PFAR Policy Watch: What REALTORS® Should Know

The Pasadena Rental Housing Board (PRHB) is preparing to roll back a regulation it introduced just last year — an escrow requirement meant to support tenants in rent-withholding situations — after discovering the rule is unworkable, costly, and nearly impossible for the city to implement.

In an 8–1 straw poll, board members directed staff to draft amendments eliminating the escrow rule entirely, marking a notable reversal in the ongoing rollout of Measure H regulations.

A Rule the Board Created — Now Up for Repeal

When PRHB first designed its rent-withholding procedures, the escrow requirement was pitched as a tenant-protection mechanism. Under the rule:

• Tenants who were legally allowed to withhold rent (typically because their landlord hadn’t registered the unit) would be required to deposit the withheld rent into a third-party escrow account.

• The intention was to shield tenants from accusations of nonpayment while reassuring landlords that funds would be there once the compliance issue was resolved.

The idea sounded balanced in theory.
But once the board tried to implement it, the flaws were impossible to ignore.

Why the Escrow Requirement Failed in Practice

1. No escrow partners were willing to participate.
City staff reached out to financial institutions throughout the region, but only one bank agreed to administer the accounts — and it required an estimated $500 fee for a 60-day holding period. That cost alone made the rule unrealistic for most renters.

2. Pasadena’s Finance Department cannot manage escrow accounts.
City finance staff reported they do not have the infrastructure, personnel, or systems to hold and manage tenant escrow deposits. Creating such a system would require extensive resources not currently available.

3. The rule wasn’t being used anyway.
Since the rule was enacted:

• only eight tenants submitted petitions to withhold rent,

• five petitions were dismissed because landlords quickly registered their units,

• three were dismissed because tenants didn’t complete required paperwork,

• and no case ever reached a hearing where escrow was needed.

Simply put: the board created a mechanism for a problem that rarely occurs — and the mechanism itself didn’t work.

Board Members Acknowledge the Misstep

Members described escrow as unnecessarily complicated, burdensome, and expensive.

Ryan Bell, a long-serving board member, noted that the likelihood of ever issuing an order allowing rent withholding is extremely low — tenants are reluctant to take that step, and landlords usually comply once notified.

The board ultimately concluded that holding onto the escrow rule served no practical purpose and created more administrative burden than benefit.

What the New Approach Would Look Like

Under the amendments now being drafted:

• Tenants granted approval to withhold rent would hold the withheld funds themselves,

• A portion of the funds may need to be repaid once the landlord becomes compliant,

• The city would remove the costly escrow intermediary altogether.

The change simplifies enforcement for the city, though it also places more responsibility on tenants to manage withheld funds appropriately.

PFAR Perspective: Why This Matters

The rollback highlights the growing pains of Measure H implementation — and the challenge of designing regulations that work both on paper and in the real world.

For housing providers and REALTORS®, this reversal signals a willingness by PRHB to adjust rules when they prove impractical. It also underscores the importance of clear communication surrounding registration, compliance, and tenant-landlord procedures.

As PFAR continues monitoring local policy changes, ensuring members understand how these evolving rules affect transactions, management practices, and the broader rental market remains a priority.

Sidebar: What REALTORS® Should Know

1. The escrow requirement is likely going away.

This means tenants who receive permission to withhold rent will no longer deposit payments into a city-approved escrow account. Instead, they’ll hold the funds themselves pending resolution.

2. Unit registration remains crucial.

Escrow might be disappearing, but the underlying compliance requirement remains active. REALTORS® working with landlords should encourage timely registration to avoid disputes and petitions.

3. Rent-withholding cases are extremely rare.

Despite initial concerns when Measure H passed, data shows very few tenants have pursued rent-withholding — and none have reached a hearing. Understanding this helps calm landlord concerns and ground expectations.

4. This reversal reflects ongoing policy refinement.

PRHB is still adjusting and clarifying Measure H implementation. REALTORS® should expect additional regulatory updates in the coming months.

5. Encourage clients to document everything.

Whether representing landlords or tenants, proper documentation — lease terms, registration filings, notices, rent receipts — is more important than ever under evolving regulations.

by Jay Valdeavilla | December 8