THE TENANCY PROTECTION ACT of 2019 (AB 1482)
AKA…Rent Control
It should come as no surprise that AB 1482, also known as the Tenancy Protection Act of 2019, passed as an attempt to address the current housing shortage which aims to prevent “rent gouges” and potentially homelessness. When Proposition 10 was voted down in the past November ballot, Landlords breathed a sigh of relief meanwhile politicians received extreme pressure from the renter community to solve the current housing crisis. This past January, just a month after Prop. 10 had been voted down I gave a presentation at a local real estate investor club predicting that a statewide Rent Control bill would pass this year.
California is in the middle of a huge housing crunch caused by many factors such as the devastating wild-fires, minimal construction due to the burdensome cost, and zoning density restrictions but not limited to these items. How huge is the crisis? It’s estimated that CA is short 4 Million units of housing meanwhile developers built a meager 177,000 units in 2018 equating to <2% of the total required amount (CoStar Group Research). To make matters worse most of the construction occurred in the Class A/B (4-5 Star) sector but it is most needed in the Class C/D sector (2-3 Star properties).
Before Governor Brown left office he declared CA in a perpetual State of Emergency (due to the number of damaging wild-fires from 2017-2018) which triggers a ‘Price Gauging” law preventing consumer goods from increasing more than 10% in a 12-month period which also includes housing. While in a State of Emergency, laws can be implemented that supersede the CA constitution so long as it’s for the well-being of the population. Hence, AB1482 was passed and implemented into law without a public vote.
AB 1482 becomes law starting January 1, 2020 and there are plenty of advocacy groups contesting it which will most likely fall short. Instead of moaning and groaning, it’s important that we comprehend the main points of the Tenant Protection Act and implement solutions within the context of the law.
Below are the main points that I’ve bullet pointed after studying the bill. I will post subsequent blogs regarding and changes or clarifications to AB 1482 and the local Sacramento Tenant Protection Ordinance.
California AB 1482
- Shall not apply to residential property that is already subject to local tenant protection ordinances with Just Cause protection which passed on or before September 1, 2019 Sacramento ordinance passed 8/13/19. The more restrictive of the two laws regarding Just Cause will take precedence over the other. Any multi-units not covered under local ordinances will now be subject to AB 1482 pending any exemptions.
- Effective starting January 1, 2020 sunsetting January 1, 2030 (10 Years)
- All Single-Family dwellings and Condominiums are EXEMPT (Costa Hawkins 1995) so long as they are not owned by a Real Estate Investment Trust (REIT), a corporation, or an LLC where one of the members is a corporation AND proper notice is provided to the Tenants that the housing is exempt.
- Vacant units are not subject to rent control until leased for the 12 – Month period and all tenancy conditions are met. They can be leased at full market rent.
- Multi-unit properties that have received a certificate of occupancy within 15 years (2004) which directly conflicts with Costa Hawkins Act exempting multi-unit dwellings built after 1995.
- Exempts residences where the owner rents out rooms so long as it has a shared kitchen and bathroom plus the owner resides at the property as their primary residence.
- Exempts Duplexes where the owner-occupies continuously one of the units as their primary residence.
- Exempts units occupied by the owner or direct family member such as their own kids, parents, grandparents, and or grandchildren.
- Applies to Tenants that have continuously and lawfully lived in the unit for 12 -Months or greater
- When attempting to vacate a unit the owner would have to provide the Tenant with a (60) day At-Fault Just Cause (reason) notice. In some circumstances, the At-Fault Just Cause has curable provisions which allows a Tenant(s) to correct the notified breach of lease within an allotted time. At-Fault means that the owner has evidence that the Tenant(s) has breached the lease agreement. A Long list of At-Fault conditions in the Bill but remember the burden of proof is on the owner and there are instances where the tenant is allowed to cure the breach.
- The bill requires that an owner provide a tenant with No-Fault Just Cause notice within (120) days of vacating the unit. AB 1482 requires that the owner provide relocation services or payment in lieu of those services equal to one-month rent. The owner may also waive the tenant’s last month’s rental payment to meet the relocation requirement.
- Prohibits a residential property owner from increasing rents more than 5% plus CPI with a maximum of 10% which ever is lower based on the allowed calculation within a 12-month calendar year from the date of the lease agreement.
- The base rent is retroactive to March 15, 2019. This means that starting January 1, 2020 the tenants rent shall be the amount it was on March 15, 2019 plus the maximum allowable increase. The Landlord will not owe the Tenant any over-payment of rent increases.
- An owner can only increase the rent by the maximum allowable percentage One (1) time within a calendar year based on the start date of the lease agreement.
- For owners that did not increase their rents or increased below the maximum allowable percentage from March 15, 2019 and beyond, they will have an opportunity for (2) – increases within the first 12 – month calendar year but not to exceed the maximum allowable increase.
- All notices must be given timely and properly otherwise they’re considered VOID.
In summary, these are the main points that I gathered from reading through the Tenant Protection Act and I recommend you do the same (Google AB 1482). Each provision has subsections with conditions that should be discussed with a professional eviction attorney or agency.
In subsequent Blogs I will provide a State of the Multifamily Economy overview based on statistics that will pleasantly surprise you.
Next Friday (9/27), I will discuss the elephant in the room that owners are ignoring or don’t know about, Just Cause.
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Disclaimer: PCG Commercial, Inc. it’s owners, agents, and affiliates are not attorney’s and do not translate or provide legal advice. The content in this blog is to provide general information based on public records provided and is our opinion not fact. Please consult your attorney, CPA, or any other professional before making a financial or real estate related decision.