2020 CALIFORNIA RENT CONTROL LAWS
Effective January 1, 2020, California will be one of only two states to impose statewide Rent Control on its residential property owners. Oregon is the only other state that imposes statewide Rent Control.
Let me start with the good news. The good news is that the new Rent Control Law exempts individual owners of single family residential properties. This means that a husband and wife who own two or three single family rentals are exempt from the new laws.
Unfortunately, the new Rent Control Law applies to every other residential property, including a duplex, triplex and apartment except the following:
1. Residential properties that are less than 15 years old;
2. Rooms rented within an owner-occupied single family residence;
3. Guest houses rented within an owner-occupied single family residence; and
4. A duplex only if the owner occupies one of the units.
Fortunately, most families purchasing single family residences as rentals will he exempt from the new Rent Control Law. I will refer to this group of properties as Exempt Properties.
Disclosures for Exempt and Non-Exempt Properties.
All Leases for Exempt Properties must include the following new disclosure:
“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 Section 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.”
All Leases for Non-Exempt Properties must include the following new disclosure:
“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 of the Civil Code for more information.”
I recommend that all residential leases commencing on or after January 1, 2020, include the appropriate new disclosure. If you have an existing lease, then I recommend supplementing it with an addendum including the appropriate new disclosure on January 1, 2020.
Remember, Exempt and Non-Exempt Properties require different disclosures. Rental Cap.
The Rent Cap only applies to Non-Exempt Properties. The new Rent Control Law prohibits all landlords of Non-Exempt Properties from raising rent more than 5% plus cost of living during any 12 month period.
Cost of living is defined as the Consumer Price Index in the County where the residential property is located. By example, if Consumer Price Index (“CPI”) for Los Angeles is 2.7%, then the landlord can raise rent by 7.7% (i.e. 5% plus 2.7% CPI).
However, under no circumstance can the landlord of a Non-Exempt Property raise rent more than 10% during any given 12 month period.
In addition, under no circumstances can a landlord of a Non-Exempt Property raise rent more than twice during any given 12 month period.
In addition, landlords of Non-Exempt Properties forfeit their right to raise the rent if they fail to do so during any given 12 month period.
The new Rent Control Law guarantees “higher” rents for all tenants as landlords who may not have otherwise raised rent on an annual basis will now do so.
Termination (Just Cause).
Without Just Cause, a landlord of a Non-Exempt Property will no longer be able to terminate a tenant, even after expiration of the lease. This restrictions applies only to tenants who have continuously occupied a Non-Exempt Property for 12 consecutive months.
If a tenant has occupied the property for 12 consecutive months, then a landlord cannot (1) refuse to renew the lease or (2) terminate the tenancy without Just Cause. The new Rent Control Law distinguishes between (1) At-Fault Just Cause and (2) No-Fault Just Cause
At-Fault Just Cause includes the following:
a. tenant’s failure to pay rent;
b. tenant’s material breach of the lease;
c. criminal or nuisance activity by the tenant;
d. assigning or subletting the property without landlord consent; or
e. tenant’s refusal to allow landlord to inspect the property;
. No-Fault Just Cause includes the following:
a. owner/spouse/children/grandchildren intent to occupy the property;
b. withdrawal of property from the rental market;
c. owner intends to “substantially remodel” the property;
The term “substantially remodel” means any structural, electrical, plumbing, or other improvements that requires a permit. This provision could be a landlord escape hatch as landlord can terminate any lease as long as permit is pulled for work.
Note that for leases entered into after July 1, 2020, a landlord wanting to move back into his own property will not be considered Just Cause unless a provision is included in the lease agreement allowing him to do so.
For all Non-Exempt Properties, termination notices must state whether termination is based upon At-Fault or No-Fault Cause or they are deemed defective and void.
Right to Cure for At-Fault Just Cause Termination.
It is important to note that any termination for At-Fault Just Cause requires landlord to first serve a 3 Day Notice that gives the tenant 3 days to cure.
Remember, effective January 1, 2019, the law was changed to provide that a 3 Day Notice no longer includes Saturday, Sunday or Holidays. This means that if you serve a 3 Day Notice on Thursday, it would not expire until midnight on the following Tuesday.
Relocation Fee for No-Fault Just Cause Termination.
Just when you thought it couldn’t get worse, it does. The new Rent Control Law requires
a landlord to pay an amount equal to one month rent to any tenant as a Relocation Fee for all terminations based upon No-Fault Just Cause.
Payment must be made within 15 days after serving tenant with the Notice of Termination based upon No-Fault Just Cause. This means that you are required to pay your tenant prior to them moving out. If they fail to move, then you still need to evict them.
City of Los Angeles Rent Control.
The new Rent Control Law does not apply to cities such as Los Angeles that already have more stringent rent control in place.
Remember, the City of Los Angeles includes several communities which you probably believe are independent cities, such as San Pedro, Van Nuys, Studio City and Porter Ranch.
The City of Los Angeles, and all of its communities, are subject to rent control, as well as the infamous 9a Disclosure Report required for all residential property sales in the City of Los Angeles.
In summary, the new statewide Rent Control Law contains many traps for innocent landlords and must be carefully reviewed..