The Start of Rent Control
On October 8, 2019, California Governor Gavin Newsom signed into law the “Tenant Protection Act of 2019” (A.B.1482), which will place a cap on annual rent increases AND limit a landlord’s ability to evict a tenant without just cause. California is the third state in the U.S. to pass a significant expansion of renter protections this year, following Oregon and New York.
What does current California law say? Existing law requires that when planning to terminate a tenant’s lease or evict a tenant who has been in the property more than one year, a landlord must give written notice at least 60 days prior to the lease end date, or at least 30 days prior if any tenant has been there less than one year. If a landlord wants to increase the monthly rent, they need to give at least 30 days notice if the increase is 10 percent or less, and 60 days notice if the increase is greater than 10 percent. Lastly, a landlord can decline to renew an expiring lease without specifying a reason, even if that tenant has not broken any lease terms. These facts of existing law are important to understand and it should be noted that some municipalities have enacted local rent control measures that may be more limiting than state law.
So, what is going to change? A.B. 1482 will take effect January 1, 2020 and until January 1, 2030, will prohibit a landlord from increasing rent during a 12-month period of more than 5%, plus inflation (based on your local CPI). The Consumer Price Index for California is typically around 3% but varies by area, so in this instance would mean a landlord is limited to increasing rent 8% total, and never to exceed 10%, over a 12 month period. While the bill doesn’t take effect until January 1, 2020, the provisions apply to all rent increases occurring on or after March 15, 2019.
Additionally, if a tenant has lived in a property for 12 months without lease violations, a landlord may not terminate the tenancy without just cause. The definition of ‘just cause’ can be a bit tricky and the text of the bill breaks this into two parts. At-fault just cause includes scenarios such as late rent payments, a breach of lease terms, committing waste or a nuisance on the property, subletting, refusing to allow an owner to enter the property and more. When a violation of the lease is curable, an owner must first provide the tenant with an opportunity to cure the violation. (A common occurrence and example is that no pets are allowed per the lease, but the tenant now has a dog on the property.) If the tenant does not remove the dog from the property within a specified time, the landlord may send the tenant a 3-Day Notice to Quit without the tenant’s opportunity to cure the violation, in order to terminate the tenancy.
Separately, no-fault just cause includes scenarios where an owner intends to occupy the property themselves (of by their immediate family), withdraw the property from the rental market, or when the owner plans to demolish or “substantially remodel” the property. A substantial remodel would generally be seen as improvements of structural, electrical, plumbing, or mechanical features that would require a permit. Cosmetic improvements like painting and minor repairs would not qualify as “substantial”. When a landlord is ending a tenancy due to no-fault just cause, an owner must either 1) provide relocation assistance to the tenant equal to one month’s rent, or 2) waive the final rent payment due. This tenant assistance is required from an owner regardless of the tenant’s income.
Note this bill is primarily focused on apartment buildings and multi-unit housing, as there are some exclusions built into the law, including the following:
- When a tenant is renting a room in the owner’s house and it is their primary residence.
- Housing built in the last 15 years.
- A duplex, where the owner occupies one unit as their primary residence.
- Single family homes, unless owned by corporations, REITs or other institutional investors.
Whether you currently own rental property or are considering a purchase in the near future, these nuances to real estate investing are important to consider. Contact Graham at 805-459-1865 / [email protected], or Steve at 805-458-5506 / [email protected] if you have any questions about how this might apply to you.
Disclaimer: This is intended for educational purposes only and is not legal advice. Seek a qualified attorney if you have legal questions.