What You Should Know About California's Rent Control Bill

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What Investors/Owners Need to Know About California’s Rent Control

In October, California Governor Gavin Newsom signed into law Assembly Bill 1482, the nation’s strongest statewide renter protection package. Broadly, the law creates a statewide rent cap and eviction protections designed to combat California’s housing and cost-of-living crisis.

But, there are several important takeaways for investors and owners operating in California.

Here’s what you need to know:

AB 1482 caps annual rent increases throughout the entire state at 5% plus inflation for a large percentage of California’s multifamily housing stock. Exclusions to the law include apartments built in 2005 or later, as well as single-family homes (unless owned by a corporation) and duplexes in which the owner lives in one of the units

The law applies to all housing that is not currently regulated by local rent control laws. AB 1482 won’t override cities with their own rent control laws, like San Francisco, San Jose and Los Angeles.

For example, in Los Angeles, rent control legislation currently limits annual rent increases to 4% on buildings built on or before Oct. 1, 1978. So, AB 1482 will only apply to buildings in Los Angeles built after that date and before 2005.

In total, roughly 2.4 million apartments and up to 4.6 million households will be affected by the law, according to estimates provided by the Terner Center for Housing Innovation at UC, Berkeley.

What Are the Key Differences?

AB 1482

  1. Rent can be increased 5% + CPI – which averages about 3% – translating to roughly 8% per year
  2. Applies rent cap to buildings that are older than 15 years (construction built before 2005 when the bill is signed into law)
  3. Takes effect January 1, 2020 until 2030
  4. Rents will be rolled back to March 15, 2019, meaning that on Jan 1, 2020 all rents will be reduced (if applicable) to the rental units rate on March 15, plus the allowable increase.

INCORPORATED LOS ANGELES

  1. Caps rent increases at 4% for 2019, with a new rent cap decided each year
  2. Regulates tenants and evictions if the property was built on or before Oct 1, 1978, or newly constructed units built after July 15, 2007 that replaced demolished RSO rental units
  3. Indefinitely in effect

UNINCORPORATED LOS ANGELES COUNTY

  1. Sets maximum rent increase at 8%, with the following rules:
  2. If CPI is greater than 8%, the max annual rent increase will be limited to 8%
  3. If CPI is between 3% and 8%, the max annual rent increase will be the CPI
  4. If CPI is between 1% and 3%, the max annual rent increase will be 3%
  5. If CPI is between -2% and 1%, the max annual rent increase will be CPI + 2%
  6. If CPI less than -2%, the max annual rent increase will be 0%
  7. Buildings built before 1995 are subject to rent control in unincorporated parts of Los Angeles County
  8. Los Angeles County Development Authority has until Nov 12, 2019 to draft a detailed permanent plan that will extend beyond the December 31, 2019 end date of the current temporary plan

When Can Rents Be Increased to Market Rate?

AB 1482

Just Cause Provision:

  1. Tenant failure to pay rent
  2. Tenant violation of rental agreement/lease
  3. Tenant is using rental unit or common areas for illegal purpose
  4. Tenant refusal to renew lease or rental agreement of like terms and conditions
  5. Tenant refusing access to landlord for repairs and inspections

Restrictions:

  1. Only applies to tenants that have been living in a unit longer than 12 months
  1. For just cause evictions that are curable, the landlord is required to give the tenant a notice of violation with an opportunity to cure the violation in a specified timetable. If the violation is not cured, the landlord must give a 3-day notice to quit before the tenancy is terminated.

No-Fault Provision:

  1. Owners may also evict tenants for the following, but these provisions must be present in the lease agreement and the landlord is responsible to pay relocation fees (either 1 months’ rent or the forfeiture of the last month of rent owed by the tenant):
    1. Landlord wants the rental unit for his own use or for a family member
    2. Landlord wants to demolish or permanently remove the unit from rental housing use
    3. Landlord intends to demolish or substantially remodel the residential real property
      1. To qualify as “substantial”, there needs to be modification of any structural, electrical, plumbing, or mechanical system that required a permit from a government agency
      2. Must also be work that cannot be accomplished in a reasonably safe manner and that requires the tenant to vacate the property for at least 30 days
  • Cosmetic upgrades, such as painting, minor repairs, or other work that does not require the tenant to vacant the property does not qualify
  1. For a no-fault eviction, the landlord must give the tenant 30 days’ notice in writing to vacate if they have occupied the unit for less than 12 months, or 60 days’ notice if they have occupied it for 12 months or longer. The landlord must also inform the tenant of their right, at the landlords choosing, to one of the following:
    1. Direct payment to the tenant to assist in their relocation
    2. Waive payment for the final month of the tenancy, prior to it becoming due

INCORPORATED LOS ANGELES

Just Cause:

  1. Tenant failure to pay rent
  2. Tenant violation of rental agreement/lease
  3. Tenant is using rental unit or common areas for illegal purpose
  4. Refusal to renew lease or rental agreement of like terms and conditions
  5. Tenant refusing access to landlord for repairs and inspections
  6. Failure to relocate after agreeing to a Tenant Habitability Plan (THP)

No-Fault (Requires Payment of Tenant Relocation Assistance):

  1. Landlord wants the rental unit for his own use or for a family member
  2. Wants the rental unit for the use of a resident manager
  3. Wants to demolish or permanently remove the unit from rental housing use
  4. Landlord has been ordered to vacate the unit by a gov. agency, as the result of a legal violation
  5. Federal government owns the property and wants to sell it
  6. The landlord seeks to convert the property to an affordable housing accommodation
  7. Tenant agrees to vacate the unit as part of a Primary Renovation Program

UNINCORPORATED LOS ANGELES COUNTY

For Cause Termination:

  1. Tenant failure to pay rent within 3 days of receiving written notice from the landlord
  2. Tenant violation of rental agreement/lease (such as subletting, creating walls, etc.)
  3. Tenant refusing access to landlord for repairs and inspections
  4. Tenant is using rental unit or common areas for illegal purpose

No-Fault Termination:

  1. Landlord will demolish the rental unit/property or remove it permanently from any residential rental use or purpose
  2. Landlord wishes to use the rental unit as a primary place of residence for their family
    1. Must be occupied by family within 3 months of the tenant moving out
    2. Must be occupied as a primary residence for a minimum of one year
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