By: Kyle E. Yaege, Esq.
Partner: Hickman Robinson Yaege, LLP
A lot has changed about being a residential landlord in California since January 2019 when the Tenant Protection Act (Civil Code §§ 1946.2, 1947.12 and 1947.13) fist became effective. Since January of 2019 many county and municipal jurisdictions have changed their local rent control ordinances to limit the amount and frequency of rent increases, create new conditions to eviction brought for cause (e.g. requiring application for and denial of rental assistance programs), restrict the instances in which a lease may be terminated by the landlord unilaterally (e.g. owner intent to occupy, intent to sell the property, and/or intent to make improvements). At the same time, California’s State, county and municipal governments have also turned through multiple iterations of COVID-19 related moratoria and restrictions that were specifically designed to restrict (if not completely deny) landlords the right to regain possession with or without cause.
As a result of these changes, since March of 2020 a residential landlord considering legal action to regain possession of rental property has faced a legal process that was effectively unavailable for a period exceeding a year and can still be expected to take many months longer to complete than it did before January 2019 when the TPA came into effect.
Over the past six (6) months, I have been receiving an increasing number of telephone calls from residential landlords who are considering increasing the rent either because they want to stay ahead of inflation, want to receive better returns on their investment, or (for those who survived financially) because they have been receiving substantially less rent than they need to meet expenses and need future income to make up for those losses.
Many of these calls are from “mom and pop” landlords and boutique rental managers who are confused by old information and/or misleading articles by certain online “tenant’s rights” advocates, about the Protecting Tenants Act. Hopefully this article will assist our community in advising these kinds of confused property owners and managers.
Please note that this article does not consider the county or municipal rent control ordinances that may apply in your jurisdiction. Many municipalities have ordinances that are more restrictive on landlords’ ability to control their property than the PTA. Always review local ordinances before advising a landlord in this heavily regulated area of the law.
With the cautionary language out of the way, here is what the Protecting Tenants Act actually says about increasing the rent on residential rental units.
Step Number 1: What kind of property is being rented?
Cal. Civil Code § 1947.12 (d) identifies the properties that are exempt from the rent increase limitations provided in that section, and states the following:
(d) This section shall not apply to the following residential real properties:
(1) Housing restricted by deed, regulatory restriction contained in an agreement with a government agency, or other recorded document as affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the Health and Safety Code, or subject to an agreement that provides housing subsidies for affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the Health and Safety Code or comparable federal statutes.
(2) Dormitories owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school.
(3) Housing subject to rent or price control through a public entity’s valid exercise of its police power consistent with Chapter 2.7 (commencing with Section 1954.50) that restricts annual increases in the rental rate to an amount less than that provided in subdivision (a).
(4) Housing that has been issued a certificate of occupancy within the previous 15 years, unless the housing is a mobilehome.
(5) Residential real property that is alienable separate from the title to any other dwelling unit, including a mobilehome, provided that both of the following apply:
(A) The owner is not any of the following:
(i) A real estate investment trust, as defined in Section 856 of the Internal Revenue Code.1
(ii) A corporation.
(iii) A limited liability company in which at least one member is a corporation.
(iv) Management of a mobilehome park, as defined in Section 798.2… (or)
(6) A property containing two separate dwelling units within a single structure in which the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy, and neither unit is an accessory dwelling unit or a junior accessory dwelling unit.
Step Number 2: If renting a “separately alienable dwelling unit,” did the landlord give the tenant(s) proper notice of exemption from the Protecting Tenants Act?
Many private landlords are owners of an individual condominium unit, townhome, or single-family home (typically their former home) and are encouraged to learn about the exemption for separately alienable property contained in Cal. Civil Code § 1947.12 (d)(5), but are quickly disappointed when they learn about the second requirement for that exemption. Cal. Civil Code § 1947.12 (d)(5) is explicit that the exemption for “Residential real property that is alienable separate from the title to any other dwelling unit” is ONLY applicable if you have given your tenant’s written notice that the property is exempt, and specifically requires a written notice stating the following EXACTLY!
“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 (d)(5) and 1946.2 (e)(8) 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; or (3) a limited liability company in which at least one member is a corporation.”
For a tenancy existing before July 1, 2020, (or July 1, 2022, if the lease is for a tenancy in a mobilehome), the notice can be provided separate from the rental agreement, but for tenancies commenced or renewed on or after July 1, 2020, (or July 1, 2022, if the lease is for a tenancy in a mobilehome), the notice MUST be provided IN THE RENTAL AGREEMENT.
Step Number 3: If your lease is not exempt, either because your property is not one of the listed categories, or because you failed to include the required notice in your lease, how much can you raise the rent, and how far in advance do you have to give notice?
For landlords falling into one of the exempt categories outlined Cal. Civil Code § 1947.12 (d), including those who have separately alienable dwelling units that gave proper notice, congratulations you are not prohibited from increasing the rent however much you feel the market will bear so long as you give sufficient written notice of the increase to the tenant consistent with your lease agreement and local ordinances, typically thirty (30) days before the end of the lease term or before the new rental rate becomes effective for increased below 10%, and ninety (90) days for increases in excess of 10%. (Cal. Civil Code § 827).
For landlords who are not exempt under Cal. Civil Code § 1947.12 (d), any rent increase must fall within the limits imposed by Cal. Civil Code § 1947.12(a)(1-2) which is “…5 percent plus the percentage change in the cost of living, or 10 percent, whichever is lower, of the lowest gross rental rate charged for that dwelling or unit at any time during the 12 months prior to the effective date of the increase … (and) If the same tenant remains in occupancy of a unit of residential real property over any 12-month period, the gross rental rate for the unit of residential real property shall not be increased in more than two increments over that 12-month period, subject to the other restrictions of this subdivision governing gross rental rate increase.”
“Percentage change in the cost of living” as used in Civil Code § 1947.12(a)1-2) means the percentage change in the Consumer Price Index (CPI) for All Urban Consumers for All Items for the metropolitan area in which the property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the CPI Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations, shall apply (www.dir.ca.gov/OPRL/CAPriceIndex.htm). Presently (May of 2022), CPI has exceeded 5% in most jurisdictions in California for the better part of one year, so most landlords will be limited to an increase of no more than 10% over the current rate.
Step Number 4: Additional considerations of tenant identity and unauthorized subleasing.
For those landlords with properties that are not exempt, there is still some good news, Civil Code § 1947.12(b) confirms that so long as no individual tenant is part of a new lease of the premises, the restrictions on the amount of rent increase do not apply (unlike some municipalities that limit rent increases between completely unrelated tenants). Furthermore, there is some protection from tenants that attempt to arbitrage an artificially low rental rate into extra income. (This turns into a particularly interesting scenario when the tenant has been short term vacation renting the unit) Specifically, Civil Code § 1947.12(c) is explicit that “.A tenant of residential real property subject to this section shall not enter into a sublease that results in a total rent for the premises that exceeds the allowable rental rate authorized by subdivision (a)…”