The LA wildfires are unfortunately not over yet, and they're already among the costliest natural disasters in recent U.S. history (only the 2018 wildfires and the two biggest hurricanes of last year caused more damage).
Sadly, when disasters occur, there are crooks looking to capitalize on the situation, like the many phony charity scammers who not only bilk people out of money but also make it more difficult for legitimate charities to get donations.
Price gouging is another way in which some people try to take advantage of the disaster, but California is determined to put a stop to that too. Following Governor Newsom's declaration of a state of emergency in response to the Palisades Fire in Los Angeles County, General Rob Bonta issued a consumer alert warning of price gouging.
The price gouging statue states:
California law generally prohibits charging a price that exceeds, by more than 10%, the price a seller charged for an item before a state or local declaration of emergency. This law applies to those who sell a variety of products or services including storage services.
How does this affect self storage, especially if a facility has an introductory rate or is leasing up a new facility? There are two relevant sections of the Penal Code 369 for price gouging:
(b) “. . . it is unlawful for a person, contractor, business, or other entity to sell or Offer to sell . . . storage services, for a price of more than 10 percent greater than the price charged by that person for those goods or services immediately prior to the proclamation or declaration of emergency.”
(l) “A business offering an item for sale, or a service, at a reduced price immediately prior to the proclamation or declaration of the emergency may use the price it normally charges for the item or service to calculate the price pursuant to subdivision (b) or (c).”
The California courts have not considered how a business offering a discount proves the price it normally charges for a service. So, the California Self Storage Association (CSSA) offers its recommendation (while being very clear that this is just their recommendation and not a legal opinion – they recommend you consult with your attorney on price increases during a State of Emergency.
Operators should state in their rental agreement whether the tenant is receiving a discount/promotional rate and include the standard rate for the tenant’s unit. That standard rate can then function as the “price it normally charges” under Penal Code 396(l). Using rates that others pay for a similar unit may not be sufficient to prove a “standard rate” as these vary depending on a number of factors (location and size of unit, occupancy duration, date of initial unit rental, consistency in payment, multiple unit discount, etc.).
Penal Code 396(b) also states that “a greater price increase is not unlawful if that person can prove that the increase in price was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide the services, during the state of emergency or local emergency, and the price is no more than 10 percent greater than the total of the cost to the seller plus the markup customarily applied by that seller for that good or service in the usual course of business immediately prior to the onset of the state of emergency or local emergency.”
California Attorney Carlos Kaslow agrees. “Regarding the question about specials, this is primarily a contract issue. If the agreement specifies that the move-in rate is a special rate, indicates that it is valid for a limited time, and provides the non-special rate that will apply once the special expires, then the 10% rent increase limit may not apply," explains Kaslow. "Specifically, if there is a written addendum to the rental agreement that outlines the special offer and when the regular rate takes effect, the contract rate should not be subject to Penal Code section 396. However, all subsequent rent increases will still be subject to the law. If the terms are not clearly outlined in writing, you should adhere to the statute and avoid increasing rent by more than 10%."
Adds Kaslow, "It is important to note that the price gouging law is a criminal statute, not a civil violation. No business should risk involvement in a criminal prosecution.”
During this State of Emergency (the LA fires in particular), operators in the areas affected by this emergency should be cautious about raising prices more than 10% above the tenant’s current rate. If the operator believes that a larger increase is warranted, the operator should be prepared to justify that increase both legally and operationally.