By Peter N. Brewer
The Tenant Protection Act of 2019, a.k.a. AB 1482, has drawn a lot of attention in recent weeks and months. Often referred to as statewide rent control, our legislators prefer to wrap it in the softer title of a “rent cap.” It translates to the same thing.
The bill is expected to be signed by Governor Newsom within days, and once implemented expires in 2030 unless extended. The following is a summary of its major provisions. The bill is at least six pages of small print, so this summary will not attempt to address every aspect of the bill.
By far the most major and important term of this law is that it limits annual rent increases to five percent (5%) of the gross rent plus the local rate of inflation as measured by the CPI (Consumer Price Index), to a combined maximum of ten percent (10%), in not more than two increases in any 12-month period. Now for all you clever landlords who saw this coming and preemptively bumped up the rent, this cap is retroactive to the rent in effect on March 15, 2019. Beware the ides of March.
Also note that for those communities that already have rent control ordinances this statute would not override those provisions that are more strict but will supplement those that are more permissive. For example, some rent control ordinances cover only buildings built before 1978. Since this statute only excludes those buildings built within the last 15 years, many buildings built between 1978 and 2005 would be swept into these regulations.
OMG, my life as a fat-cat landlord as I knew it is over! Not so fast, there. The statute does not apply to all residential rentals. It is mostly applicable to multi-family properties, with some exceptions, as well as some but not all single-family homes. It does not apply to the following: (The emphasis is the author’s).
- Transient and tourist hotels (“SRO’s“, single room occupancy).
- Housing for non-profit hospitals, religious facilities, extended care facilities, and adult care facilities.
- Dormitories operated by educational institutions.
- Shared housing or room rental in the owner’s residence.
- Single-family, owner occupied residences where the owner-occupant rents no more than two units or bedrooms, including accessory dwelling units (granny flats, or mother-in-law quarters).
- Duplexes in which the owner occupies one unit, for so long as the owner occupies.
- Housing for which a certificate of occupancy has been issued in the last 15 years. (Roughly speaking, houses completed after 2004. Go remodel your rental and ask for a new C.O.).
- Free standing residential houses that are BOTH (1) owned by other than a REIT, a corporation, or an LLC in which one or more members is a corporation, AND (2) the tenants have been provided with a prescribed written statement that the property is exempt from these protections, which notice can be incorporated in, and after July 1, 2020, must be incorporated in, the rental agreement/lease. Whoa, get to work, you legal form drafters.
- Housing restricted by agreement with a governmental agency, or other affordable or subsidized housing.
So, we see, not all is gloom and doom for most small-fry landlords with one or a few rentals. Most of this statute captures apartment owners and corporate owners. But for those to whom this does apply, it gets worse.
The next most major and significant aspect of this statute is the limitation to “Just Cause” evictions. For tenants who have occupied for at least one year, landlords will be required to show just cause in order to evict and specify the just cause in the eviction notice. For those same one-year-plus tenants the landlord is required to give the tenant the opportunity to cure violations of the rental agreement if the violation is curable.
There are two types of “just cause” evictions under this statute. The first is for stated violations of the rental agreement, and the second is called “no-fault just cause”, or I like to call it “just be cause.”
The following are specified reasons for eviction under the just cause protections, after the opportunity to cure where the violation is “curable”:
- Default in payment of rent.
- Breach of a material term of the rental agreement, including “but not limited to” a violation of the lease after being issued written notice to correct the violation. (If the just cause is a curable violation the landlord must first give notice with an opportunity to cure.)
- Maintaining a nuisance, or committing waste.
- Tenant’s refusal to execute a written extension.
- Criminal activity by the tenant on the property.
- Assigning or subletting when prohibited by the lease.
- Refusing the owner entrance to the property when lawfully allowed.
- Using the premises for an unlawful purpose.
- Failure to deliver possession pursuant to the tenant’s written notice of intention to terminate the rental.
The “no-fault just cause” eviction includes the following:
- Intent of the owner or immediate family to occupy, where the lease (entered after July 1, 2020) provides for same.
- Withdrawal of the property from the rental market.
- Pursuant to an order by a governmental agency to vacate, for habitability or other reasons, or pursuant to a local ordinance requiring vacating.
(If it is determined by a governmental agency that the tenant is at fault for creating the need to vacate, the tenant will not be entitled to the relocation assistance otherwise required.)
- Intent to demolish or substantially remodel the property; (substantially remodel meaning requiring a permit.)
OK, is that the end of the bad news for landlords? Oh no. In the immortal words of Ron Popeil, “But wait, there’s more.” We have not yet addressed the “tenant relocation assistance” provisions.
For landlords who wish to exercise the “no-fault just cause” eviction, the owner must notify the tenant of the tenant’s right to relocation assistance. This takes the form of waiving the last month’s rent, or providing within 15 days, one month of the rent the tenant was paying when the owner issued the notice terminating the tenancy. (I see a loophole). If the tenant fails to vacate as required by the notice the relocation assistance or rent waiver becomes recoverable to the landlord in an action for possession.
In one final burst of the folly perpetrated by our legislators, the bill contains a provision that states: “On or before January 1, 2030, the Legislative Analyst’s Office shall report to the Legislature regarding the effectiveness of this section and Section 1947.13. The report shall include, but not be limited to, the impact of the rental rate cap pursuant to subdivision (a) on the housing market within the state.”
It has already been established by numerous studies that rent control stifles the creation of new rental units and discourages landlords from introducing existing properties to the rental marketplace. What hasn’t been as well studied is how effective pandering to the state’s tenant population is at bolstering the popularity and campaign coffers of the elected officials who feel they are smarter and more clever than Adam Smith. Adam is the eighteenth century economist who is perhaps most famous for his 1776 piece, “The Wealth of Nations,” but his first major treatise, “The Theory of Moral Sentiments,” was released in 1759, and many of its ideas are still practiced today. Just not by our omniscient legislators.
About the Author
Peter N. Brewer has been a lawyer for 40 long and tedious years and is also licensed by the California Bureau of Real Estate as a real estate broker. Peter started his own firm in 1995. The firm has grown to six attorneys, practicing real estate and lending law. The firm serves the legal needs of homeowners, purchasers and sellers, real estate and mortgage brokers, agents, brokerages, title companies, investors, other real estate professionals and their clients. Peter and his firm also represent clients in debt collection, breach of contract matters, and other litigation and transactional work.
Peter obtained his Juris Doctor degree from the University of Santa Clara Law School in 1979 and is also licensed to practice law in all State and Federal Courts in Idaho and certain Federal Courts in Michigan and Iowa (and probably in other states he no longer recalls). He loves dogs, hates kids, and rejoiced when, in 1996, a California statute requiring attorneys to “abstain from all offensive personality” was struck down as being unconstitutionally vague.