New California Rent Control Laws for 2020
Yesterday, Governor Gavin Newsom signed California's new statewide rent control legislation, AB 1482. It will bring rent caps on future rent increases and "just cause eviction" restrictions to much of California's residential housing.
Effective January 1, 2020 - with a sunset clause to expire on January 1, 2030 - the law will gradually add more rental units to rent control limitations. Rent increases served since March 15, 2019 may be affected.
Here's who will be covered under this new law:
All apartments that are older than 15 years (constructed before 2005) will be affected. This provision rolls over every year so units built before 2006 will be covered next year.
Those properties currently under local rent controls (San Francisco, San Jose, Mountain View, East Palo Alto, etc.) will remain under their existing rent control ordinance. If the local rent control ordinance does not contain a "just cause for eviction" restriction, this new State law will take effect on tenants living there for more than 12 months or 24 months for units containing two or more residents. PLEASE NOTE: If your rental units are covered under local rent control and/or just cause eviction ordinances, your tenants will be covered under the law that is most restrictive. This means, in some cases, the new state law will bring additional restrictions to local rent control ordinances.
Duplexes and larger will be covered (non-owner occupied rental units). If an owner lives in one of the duplex units, that property is exempt from this state law.
Single-family homes that are owned by a corporation, REIT or LLC (when at least one member is a corporation) will be covered.
What are the restrictions on rent under this new law?
You will be able to increase your rents to market rate on all new tenants moving in. NOTE: All prior tenants in the unit must have vacated. Once in place, however, those residents will be covered under this new state law going forward. This is known as "rent decontrol, re-control".
Rent increases that are served to be effective January 1, 2020 and thereafter will be limited to an annual rent increase of 5.0% PLUS the cost of living* but in no case more than 10% of the gross rental rate. Rent concessions, credits, incentives, and discounts are excluded.
If you served rent increases that were effective between March 15, 2019 and December 31, 2019, you may need to roll back the rent on those units to a rental rate that is 5.0% plus inflation, on January 1, 2020 (IF this earlier rent increase exceeded the rent limit). Landlords are NOT required to return rent paid over the rental limit, just reduce the rent. If a landlord issued a rent increase during this time that was less than the 5% + CPI limit, the landlord may issue a second rent increase for the difference by giving a rent increase to be effective between January 1, 2020 and March 14, 2020.
*This addition to the 5.0% annual increase is the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index (CPI) for the region where the property is located, as published by the US Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for All Items, as determined by the CA Dept of Industrial Relations, shall be used.
NOTE: Landlords will need to provide a written notice of this new law to all new and renewed tenants starting July 1, 2020 and all existing tenants by no later than August 1, 2020. Tenants both under and exempt from this law must be notified. Feel free to contact me for the text of this disclosure.
What is "just cause eviction" under this new State law?
More and more cities and counties are enacting just cause eviction ordinances which restricts the reasons why landlords may evict a resident. For those properties not already covered by just cause, this new state law mandates just cause for all other affected units.
If a property is exempt from the rent control provisions, it is also exempt from its just cause provisions.
For tenants who have lived in their apartment for 12 months or more, the landlord cannot terminate a tenancy simply to replace the tenant. There has to a reason or "just cause" for the tenant being asked to move.
This new law states two categories of just cause:
1. At-Fault Just Cause which contains a list of reasons a landlord may terminate a tenancy without being in violation of the law. This includes non-payment of rent, breach of a material term of their lease, creating a nuisance, etc.
When the tenant is "at-fault" for their eviction, the landlord is entitled to terminate the tenancy, after the tenant has been properly notified and given an opportunity to correct the problem.
2, No-Fault Just Cause which includes an owner's intent to occupy the unit, the owner is withdrawing the unit from the rental market, order relating to habitability issues which require the tenant to vacate to repair the unit and intent to demolish or substantially remodel the unit.
When the tenant is "not at fault" for being the reason for the eviction, the landlord must provide the tenant a one-time payment equal to the last month's rent. Compensation can be either paid by check or as a rent credit for the final month of tenancy. Landlords are required to provide proper notice; if they fail to provide proper notice the termination notice is void. The only time a landlord doesn't have to compensate the tenant, is if a local government agency determines the tenant was at fault for having to vacate to make needed repairs.
As you can imagine, this law brings forward many questions that simply have no answer given the law is new and there is no state or local agency charged with enforcing its provisions. (Tenant and landlord attorneys will be the ones to fight over specific provisions as conflicts arise.)
If you're thinking that managing your apartment property is no longer worth your time and are tired or afraid of having to keep abreast of a growing list of local and state regulations, give me a call. We've been managing apartment buildings for more than 35 years in the SF Bay Area and we have the knowledge and experience to operate under rent control.
Oh, by the way, California also enacted a new state law requiring landlords to accept Section 8 vouchers. FYI - you must stop advertising that you are not accepting Section 8 tenants.
We'll touch on this law in an upcoming email.
For a copy of the entire bill, please click here: