The nation’s largest landlord of single-family homes will pay $3.7 million in civil penalties and restitution to resolve allegations that it violated California’s laws against rent gouging, according to Atty. General Rob Bonta announced this on Monday.

According to Bonta’s office, Invitation Homes, which owns 12,000 properties in California, raised rents for 1,900 tenants above the amounts allowed under state law between October 2019 and December 2022. The laws limit annual rent increases to 5% plus a regionally adjusted inflation rate and to no more than 10%.

Under a proposed settlement to be filed in Los Angeles County Superior Court

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On Monday, Invitation Homes will have to pay $2.04 million in fines. The company is spending another $1.68 million to refund or credit tenants the amount it collected in excess of the state rent limit plus 5% interest, Bonta’s office said.

California has passed laws to protect tenants from sudden, large rent increases and landlords must be diligent to ensure they comply with those laws, Bonta said in a statement. The settlement announced today should serve as a reminder for California landlords to familiarize themselves with the law and the protections put in place to keep homes accessible to Californians.

A spokesperson for Invitation Homes was not immediately available for comment.

Research by the Public Prosecution Service showed that a

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The percentage of rent increases imposed by Invitation Homes from late 2019 through 2022 violated rent cap laws and that the company had identified some of the issues through its own assessments and implemented remedial measures for affected tenants, according to the statement. Bonta’s office.

Signed into law by Governor Gavin Newsom in 2019, California’s rent cap law was one of the most notable responses to the states’ housing affordability problems. The law, one of the strictest limits on rent increases in the country, applies to all multifamily rental properties, excluding apartments built within the last 15 years. The law covers rentals of single-family homes managed by corporations or institutional investors such as Invitation Homes, but otherwise exempts these properties.

Currently it is according to the law Landlords may increase rents with no more than 8.8% in Los Angeles and Orange counties, 9.2% in the Bay Area and varying numbers elsewhere in California. This concerns properties built before 2008.

Some California cities, such as Los Angeles and San Francisco, have local rent control policies that more severely limit rent increases in older buildings.

Monday’s settlement with Invitation Homes is the most significant enforcement action taken since the rent cap law went into effect four years ago. Tenant groups have criticized the law for being difficult to prosecute, as tenants often have to self-report potential violations to local and state authorities.

In addition to the 2019 rent cap law, Bonta’s office alleged that Invitation Homes violated separate laws that prohibit annual rent increases of more than 10% during local and state emergency periods, such as during the COVID-19 pandemic.

Under the proposed settlement, which requires a judge’s approval, Invitation Homes will revise its policies for managing rent increases in California, conduct quarterly audits and provide an annual compliance report to the attorney general’s office for the next five years.

In the wake of the subprime mortgage crisis fifteen years ago, major Wall Street investment firms began entering the single-family rental market en masse. Some companies, including Dallas-based Invitation Homes, have faced criticism

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high eviction rates, aggressive rent increases and a potential displacement of individual homebuyers. Defenders of single-family rental properties argue that the companies allow renters to live in neighborhoods where they otherwise could not buy.

The percentage of single-family homes owned by large institutional investors remains small, just over 3% of the total, according to a recent estimate from the Brookings Institution, but they have a larger presence in some markets, especially in the Sun Belt.

Invitation Homes operates 85,000 properties nationwide. The 12,000 in California accounted for 17% of the company’s $614 million in rental income for the three months ended Sept. 30, according to its most recent quarterly financial report filed with the U.S. Securities and Exchange Commission. The average monthly rent of $2,982 for Invitation Homes’ Southern California properties is the highest in its portfolio nationwide, the report said.

Monday’s settlement comes at the start of what is expected to be another year of intense debate over rent control in California. The Los Angeles-based AIDS Healthcare Foundation has qualified an initiative for the November statewide ballot that would expand the ability of local governments in California to implement stricter limits on rent increases.

Landlord groups defeated similar foundation-backed initiatives in 2018 and 2020, outscoring supporters more than 2-to-1 in campaigns that totaled more than $100 million each. Invitation Homes has been one of the top donors to the anti-rent control campaigns.