The California Senate approved Assembly Bill 1482 (“AB-1482”) on September 10, 2019, and when California Governor, Gavin Newsom signs the bill in a matter of days, California will become just the second state in the nation to pass a statewide rent cap (Oregon passed a similar law earlier this year). The legislation will take effect in January 2020 and will affect an estimated 2.4 million apartments until it eventually sunsetts in 2030. Once signed into law, it will become the most significant California rental housing law in a quarter century, and we want to make sure you understand its key points, summarized below.
WHAT IS THE MAXIMUM ANNUAL RENT CAP UNDER THE BILL?
A cap on annual rent increases set at 5% (plus inflation for the metropolitan area), up to a maximum of 10% per year.
WHAT IS THE BILL’S JUST CAUSE PROVISION?
A prohibition on evictions without "just cause." Landlords can no longer terminate month-to-month tenancies at will and may now only evict tenants for one of 15 specific reasons. The permissible reasons are divided into two categories: "at fault" and "no fault."
"At fault" termination is generally allowed when tenants have breached their lease and does not require the payment of relocation assistance. "At fault" reasons include non-payment of rent, nuisance, criminal activity, refusal to allow entry, and breach of a material term of the lease.
Note, for certain just cause terminations that are curable, AB-1482 requires that the owner gives a notice of violation and an opportunity to cure the violation prior to issuing the notice of termination.
"No fault" termination is allowed even when the tenant has not breached the lease and will require the landlord to pay one month's rent in relocation assistance. "No fault" reasons include an owner or family member intending to occupy the property, withdrawal from the rental market, substantial remodeling and compliance with a government order to vacate the property.
Note, for no-fault just cause terminations, the bill requires the owner to assist certain tenants to relocate (regardless of the tenant's income), by either providing a direct payment of one month's rent to the tenant or by waiving (in writing) the payment of rent for the final month of the tenancy prior to the rent becoming due. If the owner does not provide relocation assistance by one of the two methods above, then the notice of termination is void.
DOES THE BILL APPLY TO ALL PROPERTIES, OR ARE THERE EXEMPTIONS?
The bill's just cause eviction provisions only protect tenants who have been in possession for a year or more. Certain types of housing are exempt including:
Single family homes and condos if:
Tenants have received notice of the exemption; and
The owner is not a REIT, corporation, or LLC owned wholly or in part by a corporation.
Homes built within the last 15 years
Note, the 15-year exemption rolls over every year, so for example, units built in 2005 are exempt this year but will lose exemption in 2020.
Owner-occupied single-family homes where two or fewer rooms are rented out
Government assisted housing
DOES THE BILL APPLY RETROACTIVELY TO INCREASES ABOVE THE ALLOWED CAP AMOUNT?
This cap applies retroactively to all rent increases since March 15, 2019. Any rent increases initiated on or after that date will count toward the rent cap, and if over the maximum, will have to be rolled back to the maximum permissible increase effective January 1, 2020. However, the owner will not be liable to the tenant for any corresponding rent overpayment.
DOES THE BILL ALLOW FOR AN ADDITIONAL RENT INCREASE IF AN OWNER ALREADY INCREASED THE RENT BY AN AMOUNT THAT IS LESS THAN THE ALLOWED CAP?
Yes, if an owner increased the rent between March 15, 2019 and January 1, 2020, by an amount that is less than the allowable cap, then the owner can increase the rent again, but only up to the cap amount allowed under AB-1482. Keep in mind that owners are restricted to no more than two increases per year, therefore, only two rent increases are permitted within 12 months of March 15, 2019.
ARE THERE ANY DISCLOSURE REQUIREMENTS?
Yes, owners must provide notice to tenants of their rights prescribed under the law’s provisions by January 1, 2020. Notice using the new "Rent Cap and Just Cause Addendum" can be provided as follows:
For month-to-month tenants, the addendum should be incorporated into the rental agreement by providing a notice in change in terms of tenancy.
If the tenant is on a lease, the addendum should be provided as a stand-alone notice.
For all tenants signing a new lease, or a renewed lease agreement after January 1, 2020, then the addendum must be included in their new or renewed lease / rental agreement.
HOW DOES AB1482 IMPACT VALUE-ADD REMODEL / RENOVATION OR REDEVELOPMENT PROJECTS:
Based on the “no fault” provisions of AB 1482, when an owner intends to demolish or to substantially remodel a residential property, where “substantially remodel” means the replacement or substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or the abatement of hazardous materials, including lead-based paint, mold, or asbestos, in accordance with applicable federal, state, and local laws, that cannot be reasonably accomplished in a safe manner with the tenant in place and that requires the tenant to vacate the residential real property for at least 30 days.
The owner, while following the notice requirements, can accomplish a value-add remodel / renovation, or redevelopment project by:
1. Withdrawing units from the rental market due to the intent to demolish or substantially remodel the residential property; and
2. Providing the relocation assistance described in the "No fault" termination explanation above (i.e. provide the equivalent of one-month worth of rent to the tenant in the form of either a credit for their last month of occupancy or as money to facilitate moving into and occupying a new residence).
Note,cosmetic improvements alone, including painting, decorating, and minor repairs, or other work that can be performed safely without having the residential real property vacated, do not qualify as substantial rehabilitation.
CALL US AT (949) 464-7639 OR CLICK HERE IF YOU WANT TO KNOW IF OR HOW YOUR PROPERTY IS DIRECTLY IMPACTED BY AB 1482
CLICK HERE TO READ THE FULL TEXT OF ASSEMBLY BILL 1482
*The information herein is intended to be a summary-level outline, supplemented through consultation with your realtor and attorney, and therefore should not be relied upon absent such consultation.