Rent Control and Just Cause Eviction
How The New Rent Control and Eviction Bills
will impact Real Estate Investors in California
Statewide Yearly Rent Control
In early October 2019, California lawmakers approved Assembly Bill 1482 Bill AKA the Tenant Protection Act of 2019. The assembly bill has two components: the statewide rent cap and the just cause eviction ordinance. Here are the main provisions of the new law, you need to know about if you are an investor in the Bay Area real estate market.
It is estimated that more than half of California renters pay more than 30% of their income for housing, including utilities, according to the Joint Center for Housing Studies of Harvard University. The new rent control cap is modeled after a proposal from UC Berkeley’s Terner Center for Housing Innovation which found a cap of 5 percent, plus Consumer Price Index, is supposed to “provide meaningful protection” against “the most egregious rent increases.
As a result, starting January 1, 2020, rent increases will be capped at 5% plus inflation, or up to a hard cap of 10 percent, whichever is lower per year.
All rent increases since March 15, 2019 will count toward the rent cap, and if above the permissible rent cap, will have to be rolled back effective January 1, 2020. In other words, a landlord who increased the rent on or after March 15, 2019 beyond the maximum rental rate would be required to roll back the rent, i.e. grant a rent reduction effective January 1, 2020 for the next 12 months.
A non-exhaustive list of properties exempt from the rent cap includes condos and single family homes unless owned by a corporation or a REIT, affordable housing units or project-based subsidized housing, dorms constructed and maintained by a university and occupied by enrolled students, buildings built less than fifteen years and duplexes where the landlord has continuously occupied one of the units since the beginning of the tenancy.
Evictions in Rent Control Areas
A tenancy typically ends either when a fixed-term lease expires or after a landlord or tenant in a month-to-month lease gives notice. A landlord can legally ask a tenant to vacate the rental in either situation, without specifying a reason.
In rent control areas all evictions must be based on “just cause” meaning the owner must have a just cause for the eviction. “Just cause” is divided into two categories – at-fault evictions and no-fault evictions. The just cause rule will apply as of January 1, 2020, to renters who have resided in the unit for 12 months or more.
“No fault” termination is allowed even when the tenant has not breached the lease and will require the landlord to pay one month’s rent in relocation assistance. “No fault” reasons include an owner or family member intending to occupy the property, withdrawal from the rental market, substantial remodeling and compliance with a government order to vacate the property.
“At fault” termination is generally allowed when tenants have breached their lease and does not require the payment of relocation assistance. “At fault” reasons include non-payment of rent, nuisance, illegal use of the property, refusal to allow entry, and breach of a material term of the lease.
If you are a real investor in California, do not hesitate to reach out should you have any questions or discuss options available to deal with this new bill.