John Finegan / December 9, 2020
Author: John Finegan, Associate
The below was written as a cheat sheet for two referenda that will have an immediate impact on Portland business owners and landlords, Minimum Wage and Rent Control. The goal of this cheat sheet is to give readers a brief synopsis of these referenda and how they function, and present the information in a more palatable format than reading through the referenda.
This cheat sheet does not address all aspects of the referenda, but it does cover a majority of the topics and the most important aspects of them. Readers who are directly affected by these referenda are encouraged to read the actual documents here:
Employees who do not receive tips:
Employees who receive tips:
If an employee receives tips, the amount of their hourly wage plus their tips must be equal to or greater than the then minimum wage.
Emergency 1.5x multiplier:
This referendum also includes a clause that requires all workers to be paid 1.5 times the minimum wage for any work performed during an emergency declared by the state or the municipality if that emergency applies to the employee’s geographical workplace. This does not apply to employees being allowed to work from home. The City of Portland is currently deliberating on when this will go into effect.
“While this wage increase will impact many, many businesses in Portland, it will have an outsized impact on the non-profit sector. According to the Maine Association of Non-Profits, 1 in 6 workers is employed by a nonprofit. Nonprofits contribute $12 billion to our state economy and provide a tremendous number of resources to our residents. They also operate on very tight budgets and cannot afford to compensate their employees at such a high level. While there are several large, well-funded nonprofits in Portland, there are substantially more small, scrappy organizations located here that will likely look to relocate to Scarborough, South Portland, Westbrook or Falmouth when their existing leases expire (or sooner if possible).” –Jessica Estes, Designated Broker & Partner
Units which are not subject to this referendum
These new regulations apply to “Covered units”, which are any residential rental units in Portland except for the following:
Allowable Annual Rental Increase
The point of this referendum is to limit the Allowable Annual Rental Increase that landlords can charge for Covered Units. That limitation will be based on the following criteria:
Registration of Covered units
Beginning January 1, 2021, every Covered Unit in Portland will be registered with the city. The city will request proof of rental income and they will use the monthly rent from the period of June 1, 2020 – June 30, 2020 as the Base Rent to calculate any future rental increases.
If a Covered Unit is not registered with the after January 1, 2021, the landlord will set the Base Rent at the time of registration.
If a landlord removed the Covered Unit from the rental housing market for five years, the landlord would set the Base Rent upon reentry to the rental housing market.
There are many instances where rent can increase more than the CPI increase, and I am going to discuss each below.
Banked Rent means the Base Rent for a Covered Unit, plus any increase in rent to which the landlord was entitled, but was not charged to a tenant during a rental year. There are many circumstances in which this will be applicable. Examples:
Example 1: A tenant stays in a Covered Unit for two years and each year the allowable annual rental increase is 2%. The landlord never increases rent while the tenant leases the Covered Unit. At the beginning of year three, a new tenant moves in and the landlord decides to increase the rent. The landlord can increase the rent by 9%.
Example 2: On year one, a landlord makes significant capital improvements to a Covered Unit and the Rent Board allows the landlord to increase rent by 15%. In that same year, the Allowable Annual Rental Increase was 2%. The total Allowable Annual Rental Increase is 17%. However, the landlord is still subject to the maximum annual increase of 10%.
In this circumstance, the landlord may increase rent by 10% at the beginning of year two and the additional 7% becomes Banked Rent. During year two the Allowable Annual Rental Increase is 2%. At the beginning of year three, the landlord can increase rent by 9% (7% for the Banked Rent + 2$ for the Allowable Annual Rental Increase).
This referendum establishes a Rent Board with the right to approve additional rental increases for:
The rent board will consist of 7 members in total with the limitations that only 3 can be Landlords and there must be at least 3 Tenants.
“Rent control has been a topic of conversation in many cities dating back decades. While the need for affordable housing is extremely important, rent control doesn’t always yield the best results. It stifles new development, which decreases supply. The demand for housing will still likely be there but because rent control creates a static market, it may benefit those who currently have housing but hinder those looking for housing due to a lack of supply. Therefore, this may stunt the growth of Portland as well, which could lead to a lack of new jobs and limit the economic opportunities for residents of Portland and Maine in general.” –Jon Rizzo, Broker