How AB 1482, or Statewide Rent Control, Impacts California Single-Family Rentals
Together with Oregon, the state of California is now one of only two states in the country to implement a statewide rent control law. California Senate Assembly Bill 1482 legalizes statewide rent control and allows most property owners to impose rent hikes of 5% annually plus the price of inflation as determined by the consumer price index (CPI), with some significant exceptions.
AB 1482 will not impede California real estate investors from being able to scale their portfolios or generate positive income streams. Instead, the law makes it easier for tenants to pay rent and gives tenants greater control over when to terminate their leases. Potentially, this will reduce vacancies for landlords by making rent easier to pay for occupants and keeping lease renewal top of mind for renters.
Mynd spoke with legal expert Giles Imrie about the impacts of AB 1482 on single-family homeowners.
What is California’s AB 1482 Tenant Protection Act?
First, let’s briefly go over AB1482.
Just Cause Eviction Ordinance
AB 1482 adds what's known as the Just Cause Eviction Ordinance, which states that a landlord or real estate investor, whether it be a large corporation or someone renting out a room in their home, cannot terminate a lease at the end of its term. There are exceptions. For example, the lease can be terminated if the tenant has violated the terms of the agreement, failed to pay rent, or caused damage.
As a result, so long as the tenant hasn’t violated the terms of the lease agreement, they can renew the lease as long as they want. Early terminations are still permitted, and evictions are as well. You cannot, however, do anything to encourage your renter to leave that would also be prohibited during the course of an eviction.
- Changing the locks
- Shutting off utilities
- Harassing or pressuring a tenant
- Removing your tenant's belongings
- Use of force
The lease can be terminated in some situations even if the tenant hasn’t violated the lease agreement, although you may have to provide relocation assistance. Acceptable reasons include:
- Intent to demolish or perform substantial improvement
- Ceasing to rent it
- Owner or relative occupancy
- Government order
The Just Cause ordinance also does not apply in the first 12 months of tenancy. In some roommate situations, an additional time extension is possible. During that time, a notice to vacate may be issued so long as all other landlord/tenant laws are obeyed.
Lease Agreement Disclosures
As of July 1st, 2020, you need to include three new disclosures in your lease agreement. These should be easy to do using free rental agreement templates.
- You have to let your tenant know that the rental unit they're occupying is subject to a statewide rent cap.
- You have to let your tenant know that their lease may be terminated when it ends if you or a family member want to use the space as a primary residency. If this disclosure is not in your lease agreement, then you may not make use of this exemption.
- You need to let your tenant know that the property is subject to rent control. However, your property may be exempt if it's a single-family home, condo, or townhouse. If you don't include the exemption in your lease agreement, then your property will not be exempt.
AB 1482 Exemptions
There are several exemptions to AB1492.
- Your single-family home is exempt unless it's owned by a real estate investment trust (REIT), a corporation, or an LLC where one of the members is a corporation.
- If your property is a new construction, then it's exempt for 15 years after you get the certificate of occupancy. This is true even if you occupy some of the housing.
- Student rental housing
- Transient housing
- Deed-restricted low-income affordable housing units
- Extended care and residential care facilities for the elderly
- Duplexes where the property owner lives in one of the properties.
- A room rented out of your primary residence.
- If your rental property is already regulated by a more restrictive local rent control ordinance.
- If you add an accessory dwelling unit (ADU) that's either connected to a single-family home or not connected, both properties will be subject to AB 1482. Although, the ADU may qualify for the 15-year new property exception once it gets a certificate of occupancy.
Rent Control’s Impact on the Market
Today we’re discussing the implications of the recent passing of statewide rent control, known as 1482. You're going to hear that number, as a landlord quite a bit, and so what we want to do is talk through some of the potential implications and how you can make sure that you can protect yourself and your rental property from issues that may arise if you don't follow the law.
My guest today is the vice president of corporate counsel at Mynd Property Management, Giles Imrie.
Giles Emery: The short answer is yes, Alex. Previously, single-family homes were carved out of rent control ordinances, but this Assembly Bill does impact your single-family homes in one way or another. It may be a minor impact or not. I'll explain what I mean by minor but assuming you don't qualify for one of the stated exemptions that are laid out in this bill, then your single-family home is now subject to both the rental cap that's imposed under this ordinance and the just
cause aspect of it as well.
There are some nuances that still allow you to maintain your protections as a single-family homeowner. Assuming you do qualify for those, and I'll go into those in a little bit, then you still need to provide notice to your residents.
Going forward, you will need to add a provision to your lease that notifies your resident that the property is exempt. This specifically references the civil code and explains to them that your property is exempt from the rent cap and the just cause ordinance, assuming you do qualify for one of those exemptions.
Alex: So Giles, are you saying that 1482 impacts all single-family homes or there's a specific subset?
Giles: Well, it does impact in that even if you qualify for an exemption, in order to maintain and get the benefit of that exemption, you now need to actually give the statutory reference in your lease and failure to do so could mean that you are subject to the rent cap when you otherwise would not be. So, yes.
Alex: To finish my point, you can bypass this by having a specific provision with a release?
Giles: Assuming you qualify for extra threshold.
Alex: Which we're going to talk about in the next episode. But for now, let's get to the basics.
Giles: The basics. Yes, I just wanted to carve out that there are some little gotchas in here that even though you do qualify for one of the exemptions, you’ve got to add statutory language that you previously didn’t have to your lease in order to maintain the benefit of that exemption.
Alex: Gotcha. And the rent cap, some of the key takeaways from this law. So the rent cap is what?
Giles: So, you are now limited on your annual rent increases to 5%, plus the price of inflation for the prior year. And that’s measured by the consumer price index. There is a look back to March 15, which is basically intended to prevent landlords from spiking rents before it goes into effect.
But the go-forward rent increase cap would be 5% plus.
Alex: Which is about 2 to 2.5% now as we speak today?
Giles: 2 to 3%.
Alex: So I think this is the takeaway: Your single-family rental may be allowed for exemption, but you have to understand how to properly document this, and have a specific provision in the lease. Is that correct?
Alex: So, can you give us a little more color on how you do that?
Giles: Single-family homeowners are exempt from this ordinance. This bill applies to any corporation or real estate investment trust. My background in real estate is with REITs, so this is geared towards the REIT industry, which only constitutes about 3% of the single-family rental market in the U.S.
But if you’re an individual that owns a limited liability company, then this does not apply and you’re treated just like any other individual owner. You are not subject to the bill provided you include that newly required written disclosure in your lease, specifically advising your tenant that you are not subject to this ordinance or bill.
Alex: Gotcha. So they need to know upfront that this property would not comply with the rent increase?
Alex: All right, Giles. That was good. In the next episode, we'll dive into the specific rental ownership entity type, individual versus entity, and how that gets applied based on 1482. We hope this helped you out. Until next time, and thank you for watching.
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