AB 1482 - Rent Control and Just Cause Evictions

What impact does Assembly Bill 1482 have on Residential Real Estate in California?

On October 9th, 2019 Governor Newsom signed into law AB 1482, the Tenant Protection Act of 2019. Most news outlets called this rent control for California, which was partially true. However, as with most laws, the devil is in the details. As a landlord in California, you need to be aware of the changes to the law and understand how they effect you.

The first thing to understand is that this new law puts residential properties into two buckets. The first bucket is single family residences (provided the property is not owned by a corporation). Also included in the first bucket are few random situations including any buildings that are less than 15 years old, and duplexes in which the owner lives in one side. The second bucket is everything else, including duplexes, triplexes, and all the way up to apartment complexes.

The residential properties in the first bucket are largely exempt from these laws. If a property is exempt the following statement must be included in all future leases;

“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2(e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; (3) a limited liability company in which at least one member is a corporation.”

If the tenant was in the property before July 1, 2020, you can just provide the notice to your tenant. For all tenancies beginning or renewed after July 1, 2020, the clause will need to be in the lease.

For all other properties, the following changes will be going into effect on January 1, 2020.

For all the properties in the second bucket, the state did away with no cause terminations. Prior law allowed you to terminate a tenancy for any reason, so long as you complied with the notice requirements. Under the new law, you are only allowed to terminate a tenancy for cause (breach of the lease agreement) or for one of the following 4 reasons. However, if you are terminating the lease, and it is a no-cause termination, you are required to either pay the tenant the equivalent of 1 month’s rent, or waive the final rent payment. This is called “Relocation Assistance”.

No-Cause Evictions

1. You as the owner, or a family member, is moving back into the property. For leases entered into after July 1, 2020, this will need to be a provision added to the lease agreement.
2. Withdrawal of the unit from the rental market. This will apply if you are converting apartments to Condos, or taking a duplex and converting it to single family. In general putting a multifamily complex on the market to sell will not qualify as withdrawal from the rental market.
3. A government entity red tags the building. This generally would not be helpful, although there is a small carve out. If it is determined that the tenant is the cause of the red tag, you do not have to pay them the Relocation Assistance.
4. You intend to demolish or substantially remodel the residential property. A substantial remodel is loosely defined as anything that requires a permit from a governmental agency.

If you are terminating the lease for cause there new restrictions as well. Cause is limited to 11 statutory reasons, but in general it is non-payment of rent, committing waste on the property, and breaching a covenant of the lease. While you are not required to pay tenants a relocation assistance when it is a for cause termination, you do have to give a three day notice to cure prior to the termination notice. If you get past the 3 days, you are required to give another 3 day notice to quit. Essentially this change ends up adding almost week to the current eviction time lines.

While the Just Cause Evictions were actually the major change to the law, the part most news outlets lead with was the “rent control” portion of the bill. Under the new law, rental rates on existing tenants can only be increased to the lesser of 5% + CPI, or 10% per year. Leases will need to updated to be add the following clause in at lease 12 point font:

"California law limits the amount your rent can be increased. See Section 1947.12 of the Civil Code for more information. California law also provides that after all of the tenants have continuously and lawfully occupied the property for 12 months or more or at least one of the tenants has continuously and lawfully occupied the property for 24 months or more, a landlord must provide a statement of cause in any notice to terminate a tenancy. See Section 1946.2 of the Civil Code for more information."

In general this is not a major impact since few landlords raise the rent more than 7-8% a year. However, it is something landlords will need to double check prior to raising rents. It is important to note that at a vacancy the rent can be raised to any new rate. If a tenant moves out and you want to bring the rental rate up to market rent, there is nothing that ties the previous rental rate to the new rental rate.

The final thing to note on this is there is a go back provision. If an owner raises the rent above the allowable limit between March 15, 2019 and January 1, 2020, the new rental rate is only effective until January 1, 2020. On January 1, 2020 the rental rate reverts back to the rental rate as of March 1, 2019 plus 5%+COLA.

If you have any questions about this new law, want your current lease reviewed, or have any other real estate related questions, call us today to schedule a consultation with any of our real estate attorneys here at Rich, Fuidge, Bordsen & Galyean, Inc.