Legislative Update: Washington Multifamily Owners

By: Brian Pelky, Advisor, SVN Bluestone and Hockley

Brian Pelky has been a licensed Washington since 1996, and a CCIM (Certified Commercial Investment Broker) since 2008. His focus is on the Clark County, Washington multifamily marketplace.

This year’s Washington state legislative regular session ended as scheduled on April 25, 2021. After some debate, the session ended with better-than-expected results for Multifamily owners in Washington state. Here are some of the bills affecting apartment owners.

Capital Gains Tax (SB 5096)

This new tax had been expected to pass since the start of the session. Its original incarnation included capital gains on the sale of commercial real estate. With intense lobbying from Washington Realtor lobbyists, the bill ended up excluding all real estate – both residential and commercial. This would have impacted apartment owners in Washington by adding an additional 7% state capital gains to their Federal tax bill. The Governor ended up signing the final version of the bill. This was a big win for apartment and commercial property owners this year. For those that are affected by the new tax (i.e., sale of stocks and other investments), there is an expected lawsuit to challenge the constitutionality of the bill. Initiative and Referendum are also possibilities.

Multifamily Tax Exemption (SB 5287)

This bill extended/expanded the multi-family tax exemption that already exists for developers and owners. Here are highlights of the bill:

Expands the program to lower populated cities and unincorporated areas.
Creates latitude on establishing median income in high-cost areas.
Adds a tenant relocation requirement for properties terming out of the MFTE program.
Allows jurisdictions to add a prevailing wage requirement for MTFE projects.
Adds a DOC audit review process.

Eviction Reform (SB 5160)

This bill was signed in on April 22, 2021. The original version of the bill had language that prevented landlords from terminating, or refusing to renew, tenancies for two years after the eviction moratorium unless the landlord was going to sell the property or if the landlord and tenant were roommates. Again, with hard lobbying from WA Realtors, that language was removed; but the re-payment plan language is still there. Here are highlights of the bill:

For rent in arrears after March 1, 2020 to the end of the moratorium landlords must offer repayment plans. Re-payment plan terms cannot exceed 1/3 of monthly rent.
It allows landlords to pursue eviction if tenants refuse to accept reasonable re-payment plan offers after 14-days.
It inserts into the eviction process mandatory engagement with the Eviction Resolution Program (Dispute Resolution Centers).
Increased the claim limit to the Landlord Mitigation Program from $5,000 to $15,000 for damages/unpaid rent/default on a re-payment plan.
Creates a program granting Right to Counsel for indigent tenants.
Changed penalties for landlords who remove tenants in violation of the Bill from 4.5 times the monthly rent to 2.5 times the monthly rent.
Ends the Eviction Moratorium on June 30th (though the Governor still maintains power to extend this).
Creates a bridge for landlords to access assistance on behalf of indigent tenants if programs are not up and running.

Just Cause Evictions (HB 1236)

This bill was delivered to the Governor and signed into law on May 10. Here are highlights of the bill:

This bill was expanded from its original version to 16 causes that are fairly broad (contact me for a detailed list of causes).
It also changed penalties for Landlords who remove tenants in violation of the Bill from 4.5 times the monthly rent to 3 times the monthly rent to maintain consistency with the Consumer Protection Act.
Outside of the 16 causes, a landlord may end tenancies if the tenant fails to sign a lease renewal.

Summary

In summary, the 2021 legislative session started with legislators looking everywhere to raise tax revenue. A new capital gains tax was the biggest target, and apartment investors can now breathe easy that all real estate was exempted. Legislation was also needed to navigate through the Covid-19 tenant hardships, and that was accomplished. The next session will bring new challenges, and the Washington Realtors legislative steering committee, which I sit on, will be keeping a close eye on any new legislation affecting multifamily and commercial real estate investors. If you would like further details on any Washington legislation that affects real estate, don’t hesitate to contact me. If you would like me to help you value your multifamily property for potential sale, you can reach me at 360-771-4967, or my email at brian.pelky@svn.com.