California’s attempt at stabilizing the rental market with the passage of the Tenant Protection Act of 2019 will soon prove to be a failure of epic proportions. Proponents of this bill argue that rent control is needed to maintain some degree of affordability in high-price areas, but they couldn’t be more wrong. What California really needed was more housing. Nothing in the current bill addresses the stifling zoning laws that currently hinder construction throughout California and prevents developers from creating more housing.
The economic impact that this law will create is that many landlords will be encouraged to reduce supply by pulling units out of the rental market. California’s high rents are merely a symptom of a larger disease which is the lack of supply brought on by excessive regulations and bureaucratic red tape that hamper housing developments. By further reducing supply, the problem becomes more amplified. If the legislators had left well enough alone and let rents rise, builders would have chosen to create more rental housing, rehabilitating the old buildings and constructing new ones, and rents would have likely dropped on their own. It’s basic economics: higher supply equals lower demand, thus lower rents. Instead California legislators have created a colossal mess which is sure to be on full display in the next few months and years following the passage of the bill. Ultimately, the restriction of profit opportunities for developers and potential landlords will cause the total supply of housing to tighten which will have the opposite effect of what legislators had intended with the passage of state wide rent control.
The net effect of this Tenant Protection Act is that it will stop new housing from being built. Further, the new bill will cause potential landlords to get out of the business or avoid going into it for fear of losing their investment property to tenants who know how to exploit the rule of law and game the system. Sadly, this will result in landlords having no incentive to keep up their buildings in hopes that their current tenants will leave. This bill may benefit some current tenants in the short run, but this law will prove to be a step in the wrong direction due to the resulting housing shortage and rent increases that will inevitably occur. Once this bill becomes the law of the land, Californians will ultimately pay the price for their legislators’ poor and uneducated decisions. Below is a discussion of the key provisions in the bill that will affect landlords.
The bill would not apply to residential real property subject to a local ordinance requiring just cause for termination adopted on or before September 1, 2019, or to residential real property subject to a local ordinance requiring just cause for termination adopted or amended after September 1, 2019, that is more protective than these provisions.
The bill would void any waiver of the rights under these provisions and would repeal these provisions as of January 1, 2030.
EXEMPTIONS: This section SHALL NOT apply to the following types of residential real properties or residential circumstances:
- Housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner who maintains their principal residence at the residential real property.
- Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit.
- A duplex 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.
- Housing that has been issued a certificate of occupancy within the previous 15 years.
- Residential real property that is alienable separate from the title to any other dwelling unit, provided that both of the following apply:
- The owner is not any of the following:
- A real estate investment trust, as defined in Section 856 of the Internal Revenue Code.
- A corporation.
- A limited liability company in which at least one member is a corporation.
The tenants have been provided written notice that the residential real property is exempt from this section using the following statement:
“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 (c)(5) and 1946.2 (e)(7) 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.”
RENT INCREASES:
This bill would, until January 1, 2030, prohibit an owner of residential real property from, over the course of any 12-month period, increasing the gross rental rate for a dwelling or unit more than 5% plus the percentage change in the cost of living, as defined, or 10%, whichever is lower, of the lowest gross rental rate charged for the immediately preceding 12 months, subject to specified conditions.
The bill would prohibit an owner of a unit of residential real property from increasing the gross rental rate for the unit in more than two increments over a 12-month period, after the tenant remains in occupancy of the unit over a 12-month period.
The bill would exempt certain properties from these provisions. The bill would require the Legislative Analyst’s Office to submit a report, on or before January 1, 2030, to the Legislature regarding the effectiveness of these provisions.
Effectiveness?
Politicians want to make sure that it is achieving its real goal of getting them all reelected. They already know that this Tenant Welfare program causes scarcity and rents to increase.
The bill would provide that these provisions apply to all rent increases occurring on or after March 15, 2019. The bill would provide that in the event that an owner increased the rent by more than the amount specified above between March 15, 2019, and January 1, 2020, the applicable rent on January 1, 2020, shall be the rent as of March 15, 2019, plus the maximum permissible increase, and the owner shall not be liable to the tenant for any corresponding rent overpayment. The bill would authorize an owner who increased the rent by less than the amount specified above between March 15, 2019, and January 1, 2020, to increase the rent twice within 12 months of March 15, 2019, but not by more than the amount specified above. The bill would void any waiver of the rights under these provisions.
Politicians want to make sure that it is achieving its real goal of getting them all reelected. They already know that this Tenant Welfare program causes scarcity and rents to increase.
ALREADY INCREASED THE RENT?
- This section shall apply to all rent increases subject to subdivision (a) occurring on or after March 15, 2019. This section shall become operative January 1, 2020.
- In the event that an owner has increased the rent by more than the amount permissible under subdivision (a) between March 15, 2019, and January 1, 2020, both of the following shall apply:
- The applicable rent on January 1, 2020, shall be the rent as of March 15, 2019, plus the maximum permissible increase
- (An owner shall not be liable to the tenant for any corresponding rent overpayment.
- An owner of residential real property subject to subdivision (a) who increased the rental rate on that residential real property on or after March 15, 2019, but prior to January 1, 2020, by an amount less than the rental rate increase permitted by subdivision (a) shall be allowed to increase the rental rate twice, as provided in paragraph (2) of subdivision (a), within 12 months of March 15, 2019, but in no event shall that rental rate increase exceed the maximum rental rate increase permitted by subdivision (a).
- This section shall remain in effect until January 1, 2030, and as of that date is repealed.
JUST CAUSE: Notwithstanding any other law, after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property shall not terminate the tenancy without just cause, which shall be stated in the written notice to terminate tenancy.
NO-FAULT EVICTIONS
- No-fault just cause, includes any of the following:
- Intent to occupy the residential real property by the owner or their spouse, domestic partner, children, grandchildren, parents, or grandparents.
- For leases entered into on or after July 1, 2020, clause (i) shall apply only if the tenant agrees, in writing, to the termination, or if a provision of the lease allows the owner to terminate the lease if the owner, or their spouse, domestic partner, children, grandchildren, parents, or grandparents, unilaterally decides to occupy the residential real property. Addition of a provision allowing the owner to terminate the lease as described in this clause to a new or renewed rental agreement or fixed-term lease constitutes a similar provision for the purposes of subparagraph (E) of paragraph (1).
- Withdrawal of the residential real property from the rental market.
- The owner complying with any of the following:
(I) An order issued by a government agency or court relating to habitability that necessitates vacating the residential real property.
(II) An order issued by a government agency or court to vacate the residential real property.
(III) A local ordinance that necessitates vacating the residential real property.
- If it is determined by any government agency or court that the tenant is at fault for the condition or conditions triggering the order or need to vacate under clause (i), the tenant shall not be entitled to relocation assistance as outlined in paragraph (3) of subdivision (d).
- Intent to demolish or to substantially remodel the residential real property.
- For purposes of this subparagraph, “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. 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.
CURE VIOLATION: Before an owner of residential real property issues a notice to terminate a tenancy for just cause that is a curable lease violation, the owner shall first give notice of the violation to the tenant with an opportunity to cure the violation pursuant to paragraph (3) of Section 1161 of the Code of Civil Procedure. If the violation is not cured within the time period set forth in the notice, a three-day notice to quit without an opportunity to cure may thereafter be served to terminate the tenancy.
(d) (1) For a tenancy for which just cause is required to terminate the tenancy under subdivision (a), if an owner of residential real property issues a termination notice based on a no-fault just cause described in paragraph (2) of subdivision (b), the owner shall, regardless of the tenant’s income, at the owner’s option, do one of the following:
RELOCATION FEES
- If an owner issues a notice to terminate a tenancy for no-fault just cause, the owner shall notify the tenant of the tenant’s right to relocation assistance or rent waiver pursuant to this section. If the owner elects to waive the rent for the final month of the tenancy as provided in subparagraph (B) of paragraph (1), the notice shall state the amount of rent waived and that no rent is due for the final month of the tenancy.
- The amount of relocation assistance or rent waiver shall be equal to one month of the tenant’s rent that was in effect when the owner issued the notice to terminate the tenancy. Any relocation assistance shall be provided within 15 calendar days of service of the notice.
- If a tenant fails to vacate after the expiration of the notice to terminate the tenancy, the actual amount of any relocation assistance or rent waiver provided pursuant to this subdivision shall be recoverable as damages in an action to recover possession.
- The relocation assistance or rent waiver required by this subdivision shall be credited against any other relocation assistance required by any other law.
An owner’s failure to strictly comply with this subdivision shall render the notice of termination void.
RENTAL AGREEMENT NOTICE
- For a tenancy existing before July 1, 2020, the notice required may, but is not required to, be provided in the rental agreement.
- For any tenancy commenced or renewed on or after July 1, 2020, the notice required must be provided in the rental agreement and for any tenancy commenced or renewed on or after July 1, 2020, as an addendum to the lease or rental agreement, or as a written notice signed by the tenant, with a copy provided to the tenant.
The notification or lease provision shall be in no less than 12-point type, and shall include the following:
“California law limits the amount your rent can be increased. See Section 1947.12 of the Civil Code for more information. California law also provides that after all of the tenants have continuously and lawfully occupied the property for 12 months or more or at least one of the tenants has continuously and lawfully occupied the property for 24 months or more, a landlord must provide a statement of cause in any notice to terminate a tenancy. See Section 1946.2 of the Civil Code for more information.”
“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 (c)(5) and 1946.2 (e)(7) 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.”
Percentage change in the cost of living” means the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations, shall apply.
For a copy of the entire bill, please visit https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1482.
Dennis Block, of Dennis P. Block & Associates can be reached for information on landlord/tenant law or evictions at any of the following offices: Los Angeles: 323.938.2868, Encino: 818.986.3147, Inglewood: 310.673.2996, Long Beach: 310.434.5000, Ventura: 805.653.7264, Pasadena: 626.798.1014, Orange: 714.634.8232, San Diego: 619.481.5423 or by visiting www.evict123.com. Now, you can also read Dennis Block on Twitter, www.twitter.com/dennisblock or text him at (818) 570-1557. “Landlord Tenant Radio Weekly Podcasts can be heard at any time at www.EVICT123.com or download the app “EVICT123”.