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THE ELEPHANT IN THE ROOM

…JUST CAUSE

The majority of economists that research “protective” tenant measures such as rent controls agree that these laws fail in accomplishing their goals of affordability, supply of housing, and displacement of tenants. The statistics and proof provided from rent controlled cities such as San Francisco, Los Angeles, and New York are overwhelmingly in line with what economists have concluded. Yet, despite these facts politicians and advocates discredit or just don’t believe the factual conclusions that rent and eviction controlling measures are short-term band-aids that ultimately hurt tenants the most in the not so long-term. Politicians label the legislation as Rent Caps stating they only limit excessive increases from landlords since using terms such as Rent Control typically has a negative connotation. Yet, this legislation has Just Cause clauses which creates Rent Control.

*In future posts I will provide a research analysis using statistics from both points of views regarding tenant protection law.*

Surprisingly, AB 1482 CA Tenant Protection Act, was relatively unknown to most property owners I spoke to until just a few days before it passed. The main reason is because owners only heard what they wanted to hear which is that rent increases were capped at 5% + CPI not to exceed 10% whichever is lower. From this excerpt, landlords heard which number as the cap on rents?  You guessed it, the “ten percent (10%)” portion.  In reality, most owners rarely increase their rents more than 2-5% in any given 12 – month period and they also tend to rent out their vacant units at below market rents just to lease them faster. So many owners view AB 1482 as no big deal because they believe it won’t affect them since they haven’t raised their rates more than 10% in any given year anyway. I agree with them on this matter.

The elephant in the room, that many are choosing to ignore, is the Just Cause Eviction clauses contained within the bill. Let’s face it, most mom and pop owners received a raise from the allowable scheduled rent increases contained in the bill. The real issue comes when a tenant breaches the lease terms and the owner needs to provide a reason or “Just Cause” in order to evict them. In the past you’ve paid $600 to an eviction service and in 45 days you have your unit back, easy. Not so fast. You’ll now have to provide the tenant with proper notification of the Just Cause eviction and if the tenant challenges it, you will then go in front of a rent control board (typically comprised of 3 renters and 2 real estate professionals) where you’ll have to provide evidence that the tenant breached the rental agreement. The tenant may have an opportunity to cure the breach / issue typically within 30 days allowing them to continue residing in the unit if the item is cured. They may also reside in the unit and not cure the breach potentially creating a hostile environment for everyone involved including the other tenants living at the property. Just Cause makes it much more difficult to evict tenants that have committed a crime, or that are hostile to other tenants, and or have breached other terms of the rental agreement. If the tenant does cure the issue do you think they’ll continue on good terms with the property owner or another resident that may have reported them?  If the issue is not cured then the unlawful tenant will reside at your property during the notification process plus through a costly eviction procedure.

Uninformed or inexperienced owners view AB 1482 as only a rent cap bill that doesn’t really affect them until they go through their first Just Cause Eviction with an unlawful tenant. At that point owner’s will realize how time consuming, difficult, and costly the process is to get an unlawful tenant out. The actual costs won’t be known until later but using Oakland/SF as examples cash-for-keys forbearance agreements range anywhere from a few thousand dollars up to $50,000 or greater.

What if a property owner needs to make significant improvements to a unit or units that require them to vacate?  That will require non-Just Cause notification and a cost for relocation scenario equal to one month of rent. If challenged, you may have to get your improvements approved in front of a rent control board or pay the affected tenants more money.

In summary, Tenant Rent Cap Protection laws that include Just Cause for evictions hurt both tenants and landlords. They provide temporary relief to existing in place tenants meanwhile placing a burdensome eviction process on owners for unlawful residents. Again, on the surface most owners are excited about the allowable rent increases which they will certainly exercise. The real issues will arise in 12-18 months from enactment on 1/1/2020 when they experience their first Just Cause eviction process and realize that the imposed rent increases are not enough. Or when a tenant wins the Just Cause challenge and continues to reside at your property. Furthermore, landlords will be required to pay a predetermined fee on a per unit basis to administer this program not to mention that property taxes, insurance, and utilities will continue to increase. Meanwhile landlords will be capped on what they can charge.

I’m all for affordable housing and it is much needed in many sectors but not through Tenant Protection legislation. These types of laws do work in protecting tenants in the very short-term but fail in solving affordability and displacement. The solution is the construction and availability of more housing but these bills deter construction in sectors that need it the most plus discourage owners from making units available and making improvements to their properties.

Make sure to check out our next Blog on Friday 10/4 to read about the Pros, Cons, and Solutions. AB 1482 is here to stay which means we need to know it and navigate through it. I will also examine both sides of the table since the best way to learn how to solve a problem is by understanding the other person’s point of view.