Rental Housing Legislation

“In order for our land contribution model to be complete, we have to consider two more aspects of affordable housing. First, we have to minimise the inequality between tenants and landowners, and second, we have to provide the homeless with guaranteed access to land.”
– Martin Adams

In just a few years, multiple local governments and the State of California have remarkably changed the manner, complexity, application and type of laws imposed on rental housing. One law is built on another. Restraining the operation, income and expense, management, decision to remain in business, and now the sale of all rental property are issues before us.

Ability to provide valuable input regarding the significant changes in law and policy are severely restricted. Academic research regarding proposed changes in law have become secondary. Comprehensive resolution is driven by emotion. One State Senator excoriated rental housing owners and managers for causing homelessness, severe lack of affordable and available housing. Local governments are encouraged to adopt more restrictive landlord and tenant laws. This is fact not fiction. For example, in response to the COVID-19 pandemic, our Governor encouraged local governments to adopt eviction moratorium ordinances. In response, over 200 cities and counties responded to the Governor.

At the state level, the California Judicial Council adopted 11 emergency rules on April 6, 2020. One of those rules indefinitely blocks evictions. Members of the State Legislature introduced several amend ments to bills in the closing days of this year’s session. Some of the bills would impose a prohibition on unlawful detainer actions for any default in the payment of rent by any tenant claiming to be adversely affected due to COVID-19. This article will focus on one issue that will affect the sale of all residential rental property. AB 1703 (Bloom) proposes to require rental real property owners to offer their property for sale to local governments and specific nonprofit entities before offering it for sale to any other entity. This remarkable proposed change in law will only have one policy hearing at which opposition testimony will be limited to a total of four minutes.

AB 1703 would require an owner of residential real rental property, prior to offering the property for sale to any purchaser, soliciting any offer to purchase the property or entering into a contract for sale to notify every “qualified organization” of the owner’s intent to sell the property. Organizations that would be qualified include every local government and defined nonprofit entity (a California corporation whose “primary activity is the development and preservation of affordable housing). Each of these organizations would be given ten days to notify the owner of “expressing an interest” in purchasing the property. Then the owner would send a disclosure package to the entity. The entity would have 20 days following the receipt of the disclosure package to request a meeting with the owner to “confirm interest in purchasing” the property. Then, the entity would have up to 40 or 60 days (depending on the number of dwelling units) to submit an offer to purchase. Owners would be strongly encouraged to sell to the qualified entity. If an offer to purchase is not received in this time frame, an owner may proceed to sell the property in the open market. However, offers to purchase by a private party would be required to be disclosed to qualified organizations. Those organizations would be given a first right of refusal by matching the private party offer.

In our opinion, the bill creates an impractical restraint on alienation of private property by mandating a restraint on sales for respective time frames that effectively prohibit an owner from the conveyance of a residential property. The bill essentially stops an owner from freely alienating their property without first submitting to a procedure that unreasonably delays the transfer of the property. This potentially results in an extreme diminution of sale of value.

AB 1703 proposes to mandate a procedure that would permit a qualified organization whose qualifications or ability to secure the assets needed to obtain a property have not been substantially nor verified to impede and potentially prevent the free conveyance of private property.

The lack of specificity in defining the criteria that establishes a “qualified organization” fosters an environment for abuse.

The bill also lacks objective criteria used to evaluate the status and or merit of the qualified organization.

AB 1703 does not take into consideration the practicalities or principles of commercial transactions. The organizations would be given the right to halt a valid sale to a private party and be given preferential consideration in the sales process without being required to pay a financial consideration.

Assemblymember Bloom’s bill is not the solution to the State’s housing crises.

Ron may be reached at Ron@CalStrategic.com