Does California have Statewide Rent Control? What do all California landlords need to know about it?
Yes, California does have statewide rent control. Governor Gavin Newsom signed Assembly Bill 1482 into law. This new rent control law will go into effect throughout the entire state of California on January 1, 2020 and will expire on January 1, 2030 unless lawmakers vote to extend it.
Before AB-1482 goes into effect, California Landlords / Property Managers need to:
- Determine if their properties qualify for “exempt” status or not.
- If properties do qualify for “exempt” status:
- The Landlord must officially establish this “exemption” with the tenant through a proper disclosure (incorporated into the rental / lease agreement) for all new leases established after January 1, 2020.
- The Landlord must notify the tenant of this “exemption” using the proper “Notice of Change in Terms of Tenancy and Lease Modification” for all existing leases established before January 1, 2020.
- If neither of these actions are fulfilled, then the relationship is no longer “exempt” and the lease then falls under the rules of Statewide Rent Control.
- If properties do not qualify for “exempt” status OR “exempt” status is not established by the Landlord (even though the property is qualified):
- The Landlord must adhere to “Rent Caps” and “Just Cause” Lease Termination rules set forth by AB-1482 (Statewide Rent Control) or adhere to any local rent control ordinance - whichever is strictest.
What properties qualify for “exempt” status?
- Single Family Residences and Condos not owned by a REIT (Real Estate Investment Trust), a corporation, or an LLC (Limited Liability Corporation) where an owner is a corporation.
- Housing that has been issued a certificate of occupancy within previous 15 years.
- Owner-occupied duplexes where the owner has occupied one of the units as their primary residence since the beginning of the tenancy; this exemption lasts as long as the owner continues to occupy the unit.
- Owner-occupied single-family properties that rent out two or more bedrooms (including Accessory Dwelling Units / ADUs) are “exempt” for “Just Cause” Lease Termination only. These properties are not exempt from “Rent Caps.”
- Other “exempt” properties include dorms associated with higher education providers, properties under stricter rent restrictions, or properties under the control of government agencies.
- Remember: If the Landlord does not officially establish this “exemption” with the tenant through a proper disclosure in a lease agreement, the property is no longer “exempt” and is subject to “Rent Caps” and “Just Cause” restrictions.
What does Statewide Rent Control, AB-1482, mean to California landlords?
Assembly Bill 1482 (which is essentially Statewide Rent Control) is one of the most important sets of laws to affect California landlords in decades. It limits rent increases to 5% per year plus inflation is not to exceed 10%. Additionally, AB-1482 limits the ability of landlords to terminate tenancy (even with a month-to-month lease) and makes relocation fees mandatory in many cases.
This law, which is expected to go into effect January 1, 2020, will affect all California landlords. Even “exempt” landlords will be required to disclose this exemption in all future lease agreements. Failure to properly disclose this exemption status to tenants will result in properties losing their “exempt” status. For ongoing landlord-tenant relationships (including “month to month” agreements) a disclosure is still required to be properly delivered and made part of the agreement; failure to disclose this information will cause the landlord’s “exempt” status to be lost.
An interesting part of this law is that it goes back to include rent increases that occurred on March 15, 2019, before the law was even written. A part of the law that will not settle well with landlords is that the relocation fees are to be paid to the tenant well in advance of the tenant vacating - within 15 days of notice given - which seems like a recipe for disaster given that most of these notices are required to be made 60 days in advance. The most likely response to relocation fees is the owner notifying the tenant in writing that the payment of rent for the final month of tenancy is waved. This holds true whether the tenant is paying $700 per month or $20,000.
What should a landlord do in response to AB-148?
Every landlord, property manager and real estate sales professional must understand and adhere to AB-1482 or risk paying the price. If you are renting out a property that falls under the “exempt” status, you must make sure that the correct disclosures are made and that they are tied your rental agreement using the proper “Change in Terms of Tenancy Notice.” If this is not done and you end your month-to-month tenancy on a house that you are renting out in order to sell, your tenant is entitled to one month of free rent. If the proper disclosures are given ahead of time, you will not be required to give the tenant the free month of rent in most cases.
Landlords also need to keep rents close to market rate. As property managers and real estate sales professionals, we often encounter property owners who come to us with under-managed properties and rents that are way below market-value. In these cases, it is usually a landlord who was afraid of losing a tenant or having to make expensive repairs if they raised the rent to market-value. Or sometimes in these cases it is a landlord who wants to be “cool” or “friends” with their tenants. We frequently advise our owners that even if you like your tenants and believe you have a good relationship with them, they are not your “friend” - they are your tenants. You don’t have legal responsibilities to your “friends” like you do with your tenants.
The rent gouging stories that we hear in the news (the same stories that were the driving force behind passing the law) were often cases where the landlord’s initial rent was way below market value. So, the moral of the story is to properly operate your properties from the beginning and to remember that your tenants are not your friends; tenants are your customers who you have a legal responsibility to.
In my personal opinion, AB-1482 is one more reason to consider hiring a professional property manager - Times are changing.
Please remember that this commentary is coming from a real estate broker who operates a property management business. I offer just one more perspective in what is a complicated picture. I am not an attorney, and this is not legal advice – it not intended to be misconstrued as such. I’ve included some information has been put out by the Californian Association of Realtors below. It is the best information I have found on the new law (so far) and I encourage anyone in the business either as a landlord, property manager, or real estate professional to read it and further educate themselves about AB-1482.
To read more about AB-1482, click this link to be taken to the official legalinfo.ca.gov website: http://bit.ly/AB-1482
