Earthquake Liability Leaves Building Owners in Search of Seismic Retrofit Financing

old church ruined by an earthquake

August 24, 2017

Over the next 30 years in California, scientists predict the frequency of small earthquakes will decrease.

That’s the good news.

The bad news is that the chance of a major earthquake, magnitude 8.0 or greater, will increase.

These predictions from the U.S. Geological Survey (USGS) stem from a greater understanding of multi-fault ruptures. Scientists have discovered a new fault line in Southern California, which is overdue for a major quake along the San Andreas Fault. Running underwater from San Diego Bay to Seal Beach in Orange County, and on land across the L.A. basin, the recently identified fault could lead to powerful quake affecting 20 million residents, reveals the USGS.

Aside from the sheer volume of residents in the Los Angeles metro area—13 million—the population density is what concerns scientists. Renters occupy more than half the homes in L.A., and about 60 percent of these occupants are families. With the L.A. metro area home to the nation’s fourth-highest percentage of renters, combined with a greater likelihood of powerful earthquakes in the coming years—preventative measures are crucial.

Failure to properly retrofit the hundreds of thousands of multi-family properties in L.A. will prove catastrophic. But what most property owners don't realize is that they may be held accountable.

Property Owners Found to be Negligent

Earthquake liability made headlines in 2003. It was late December in Paso Robles when a magnitude 6.5 earthquake shook the Central Coast. Two women were killed while working in an old retail shop, as bricks and plaster collapsed. The City of Paso Robles required this building to undergo seismic retrofits although the deadline was 15 years out. The victims’ families sued the property owner; they won.

This case was notable because a jury unanimously agreed that the property owner was neglectful. The outcome was based on the fact that, even though the property owner complied with city codes, she knew about the unreinforced brick and failed to act before it collapsed. Seven years later a state appeals court upheld the verdict.

L.A. Enacts Nation’s Strictest Seismic Mandates

Following the Paso Robles case, the L.A. City Council in 2014 mandated a public inventory of all structures at risk of damage or collapse in an earthquake. City inspectors identified 13,500 soft-story buildings they felt needed strengthening. Shortly thereafter, a law passed, requiring these seismic retrofits.

Los Angeles property owners are given seven years to fix wood apartments and 25 years to strengthen concrete buildings—and they have to cover the costs. With price tags ranging from hundreds of thousands for wood apartments and millions for concrete towers, commercial property owners are scrambling for ways to finance these upgrades without sacrificing their livelihood.

How to Pay for Seismic Retrofits

The L.A. City Council agreed in 2016 that renters and building owners must equally share the financial burden of earthquake retrofitting. Initially, L.A. housing law allowed landlords to increase rent up to $75 per month to help cover costs, but that amount was soon decreased to $38 per month over 10 years.

With the estimated cost of retrofitting a six-unit, soft story building ranging from $30,000 to $60,000, many building owners are left searching for supplementary financing. Some property owners are turning to PACE financing for the answer.

PACE, or property assessed clean energy, is a financing option that enables property owners to make energy efficiency and renewable upgrades, and in some areas, water conservation and storm protection – now it includes seismic upgrades. This financing is incorporated into property taxes and repaid over the long term.

With PACE, a landlord can access financing for no money upfront, and spread out the cost of a seismic retrofit over decades.

Earthquake liability is a serious concern. Procrastinating on retrofits can leave a property owner negligent in the event of an earthquake.

Read the next article in this seismic series, which focuses on how to prevent or reduce devastating losses while increasing tenant safety.