December 2019

Two months ago Governor Newsom signed AB 1482, bringing statewide rent control to California. The new law goes into effect January 1 and includes both a cap on rent increases for existing tenants as well as a “just cause” standard that must be met before a tenant can be evicted. 

Are any properties exempt? Even though the new legislation applies to all types of housing from single family homes to the largest apartment complexes, there are some broad exceptions. It is important to determine whether a property is subject to the law or exempt because different tenant notices are required depending on the answer. The major categories of exemption are:

  • New units – there is a 15 year “grace period” where the Act does not apply after a unit is first built.
  • “Affordable Housing” – the Act does not apply to deed-restricted affordable housing.
  • Duplexes and accessory dwelling units are exempt as long as the owner lives in one of the units on the property.
  • Single family homes are exempt if they are owned by individuals. Homes that are owned by corporations, investment trusts, or limited liability companies (that have a real estate investment corporation as a “member”) are not exempt.

Obligation to give notice to tenants that a rental is either subject to the legislation or exempt. There is both an obligation to give tenants notice that the unit they occupy is subject to rent control and just cause termination, or that it is exempt. Owners of rental property should determine whether each of their rental properties is subject to the new legislation or exempt and make plans to issue notices and update rental agreements accordingly. If a property is exempt, the new legislation requires giving written notice to the current tenant, and including mandatory language in all new rental agreements started or renewed after July 1, 2020. If a property is subject to the law, the landlord must provide a statutory notice advising tenants of the rent control and just cause termination standards prior to August 1, 2020, and must add the statutory language to all new rental agreements after July 1, 2020.

How are rent increases capped? If a property is subject to the new rent control law, all rent increases after January 1, 2020 are capped at an annualized 5% plus the change in the cost of living. The legislature was concerned that landlords would raise rents early to get ahead of AB1482, and made the cap retroactive to all rent increases after March 15, 2019.

Because of the limit on annual increases, landlords that might otherwise only raise rents intermittently may now wish to be diligent about maintaining annual increases, or risk being unable to catch up to market until a tenant moves out. Steep rent increases won’t be available to use as a convenient way to get rid of problem tenants. On the other hand, the silver lining for landlords in the new legislation is that the rent may always be raised to market after a unit is vacated and then rented to a new tenant.

How are eviction laws changed? Beginning January 1, 2020 owners of properties that are not exempt must have “just cause” to terminate a tenancy. The new legislation does not much change terminations for tenant breaches of the lease, now referred to as “at fault” just cause terminations. For example, if a tenant fails to pay rent as required by the lease the landlord may proceed with a 3-day notice followed by an eviction.

If a tenant is not in breach of the rental agreement, however, the tenancy can only be terminated by the landlord in limited circumstances listed in the new legislation. These include things like an intent by the owner or a relative to occupy the unit, removal of the property from the market, demolition or a substantial remodel, and a governmental requirement that the unit be vacated. When a “no fault” termination occurs, the tenant is entitled to relocation assistance or a rent waiver equivalent to a month’s rent.

 

 

 

Marcus J. Kocmur

(Direct) 805.966.7715

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