Assembly Bill No. 1482 – statewide rent control – has been approved and signed by the governor as of October 8, 2019 and is effective January 1, 2020, with retroactive impacts to any rental increases on or after March 15, 2019.
Many exemptions exist that will apply to most small owners; corporate owners and multi-unit properties (including smaller ‘front unit’ and ‘back unit’ properties found throughout Eastside Costa Mesa and Newport Beach) are the target of this new law. Even if you are exempt, you MUST provide your tenants with a new notice or you will loose the exemption. Evictions (and eviction notices) will now require “just cause” and relocation assistance may be required.
Read on for further details of this new law and to see if an exemption may apply to your rental property(ies).
An important editorial note for property owners and voters: an earlier statewide rent control ballot measure, California Proposition 10, was defeated at the polls in November 2018 by 59 percent against and only 41 percent in favor. With that sound voter rejection of rent control in-hand, this rent control bill was nevertheless overwhelmingly passed by the California State Legislature consisting of a one-party supermajority in both houses and the governor’s office.
This New Statewide Rent Control Has Two Key Components: 1) Caps Rental Increases; 2) Requires “Just Cause” For All Evictions
“Caps” Annual Rental Increases In Value and Frequency
This law “Caps” rental increases to 5 percent plus the percentage change in the cost of living, as defined (i.e. a consumer price index), or 10%, whichever is lower.
It also limits rental increases to twice per year (i.e. you could raise the rent in February, then again in August, so long as the cumulative total is within the annual limit noted above.)
Requires “Just Cause” For All Evictions (And Potential Relocation Expenses)
There are “at-fault just causes” and “no-fault just causes”, detailed below. Landlords MUST have a specific “cause”, as defined below, or no eviction can proceed.
This is perhaps the most sweeping change of the new law. Prior to this new law, no “reason” (or “cause” as the new law phrases it) was required for an eviction; a simple 60-day or 30-day notice (which notice depended on how long they had occupied) was all that was required. Now, you must have a reason, so called “just cause”, and it must be one of the narrow few reasons expressly stated in the law.
An “at-fault cause” includes non-payment of rent and some common sense and currently-exiting reasons such as criminal activity, unlawful use, refusal to allow (lawful) access, etc. This is essentially the same as before the new law. If a tenant does not pay rent, or is running a meth lab, they can be evicted.
“No-fault causes” are:
- Intent to occupy (i.e. you want to move in);
- occupancy by your “spouse, domestic partner, children, grandchildren, parents, or grandparents” (and only those relations expressly noted),
- Withdrawal of the residential real property from the rental market.
- Complying with a government or court order.
- Remodeling, ahem, “substantially remodel” (which is expressly defined as, “… the replacement or substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or the abatement of hazardous materials… that cannot be reasonably accomplished in a safe manner with the tenant in place and that requires the tenant to vacate the residential real property for at least 30 days.”). This is a high standard and the law further expressly states, “cosmetic improvements alone, including painting, decorating, and minor repairs, or other work that can be performed safely without having the residential real property vacated, do not qualify as substantial rehabilitation.” So there you have it, painting and new carpet is not going to work as a valid basis.
If the Landlord does not have one of the express “causes” defined above, no eviction will occur. Moreover, the eviction notice must expressly state the “cause”, and provide for relocation assistance…
Many of the “no-fault just causes” require relocation assistance – which is one month’s rent – to be paid to the tenant(s) prior to the tenant moving out.
Landlords must actually pay the tenant money, upfront (within 15 days of the termination notice), or, agree to ‘waive’ the last month’s rent.
Moreover, the termination notice requires the landlord to inform the tenant of the relocation assistance and when and how it will be paid. If the termination notice does not contain this required language, the notice is void and no eviction will ever take place in a California courtroom using a defective notice (the landlord will have to start over with a correct notice, with correct service of process…. a topic itself too broad for a detailed discussion here).
Impact on Security Deposit?
This new law does NOT impact security deposits (a topic itself too broad for detailed discussion here) – security deposits are addressed at the conclusion of the lease, upon the tenant moving out (absent some express provision in the lease conflicting with this ‘default’ handling of deposits). The new law does not change anything pertaining to security deposits; deposits are to be returned, and/or justification for withholding any portion of the same, within 21-days of the tenant moving out.
Exemptions and Examples To The New Law Include:
Single-family homes and condominiums (“condos”) are EXEMPT, unless owned by a Corporation or Real Estate Investment Trust (“REIT”).
LLCs are EXEMPT if owned by individuals (i.e. an individual owns an LLC, and that LLC owns a rental property; or an individual and spouse or business partner, etc. – all EXEMPT so long as individuals own the LLC).
LLCs are NOT EXEMPT if a corporation is an owner or co-owner of the LLC (i.e. Corporation X owns the LLC, or an individual owns the LLC along with Corporation X = NOT EXEMPT).
Duplexes are EXEMPT ONLY IF the owner occupies one unit; duplexes are NOT EXEMPT if all units are rented out.
Multi-unit properties are NOT EXEMPT (in this author’s opinion). Multi-unit properties are ubiquitous in older areas such as Eastside Costa Mesa and parts of Newport Beach, i.e. where an original ‘front house’ exists and a ‘rear unit’ was subsequently added. This is not a “duplex” as traditionally defined by law. While this new rent control law does not expressly define a “duplex”, the general real estate definition of a “duplex” is a single structure divided. Thus, in this author’s opinion, there is NO exemption for multi unit properties (i.e. separate structures on the same lot), even if one unit is owner-occupied.
Any property constructed within the previous 15 years is EXEMPT. Any property – homes, condos, apartment complexes, multi unit properties, anything less than 15 years old is exempt, regardless of ownership (i.e. corporate owners, individuals, anything, ownership does not matter for any property less than 15 years old).
If your property qualifies for an exemption, you must provide a notice to the tenant(s) of that fact that the property is exempt, using specific statutory language. This can be a stand-alone document, lease addendum, or incorporated into a new lease, all depending on when the tenancy started.
What If You Already Have Local Rent Control?
If your property is in a location with local rent control already in-place (i.e. Los Angeles, Santa Monica, San Francisco, etc.), those ordinances will remain and the ‘more-tenant-friendly’ law will likely apply in any conflicts between this state law and your local law. Local rent-control can be far more restrictive than this new statewide law – landlords in jurisdictions with local rent control should consult local counsel.
Landlords should consult their management company, trade organization(s) and/or legal counsel soon to discuss if they are exempt (and if so, send notices of exemption to those tenants asap). Landlords should obtain updated forms for any lease termination and immediately cease using any pre-2020 leases, notices or other forms and obtain updated documents.
Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individual and investors in residential real estate. Mr. Lucas is a property owner, landlord and operates a small, local, property management business.
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