The California legislature recently:  1) enacted its first ever statewide rent increase cap; and 2) now requires landlords to provide “just cause” for evictions.  AB 1482 – The “Tenant Protection Act of 2019” became effective January 1, 2020 and remains in effect until at least January 1, 2030.  It impacts at least 8 million renters in California. The new law applies only to residential properties, and there are several exceptions to its applicability, including that once a unit becomes vacant is no longer subject to the rent cap for purposes of setting the new base rent “vacancy decontrol”. A summary of the new law and some exceptions follows.

 

Just Cause for Terminating 

Tenancies:  Civil Code Section 1946.2

California Civil Section 1946.2 provides that if a tenant has continually and lawfully occupied a residential real property for 12 months, the owner may not terminate the tenancy unless just cause is established. The 12-month period is extended to 24 months if there are new tenants added to the lease before any one tenant has occupied the property for 12 months. Additionally, for a violation that is curable, such as an unauthorized pet or washing machine, before issuing a notice to terminate a tenancy, the owner must give the tenant notice of the violation and an opportunity to cure.

 

  1.  At-Fault Just Cause

    A landlord may terminate a tenancy if there is at-fault just cause, including:

  1. Default in rent payment;
  2. Breach of a material term of the lease;
  3. The maintenance or commission of a nuisance (ie-loud noise);
  4. Committing waste (damaging the property);
  5. The tenant refuses to execute a written extension or new lease for a lease that terminated on or after January 1, 2020;
  6. Criminal activity;
  7. Subletting in violation of the lease;
  8. Refusal of access;
  9. Using the premises for an unlawful purpose;
  10. An employee, agent or licensee’s failure to vacate after termination; and
  11. Tenant’s failure to deliver possession after providing notice to the owner of the tenant’s intention or agreement to do so.

 

  1.  No-Fault Just Cause

In addition to the above list, which defines when an owner may terminate a tenancy for the tenant’s wrongful acts, a landlord may also terminate the tenancy when the tenant is not “at fault” if one of the following situations applies:

  1. The owner or his/her spouse, domestic partner, children, grandchildren, parents or grandparents intends to occupy the property;
  2. The property is withdrawn from the rental market;
  3. The owner is complying with an order or ordinance; or
  4. The owner intends to demolish or “substantially remodel” the property.

 

Terminating a tenancy based on an intent to “substantially remodel” means: 1) the replacement or substantial modification of the property’s structural, electrical, plumbing or mechanical systems to the extent that a permit from a governmental agency is required; or 2) the abatement of hazardous materials, including lead-based paint, mold, or asbestos. The work to be performed must be work that cannot be reasonably accomplished in a safe manner with the tenant in place and that requires the tenant to vacate the property for at least 30 days. Cosmetic improvements alone, including painting, decorating, and minor repairs, or other work that can be performed without having the residence vacated, do not qualify as a substantial remodel.

In a no-fault termination, the owner must pay “relocation assistance” to the tenant in the amount of one month’s rent (due within 15 days of the termination notice) or waive, in writing, the payment of the final month’s rent. The owner must notify the tenant of the tenant’s right to relocation assistance or waiver of the final month’s rent; the choice of the payment or waiver is up to the owner.  If the tenant fails to vacate, any relocation assistance or rent waiver is recoverable as damages in an action to recover possession.

If a landlord seeks to re-tenant a unit in the absence of just cause, taking time to do a substantial remodel may be a win-win: transitioning out a legacy tenant and improving the property to begin a new tenancy with, at the owner’s discretion, a higher rental rate. The costs of not letting the property for 30 or more days and undertaking the substantial remodel will ideally be recouped as a return on the investment in the form of higher rents and increased value in any future sale.

 

  1. Housing Not Subject to Civil Code Section 1946.2
  1. Section 1946.2 does not apply to:
  2. Transient and tourist hotels (SROs);
  3. Housing in nonprofit hospitals, religious facilities and specified licensed residential care facilities;
  4. School dormitories;
  5. Housing in which the tenant shares a bathroom or kitchen with an owner who uses the property as a principal residence;
  6. A single-family owner-occupied residence, including a residence in which the owner rents or leases no more than two units or bedrooms, including an accessory or junior dwelling unit;
  7. A duplex in which the owner occupies one of the units as his/her principal residence at the beginning of the tenancy and continues in occupancy; 
  8. Housing that has been issued a certificate of occupancy in the last 15 years; Residential property that is alienable separate from the title to any other unit (generally a single family home or condo) and: 1) the owner is not a real estate investment trust, a corporation or a limited liability corporation with at least one member that is a corporation; and 2) the tenants have been provided written notice of the property’s exemption from the new law as follows: 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. The above notice must be provided in the rental agreement for any tenancy beginning or renewed on or after July 1, 2020.
  9. Specified affordable housing;
  10. Residential property that is subject to a local ordinance requiring just cause for terminations, if the ordinance meets the standards set forth in 1946.2(g).

 

  1. Notice Required for Housing Subject to Civil Code Section 1946.2

For housing that is subject to section 1946.2, an owner shall provide notice as follows:

    1. For any tenancy existing prior to July 1, 2020, written notice must be provided as an addendum to the lease or rental agreement no later than August 1, 2020.
    2. For a tenancy beginning or renewed on or after July 1, 2020, written notice must be provided as an addendum to the lease or rental agreement or as a written notice signed by the tenant, with a copy to the tenant.

 

  • The notice must be in 12-point type and 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. 

 

 

The Cap: Civil Code Section 1947.12

New California Civil Code Section 1947.12 places a cap on rental increases during a 12 month period to the lower of: a) 5% plus the percentage change in cost of living (currently 4% in San Mateo County); or b) 10%. Also, if the same tenant has lived in the unit for 12 months, the rent cannot be increased more than two times during that period (and is still subject to the cap of 5% plus cost of living or 10% total for that year). For a new tenancy, where no prior tenants remain, the caps do not apply, but the caps do apply to a sublease. 

 

  1. Stricter Local Ordinances

Where a jurisdiction has stricter rent cap rules than AB 1482, then those stricter local ordinances have supremacy over the new statewide law. Jurisdictions which have stricter rules include Los Angeles, San Francisco, Oakland, Redwood City, East Palo Alto, Mountain View, Berkeley and others. Please check all local rules or call our office if you have questions regarding the applicability of local ordinances. 

   

  1. Housing Not Subject to Civil Code Section 1947.4

Civil Code section 1947.4 also does not apply to:

  1. Affordable housing;
  2. College dorms;
  3. Housing subject to more restrictive rent control;
  4. Housing with a certificate of occupancy for 15 years or less;
  5. Housing that is separate from any other unit:  a) as long as the owner is not a real estate investment trust, corporation or limited liability company in which at least one member is a corporation; and b) so long as the owner provides written notice as follows:  

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.

The above notice is required in the rental agreement for any tenancy beginning or renewed on or after July 1, 2020. 

  1. A duplex in which the owner occupies one of the units as his/her principal place of residence at the  

     beginning of the tenancy and continues to occupy the unit.

 

  1. Rollback of Rent to March 15, 2019 for Increases Above the Cap 

For property subject to the provisions of Section 1947.12, while the law becomes effective January 1, 2020, the statute applies to rent increases made on or after March 15, 2019. If, between March 15, 2019 and January 1, 2020, an owner has increased rent in amount above that allowed by the cap, the allowable rental rate on January 1, 2020 will be the rental rate as of March 15, 2019, plus the increase allowed by the cap. However, the owner does not have to refund any overpayment made during that time period.

 

Conclusion

Under the new Statewide Rent Control Law, AB 1482, Landlords who seek to raise rents on their tenants can reset the rent to any amount they choose once they legally obtain a vacant unit.  One way to accomplish this is to update the electrical system or plumbing in the unit with permits or make another major capital improvement. This is an exception to the eviction protections, allowing landlords to lawfully get a unit to vacancy decontrol. Always be mindful of the technical requirements and statutory mandates when serving an eviction notice and be aware that local ordinances my take precedence over the rent caps and other portions AB 1482. Since so many rent and eviction laws are rapidly being enacted and changed, we strongly recommend that you consult with an experienced landlord tenant attorney prior to terminating any tenancy. If you have any questions about the new rent control law or would like assistance in drafting termination notices that comply with AB 1482, please call our law offices.  

 

AV-rated attorney David G. Finkelstein has concentrated on business law, real estate and dispute resolution throughout his entire career. With Bay Area legal experience dating back to 1971, he is a long-time member of the state and local bar association real estate sections. He is also a certified arbitrator and member of the American Arbitration Association. Cary Kletter has received the Superlawyer designation and is a member of the Multi-Million Dollar Advocates Forum. He has been a successful real estate lawyer for more than 20 years and he is also a California licensed real estate broker and real estate investor. Finkelstein & Fujii LLP offers experienced counsel and advocacy across a wide spectrum of legal problems, including business and corporate law, real estate, construction law and probate. For more information, call (650) 353.4503 or visit http://www.dgflaw.com