Statewide Rent Control Passed by California Legislature

As many people in the industry are aware, the California legislature passed AB 1482 last week, commonly known as the statewide “rent cap bill.” The bill is expected to be signed into law by Gov. Newson in October. While parts could still change before then, we now have a good enough idea to know what to expect. Basically, the law will make it harder to evict a tenant after she has resided in the property for 12 months and it will cap rent increases between 5% and 10%.

However, not all residential properties will be subject to the law.

1. The bill currently excludes most single-family, duplex and new construction residencies.

At present, the following residential circumstances are exempt from the bill:
 
      A)  Real property that has been issued a certificate of occupancy within the previous
           15 years. So, most homes built after 2004 will not be subject to this law immediately.
 
      B)  Duplexes in which an owner occupies one of the units as the owner’s principal
            place of residence is exempted for as long as the owner continues her occupancy.
 
     C)  Any residential real property that is alienable separate from the title to any other
          dwelling unit (primarily single-family homes, townhouses, and condos) is exempted,
          provided that the owner is NOT a real estate investment trust, a corporation or a LLC
          in which at least one member is a corporation.
         
     2. Rent increase of non-exempt properties will be capped at 5% plus inflation, but
         not to exceed 10% total.

For those properties that qualify under this bill, the upcoming rent control would prohibit a landlord from increasing the gross rental rate more than 5% plus the then current inflation rate (California CPI is approximately 2.8%), or 10%, whichever is lower for the immediately preceding 12 months. Further, the bill would prohibit the landlord from increasing the gross rental rate for the unit in more than two increments over any 12-month period. As stated above, the bill would generally exempt single-family dwellings, owner occupied duplexes, and condos. The rent cap would retroactively apply to all rent increases occurring on or after March 15, 2019, but it will include a safe harbor for landlords who charge and collect rent outside these limitations prior to January 1, 2020.

     3. Eviction from non-exempt rental properties can only happen with “Just
         Cause”.

The bill would prohibit an owner of non-exempt property from terminating a tenancy without “just cause” after the tenant has continuously and lawfully occupied the property for 12 months. Essentially, a “just cause” eviction would stem from a scenario where the tenant breached of the rental agreement, or became a nuisance, giving cause for removal. The law would leave open the opportunity for a landlord to evict a tenant in the limited case where the landlord 1) planned to move into the property, 2) sell the property to someone who intends to live there, or 3) substantially remodel the property so that tenancy during construction is impossible. For these limited “no-fault” terminations, the owner will be required to assist with the tenant’s relocation cost by providing a direct payment of one month’s rent to the tenant or by waiving in writing the payment of rent for the final month of the tenancy, prior to that payment coming due. This requirement will not be affected by the tenant’s income. The bill would provide that if the owner fails to provide relocation assistance, their notice of termination is void.

Lastly, the law would leave in place any local ordinance that provides a higher level of protection to tenants than this state-wide law does. In those cases, the local ordinance would control.

For more information, please refer to AB 1482.