Price Gouging After Natural Disaster: Limitations on California Post-Disaster Price Increases

Jamie Sternberg, Esq. and Jessica Weisman, Esq.

 

October, 2017

 

If a state of emergency is declared, and if the state of emergency results from an earthquake, flood, fire, riot, storm, or natural or manmade disaster, California Penal Code §396 generally prohibits price gouging (i.e. price increases of more than 10%) for rental housing (defined below) and consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, transportation, freight, and storage services, or gasoline or other motor fuels for 30 days after the emergency is declared. The price gouging restrictions may be extended for additional 30 day periods by state or local officials, boards or other governing bodies authorized to extend the restrictions.

Note that this code section will affect both rent increases and vendor charges to a landlord after a natural disaster. Neither can exceed a 10% increase unless the seller can prove that the increased price is directly attributable to increases in the cost of labor or materials needed to provide the good or service.

In September 2016, AB 2820 amended California Penal Code §396. California Penal Code §396 now applies to both statewide and locally declared emergencies and expands the types of emergencies to also include drought, and plant or animal infestation or disease. Additionally, while the previous version of the law defined housing as “any rental housing leased on a month-to-month term”, this bill expands the definition of housing to include “any rental housing with an initial lease term of no longer than one year.”

Landlords who use a revenue management system that automatically adjust rents (such as YieldStar or Rainmaker LRO) should monitor it closely, or not utilize that feature, after a state of emergency is declared, to avoid unintentionally violating California Penal Code §396.

A State of California Department of Justice FAQ regarding price gouging is available at https://oag.ca.gov/consumers/pricegougingduringdisasters.  Note that questions on the FAQ indicate that the price gouging restrictions apply everywhere in the state, even outside of the city of county where the emergency or disaster occurred.

Local laws may provide additional protections against price gouging.

The text of California Penal Code §396, showing the changes made by AB 2820, is in the attached pdf.

Kimball, Tirey & St. John LLP is a full service real estate law firm representing residential and commercial property owners and managers. This article is for general information purposes only. Laws may have changed since this article was published. Before acting, be sure to receive legal advice from our office. If you have questions, please contact your local KTS office. For contact information, please visit our website: www.kts-law.com. For past Legal Alerts, Questions & Answers, and Legal Articles, please consult the resource section of our website.

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