As you may be aware, California has a new Rent Control Law titled AB-1482. It’s called the Tenant Protection Act of 2019. In the past, rent control restrictions had been isolated to specific cities or communities, but the new law affects ALL of California. So, if you own a rental property in Los Angeles or Orange County, there are a few key details you will need to be aware of to be in compliance with the new law. Also, the new law will generally not override municipalities that have existing rent control provisions.
You can really break the law into three distinct questions that can affect your rental property operations:
- Is my investment property included in the new law?
- What are the rental increase limitations?
- What are the termination of tenancy requirements?
If Your Los Angeles Area Rental Property is Included
There are a few things to look at to determine if your property is included in this new rent control law.
The first thing to look at is the age of your property. Then, it depends on what type of investment property you own. And lastly, are you a private real estate investor or are you a corporate real estate investor?
As far as the age of your property is concerned, the key takeaway here is 15 years. The law applies to any property that has not been issued a certificate of occupancy in the most recent 15 years. If your property was constructed 15 or more years ago, this law could apply to you. This is a rolling 15 years. So, as of today, this law applies to properties built in 2004 or earlier, but next year it would apply to properties built in 2005 and earlier.
The law substantially excludes single-family dwellings and condos. It primarily addresses multi-family homes and apartment complexes. Residential real property is identified as a residence that’s alienable separate from the title to any other dwelling unit, provided that you qualify as a corporation or an LLC. If you’re an individual investor, your single-family rental home or condo will not be subject to this law.
With respect to ownership criteria, rent control does not apply to you if you own a single-family residence and you are not:
- The owner of the real estate is not a real estate investment trust
- A corporation
- A limited liability company in which at least one of the members is not a corporation
As you see, the law is really focused on the corporate-owned properties and not individual investors.
You need to provide notice to your tenants if the property they’re living in does not fall under this new law.
There are some other carve-outs in the law that address room rentals or a duplex in which the owner resides in one unit, college dormitories, etc. Make sure you review the full law or speak with your attorney or property manager to confirm whether your property is included or exempt.
What are the Rental Increase Limitations?
If your investment property is subject to the new rent control law, here are the basics:
Over the course of any 12-month period, you cannot increase the gross rental rate more than 5 percent plus the percentage change in the cost of living, or 10 percent, whichever is lower.
If the same tenant resides in the unit over any 12-month period, the gross rental rate cannot be increased in more than two increments over the 12-month period.
NEW tenants can be set at market rate, not subject to the new law. However, once they take residency, the new law applies.
These rent increase limitations were put into place to protect tenants from extreme rent increases. The lawmakers believe that extreme rent increases are contributing to the already staggering homeless populations in Los Angeles and Orange County.
Termination of Tenancy
In the past, if you were coming to the end of a lease and you didn’t want to renew that particular tenant for any reason, then you provide proper notice and you didn’t have to renew them.
Under the new law, the big focus is just-cause termination of tenancy. This can be broken down into two categories:
- At fault lease terminations
- No fault lease terminations
An at-fault lease termination would be an eviction for things like non-payment of rent or breach of the lease agreement. Illegal activity on the property would also qualify as an at-fault eviction. These are all within your rights to evict a tenant.
No-fault lease terminations occur when an owner wants to move back into the property or has plans to demolish the property and build something else. With the no-fault termination of a lease, you will be responsible for compensating that tenant for relocation expenses which equal the amount of one month’s rent.
This is just a quick summary and general overview of this new law. It’s important that you review the full text, which can be found here: