executive Order N-4-25, extending price-gouging
protections under subdivisions (b) and (c) - which impose restrictions on price
increases for consumer goods and repair/reconstruction services, respectively -
through Jan. 7, 2026. While that order did not expressly mention subdivision
(e), that extension could be down the pike (and some have contended subdivision
(b) could also cover rental price hikes, though it should not, given the more
specific and relevant subdivision (e)).
Are all rental leases covered? No. The statute only
applies to rental housing (including at mobilehome
parks) with initial lease terms of no more than one year. This comes from the following
definition of "housing" in the statute: "'housing' means any rental housing
with an initial lease term of no longer than one year, including, but not
limited to, a space rented in a mobilehome park or
campground." And according to a report by The Center
Square, the attorney general's press office acknowledged that "Penal
Code Section 396's subdivision (e) does not apply to leases greater than one
year in duration."
What is the scope of the price-gouging protections? First,
subdivision (e) doesn't just apply to the rental prices a landlord charges but
also to those that are "advertised" or "offered." Moreover, it covers not only prospective
tenants (i.e., those most likely to have been directly impacted by the fires)
but also existing tenants seeking to renew their leases.
How do I determine the baseline "rental price"? The
statute (subdivision (j)(11)) provides specific guidance for how to determine the
"rental price." Determining the "rental price" is critical to ensure that any
increases to rental prices remain within the limits imposed by section 396. The
easiest case is housing rented at the time of the emergency; there, "rental
price" is the actual price paid by the tenant at the time of the emergency. For
housing not occupied at the time of the emergency declaration but rented or
offered for rent in the past year, the most recent rental price offered applies.
And for housing neither rented nor offered for rent within the year prior to
the declaration, the rental price is 160% of the fair market rent established
by the U.S. Department of Housing and Urban Development. There are further
nuances for housing that becomes vacant while protections are in place, housing
offered at a daily rate, and mobilehome spaces.
Are there exceptions to the 10% limitation? Subdivision
(e) contains two major exceptions. First, an increase of more than 10% is permissible
if a landlord can prove that increases in excess of 10% are "attributable to
additional costs for repairs or additions beyond normal maintenance that were
amortized over the rental term." Second,
it's allowed if the increase was "contractually agreed to by the tenant prior
to the proclamation." But there is no caselaw interpreting these provisions,
though ambiguity should be construed in favor of a defendant in the context of
this penal code provision.
What defenses are foreclosed by the statute? Subdivision
(e) specifically forecloses certain defenses. First, a landlord cannot argue
that the increase in rental price was based on the length of the rental term,
even though shorter leases are logically subject to higher rates given the
costs associated with more frequent turnover. Second, it's no defense that the
increase is attributable to additional goods or services (except for furnished
versus unfurnished apartment, which can increase the rent by 5%), notwithstanding
that tenants are being provided a different product. And third, it is no
defense to argue that a tenant is not out of pocket because a third party, like
an insurer, makes the payments at issue.
How does section 396 interact with local rent control
ordinances? Ensuring that a rent increase is kosher under the state's
price-gouging law does not immunize landlords against alleged violations of
local rent control ordinances. In fact, subdivision (e) expressly provides it
does not authorize landlords to charge prices that exceed those authorized by
local rent control laws.
To avoid criminal liability, these are just some of the nuances
real estate agents and landlords should be aware of in the coming months and
years. In our experience, these same issues will be key to assessing the
viability of any civil cases, with respect to both the potential certification
of a class action and the potential imposition of civil liability.
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