Statewide Rent Control Three Years Later
By Mercedes Shaffer l Published in AOA Magazine
On January first of 2020 AB 1482 went into effect, and before anyone could begin to understand all the implications of the statewide rent control laws, that March we were faced with the COVID pandemic which brought about new restrictions that superseded AB 1482. Over three years have passed, and now that the dust is starting to settle, it’s a good time to review the ins-and-outs of the two provisions that statewide rent control covers – rent caps and non-just-cause evictions.
What properties are subject to AB 1482?
This is a statewide rent control law that covers any residential non-owner occupied duplex or larger that is located in CA. In some cities, there are local rent control laws that are more restrictive than AB 1482 and it’s important to check with the city to find out what their local provisions are.
What properties are exempt from AB 1482
Single family rental homes, condos and owner-occupied duplexes, where an owner lives in one of the units, are all exempt, as long as the owner is not a Real Estate Investment Trust (REIT), a corporation or an LLC that has a corporation involved. Also, in order to maintain your exemption, you need to provide the proper exemption language in the lease agreement.
If the LLC is a person or persons, and not a corporation, then the rental should maintain its exemption status, but you should check with an attorney or tax advisor to discuss your particular situation. If your property is held in a trust, it does not invalidate the exemption, as long as all of the other criteria are met.
If you have a house that has an ADU or you are an owner occupant that’s renting out two or more bedrooms, you may lose certain provisions and the property may be subject to AB 1482, so this is another circumstance where you should check with an attorney to discuss that specific situation.
Properties that are 15 years-old or newer are also exempt, regardless of how many units they have. This is a rolling deadline based on when a property was issued a certificate of occupancy. Once a building is over 15 years old, it becomes subject to statewide rent control laws.
For all properties where the tenants have lived there less than one year and the lease term is less than a year, such as a month-to-month lease, the tenants can be given a 30-day notice to vacate and they are not owed the equivalent of one month’s rent for relocation.
The No Fault Just Cause Provision
For properties that are subject to statewide rent control laws, a property owner is no longer allowed to terminate a tenancy at the end of a lease, so long as the tenant has done nothing wrong to violate the lease agreement. The lease can only be terminated for one of these reasons:
1. The intent to occupy the unit by an owner, spouse, child, grandchild or grandparent. The law is very specific and it cannot be a cousin, aunt, friend, etc…and, there is a special clause that must be in the lease to allow for this so be sure your lease has this included in it.
2. Withdrawal of the rental property from the real estate market.
3. The intent to demolish or substantially remodel the unit, which would require permits and over 30 days to complete.
4. When a property owner is complying with a government order.
Except for when a property owner is complying with a government order, if the property owner wants to terminate the tenancy, under the “no-fault” provision, they will owe the tenant rental assistance in the form of one month’s rent, which can be given within 15 business days after delivering the notice to terminate tenancy or it can be given by waiving the last month’s rent.
If your property is not subject to AB 1482, you don’t need to give any of these reasons to terminate the tenancy and you do not owe relocation assistance.
What are the rent control laws?
If a property is exempt, theoretically you can raise the rent as much as you would like with the proper notice to a tenant on a month-to-month lease or at the end of a lease. Even though there’s no stated limit, it’s not advised to raise the rent more than 10% in a 12-month period, and the new rent should be commensurate with market rents. It should not exceed market rents or in some way appear to be financially gouging the tenant.
If a property is subject to AB 1482 then the rent increase is limited to 5% + CPI in a 12-month period with a cap of 10%, so even if the CPI is over 5% like it was in 2022, the max allowable rent increase is 10% for all properties subject to AB 1482.
AB 1482 puts no limits on how much rent can be increased once a tenant moves out, at which time an owner can raise the rent and receive as much as the market will bear.
How much notice must be given?
If a rent increase is 10% or less, it can go into effect on a month-to-month tenant or at the end of a lease with a 30-day notice. If the rent increase is more than 10%, and of course this would have to be on a property that is exempt from rent control laws, then the tenant must now be given a 90-day notice.
It’s important to know that the following rules are a summary of AB 1482’s Statewide Rent Control laws and some cities have more restrictive rules that supersede AB 1482, so you should also check what the rules are for the city that the property is located in. With statewide rent control limiting the amount a property owner can raise the rent, many owners are now raising the rent the maximum allowable each year, because they know that if they fall behind, they can’t catch up until a tenant decides to move out.
Owners recognize that AB 1482 is a further erosion of our property rights. While the law was supposedly created to protect tenants, the unintended consequence is that property owners are more diligent about raising the rent every year so that their property maintains its value.
In years past, buying and running rental property was much easier. Important decisions were left to property owners, allowing them to run their business as they see fit. The new legal landscape demands a more skilled investor and owner and a deep knowledge of local markets and the legal landscape.
If you have any questions about Statewide Rent Control, or if you would like help with buying, selling or doing a 1031 exchange, I’m happy to help! Feel free to contact me. I can be reached at 714.330.9999, InvestingInTheOC@gmail.com, or you can visit my website at InvestingInTheOC.com. I’m Mercedes Shaffer, a real estate agent with Coldwell Banker, helping you build wealth one door at a time. DRE 02114448.