The Future of Housing (Part 3 of 3)

Understanding whether your rental property is covered by, or exempt from, AB 1482 and ho AB 1482 applies to your property requires your immediate attention.”

(Editor’s Note: This is Part 3 of a 3-part article. You can read Part 1 here  and Part 2 here.)

Implementing AB 1482 Statewide Rent Control and Just Cause Evictions

By Ron Kingston and Jack Schwartz

AB 1482 is now state law. It creates a statewide program of rent control (formally referred to as “rent cap”) and just cause eviction. If your rental property is already subject to a local rent control /just cause ordinance, it will continue to be regulated by that local rent control/just cause ordinance subject to issues pertaining to amendments and legal interpretations that will have to be resolved either through future legis­lation, litigation or a provision in AB 1482 as will be explained in this article.

The provisions of AB 1482 have at least five (5) different effective and/or retroactive dates, de­pending on a property’s particular circumstance. You will need to review your circumstances to determine if your rental property is covered by AB 1482 and, if so, which effective dates apply to you and what you need to do to comply with the various requirements that are stated in AB 1482 on or before November 25, 2019.

Understanding whether your rental property is covered by, or exempt from, AB 1482 and how AB 1482 applies to your property requires your immediate attention. As soon as possible we are suggesting that you consult your real estate attorney and tax professional to determine what, if any steps, you need to take to ensure a compliance with state and local laws on rent control and just cause for termination of tenancy.

I. RENT CONTROL

Vacancy Decontrol

AB 1482 does not change existing law. AB 1482 does not limit rent increases when the last original tenant is no longer in possession of the rented premises.

Enforcement

There is no expressly stated enforcement mech­anism; however, any jurisdiction that does not now have a “rent board” may form such a board. This is the same as under current law. Until such time that a jurisdiction forms a rent board, any disputes will need to be settled between the rental property owner and the tenant informally or through a superior court lawsuit.

Relationship of AB 1482 to Local Rent Control /Just Cause Ordinance

If your rental property is located in, but currently exempt from, a local rent control/just cause ordinance, your property may become subject to the requirements of AB 1482 but still remain
exempt from the local ordinance.

Rental Properties That Are Subject to AB 1482:

Effective January 1, 2020, annual gross rent increases will be limited to five percent (5 percent) plus the regional Consumer Price Index (CPI) where your rental property is located or ten percent (10 percent), whichever is less calculated on the lowest gross rental rate charged for that dwelling at any time during the 12 months prior to the effective date of the increase. In determining the monthly rent, rent discounts, incentives, concessions or credits given by the rental property owner is excluded from the calculation of rent.

  • CPI means the percentage change from April 1 of the prior year to April 1 of the current year in the regional CPI Index.
  • For example, the correct CPI for the Los Angeles Area can be found on the United States Bureau of Labor Statistics website www.bis.gov/regions/west/news-release/ consumerpriceindex_losangeles.htm. The applicable CPI amount of the adjustment will also be published by AACSC on an annual basis. CURRENTLY THE CPI IS 3.33840 percent.

Be precise when calculating the CPI rent amount.

  • If the tenant remains in occupancy over any 12- month period, annual gross rent increases may be made in two (2) increments during the year, but together may not exceed the maximum annual rent increase. Generally speaking, most rental property owners will elect to increase rent once during the 12-month term.
  • If gross rent was increased between March 15, 2019, and December 31, 2019, the increase cannot exceed five percent (5 percent) plus your regional CPI or 10 percent, which is less.
    ❖ If the gross rent increase exceeded the allowable amount, the gross rent during this time period, the gross rent effective January 1, 2020, will be calculated based on the lowest gross rental amount plus the allowable increase as of March 15, 2019.
    ❖ If the rent increase during this time period exceeded the maximum amount, notice to the tenant should be issued on or before November 25, 2019, so that the adjustment is effective on January 1, 2020.
    ❖ A rental property owner is not liable for any corresponding rent that exceeds the maximum rent that can be charged on and after January 1, 2020.

It is very important that if there is to be a monthly rent adjustment that the rental property owner or property manager issue a written notice of change of terms and conditions 30 days prior to January 1, 2020, PLUS the time period to deliver the notice (thus, on or before November 25, 2019).

  • If gross rent was increased between March 15, 2019, and December 31, 2019, in an amount less than the allowable increase, rent may be increased twice within 12 months of March 15, 2019 up to the allowable amount.
  • Tenants may not sublease the property in an amount that exceeds the allowable rent.
  • If your property is currently exempt from a local rent control/just cause ordinance, but your property is not an owner-occupied duplex or multi-family property, it may be, or may become, subject to the requirements of AB 1482.
  • There is no “banking” of rent provision.
  • There is no provision for recovery of expenses associated with substantial rehabilitation. This includes no recovery of government mandated or ordered improvements such as seismic retrofit. However, rental property owners may still charge the tenant for tenant caused damage.

Rental Properties That Are Exempt from AB 1482 Rent Control Requirements:

  • Residential real property that is alienable separate from the title to any other dwelling unit (generally single-family residences and condominiums), provided that the following apply:
    ❖ The owner is not any of the following:
    ♦ A real estate investment trust as defined by Section 856 of the Internal Revenue Code;
    ♦ A corporation1; or
    ♦ A limited liability company in which at least one member is a corporation.
    ❖ Owner occupied duplexes and owner­ occupied single-family residences with ADUs.
    ❖ Deed Restricted Properties with respect to affordable housing for persons or families of very low, low, or moderate income as defined.
  • Housing that has been issued a Certificate of Occupancy within the last 15 years.
  • Dormitories
  • Properties that are no older than 15 years since the certificate of occupancy was issued.
  • Housing that has been issued a Certificate of Occupancy within the last 15 years.
  • Dormitories
  • Properties that are no older than 15 years since the certificate of occupancy was issued.
    or rental agreements made prior to July 1, 2020, that do not have the required statutory language, an owner may, but is not required to, serve a notice, of a change of terms and conditions that contains the following statutorily required language:

“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(c)(7) of the Civil Code. This property meets the requirements of Sections 1947.12(c)(S) and 1946.(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.”

If a notice is served, it needs to be served 30 or 60 days prior to August 1, 2020, as circumstances warrant. Tenants are not required to sign this notice.

❖ For leases or rental agreements made after July 1, 2020, the agreements shall contain this statutory language. If such agreements do not have this statutory language, a notice of change of terms and conditions containing the statutory language must be served.
❖ The statutory language should be stated in 12-point font size in notices and lease rental agreement documents.

2. JUST CAUSE PROVISIONS

Provisions Do Not Apply To Rental Units Where:

The first twelve (12) months of a tenancy or, the first twenty-four (24) months where an additional adult tenant is added to the lease or rental agreement before the existing tenant has continuously and lawfully occupied the premises for twenty-four (24) months before the just cause provisions are applicable.

  • (1) Local just cause ordinances were adopted prior to September 1, 2019, and (2) New or amended enacted on or after September 1, 2019, that are “at least” as restrictive as AB 1482.
  • Properties that are exempt from AB 1482’s rent control provisions.

Notice Language

The following required statutory language must be provided to all tenants and arguably, should be in 12-point type:

“California law limits the amount of your rent can be in-creased. 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.”

  •  To comply with this requirement:
    ❖ For existing tenancies, notice must be given no later than August 1, 2020 (tenants are not required to sign the notice);
    ❖ For new leases or rental agreements that do not include this statutory language ( or for oral leases or rental agreements), this written notice is to be given on or after July 1, 2020. Failure to deliver this notice in the prescribed manner invalidates a no-fault eviction.

Two Types of Just Cause Terminations:

  • “At fault” terminations are defined as:
    ❖ Non-payment of rent;
    ❖ Material breach of terms and conditions of lease or rental agreement;
    ❖ Maintaining or permitting a nuisance;
    ❖ Committing waste;
    ❖ Refusal to execute a written extension or renewal of the lease for an additional term of similar duration with similar provisions;
    ❖ Criminal activity on the rental property;
    ❖ Criminal threat on or off the property directed at the owner or the owner’s agent;
    ❖ Assigning or subletting the premises in violation of lease terms;
    ❖ Tenant’s refusal to allow entry to the premises as authorized by law;
    ❖ Using the premises for an unlawful purpose as de­scribed by applicable law;
    ❖ Employee or licensee’s failure to vacate the premises following termination of em­ployment;
    ❖ Tenant’s failure to vacate the premises after tenant’s delivery of notice of the tenant’s intention to vacate the premises.
    ❖ BEFORE ISSUING A NOTICE TO TERMINATE FOR A CURABLE BREACH, the tenant must receive a written notice (AACSC will have a new form to fit this requirement) and opportunity to cure (another AACSC form) pursuant to paragraph (3) of Section 1161 of the Code of Civil Procedure. Once again, the tenant is not required to sign either one of these forms.
    ❖ If the violation is not timely cured, a three (3) day notice to quit without an opportunity to cure may be served to terminate the tenancy.
  • “No fault” is defined as:
    ❖ Owner (or specified owner’s relatives) intent to occupy the rental property.
    ❖ Owner withdrawal of the property from the rental market (not defined in AB 1482).
    ❖ Owner compliance with court or government agency order for the tenant(s) to vacate the property.
    ❖ LIMITATION: If a court or government agency determines that the tenant is “at fault” for habitability related issues, the tenant shall not be entitled to a relocation payment of one month’s rent which is based on the last month’s rent.
    ❖ Owner intends to demolish or “substantially remodel” the rental property.
    ❖ Substantial remodel work that requires a tenant to vacate the rental property for at least thirty (30) days and includes:
    ❖ Abatement of specified hazardous materials;
    ❖ Replacement or substantial modification to any structural, electrical, plumbing, or mechanical system that requires a permit from a government agency.
    ❖ Cosmetic improvements alone do not qualify as a substantial remodel. Cosmetic improvements include:
    ❖ Painting;
    ❖ Decorating;
    ❖ Minor repairs; or
    ❖ Other work that can safely be performed without having the property vacated.
    ❖ When completing a “no fault” termination, the tenant is entitled to receive the equivalent of one (1) month’s rent through either a direct payment or a waiver of the last month’s rent.
    ❖ If a “no fault” termination notice is served, the tenant is entitled (regardless of income) to a relocation payment to one month’s rent which at the owner’s option can be either:

♦ A rent waiver; or
♦ A payment of one month’s rent.

In either case, the proper procedures must be followed.

If the tenant fails to timely move out, the tenant is liable for these damages in an unlawful detainer complaint.

THIRD PARTY PROPERTY MANAGEMENT

AB 1482 has substantial impacts on how third-party property managers do business. This topic is beyond the scope of this article.

SUNSET PROVISION

AB 1482 is repealed (“sunsets”) as of January 1, 2030. ©Ron Kingston and Jack Schwartz 2019.@’

1 There is no exception for “S corps”.

Ron Kingston is President of California Strategic Advisors. Jack Schwartz is an attorney based in San Francisco.