Tenant Protection Act Can Affect Landlords in Two Ways
There is a percentage limit imposed on annual rent increases (capped at 5% of the gross rental rate plus cost of living not to exceed 10%) and a just cause requirement for terminating tenants who’ve rented 12 months or more.
SACRAMENTO—The Tenant Protection Act of 2019/AB 1482 took effect on January 1, 2020 and will affect many landlords and tenants of residential property across the state. AB 1482 will require landlords of all types from institutional to individual to carefully consider property management procedures, asset rehabilitation plans and even corporate ownership structures.
Although certain properties and owners are exempt, California residential landlords could be impacted in two significant ways, says Tim Hutter, Allen Matkins attorney. There is now a percentage limit imposed on annual rent increases (capped at 5% of the gross rental rate plus the change in cost of living, and not to exceed 10%) as well as a just cause requirement for terminating tenants who have occupied a property for 12 months or more.
Annual Rent Increase Cap
In passing statewide legislation to cap rent increases, California follows Oregon, which passed a similar law in February 2019, but allowed rent increases of up to 7% plus inflation. California’s provision requires the analysis of any rental rate increases after March 15, 2019, despite going into effect the first of this year.
“If a non-exempt landlord increased the rent by more than the new cap after March 15, 2019, the applicable rent on January 1, 2020 is required to be reset to the rent as of March 15, plus the maximum allowable increase under the legislation,” Hutter tells GlobeSt.com.
AB 1482 also includes a provision that allows landlords to establish a new rental rate after a unit becomes vacant, but subsequent increases are subject to the cap. Due to the fact that this required cap on rent increases has been imposed in response to the current housing crisis, it has been given a limited shelf life of 10 years or January 1, 2030, after which time it will automatically be voided.
Just Cause Eviction Procedures
The new legislation requires non-exempt landlords to provide written notice of the just cause for termination of certain tenancies. Just cause is broken into the categories of “at-fault” and “no-fault”.
The at-fault just cause covers a number of reasons for eviction, including non-payment of rent, breaches of lease terms after notice is given and a tenant is given an opportunity to fix the issues, criminal activities on the property or criminal threats against the owner or owner’s agent, and improper assignment/subletting of the space.
The no-fault just cause covers a different set of reasons for terminating a lease including intent by the owner to have family members occupy the unit provided that any leases entered into after July 1, 2020 include a lease provision permitting such termination, withdrawal of the property from the rental market, compliance with a government order or local ordinance that necessitates vacating the property and intent to demolish or substantially remodel the property.
In order to terminate a tenant based on no-fault just cause, the owner must elect to either pay the tenant relocation assistance in an amount equal to one month’s rent (due within 15 days after notice) or waive the rent for the final month of the tenancy. Failure to do so voids the notice of termination. Landlords are also required to notify qualified tenants of their rights to receive either relocation assistance or a waiver of the final month’s rent, Hutter says.
There are a number of exemptions to AB 1482, and those exemptions are different for the rent cap and just cause sections. For example, a landlord may fall outside this legislation if the property has been issued a certificate of occupancy within the previous 15 years, has been restricted by a regulatory agreement or deed with a government agency, is a duplex with at least one unit occupied by the owner; or is a single-family home, townhome or condo that is not owned by a REIT, corporation or LLC with at least one member that is a corporation.
“If a property falls into one of these or several other listed exemptions, be aware that the landlord is required to provide tenants with specific notice that they are not eligible for the protections offered by AB 1482,” Hutter tells GlobeSt.com. “Owners and property managers should make sure to carefully review the provisions of the Tenant Protection Act of 2019 to ensure that they comply with the new language requirements for leases and termination notices. Investor and development partners should also consider the potential impacts of these requirements and strategies to navigate the new legislation.”