California’s rent cap bill, AB1482, now makes rent control the law of the land in California. The bill was passed by the California Senate on September 11 and is now headed to Governor Gavin Newsom’s desk.  He has publicly stated he intends to sign it.

California is the third state to impose statewide rent controls. Oregon passed a measure limiting annual increases to 7% plus inflation in March. New York state enacted rent controls in June.

Highlights

  • Under the new law, for the next decade California landlords will only be able to raise rent for an existing tenant by 5% after inflation.  
  • Equally important, the new law imposes sweeping new restrictions on a landlord’s ability to remove a tenant from possession. 
  • There are exceptions.  For now, at least, different aspects of the new law will not apply to transient and tourist hotels; housing provided by nonprofit hospitals or religious facilities; licensed adult care facilities; school dormitories; housing where tenants share bathroom or kitchen facilities with the owner in the owner’s principal residence; rooms rented in single-family owner-occupied residences; duplexes where the owner lives in one of the units as his or her principal place of residence; housing issued a certificate of occupancy within the previous 15 years; (subject to a multitude of limitations) residential real property alienable separate from the title to any other dwelling unit; “[h]ousing restricted by deed, regulatory restriction contained in an agreement with a government agency, or other recorded document as affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the Health and Safety Code, or subject to an agreement that provides housing subsidies for affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the Health and Safety Code or comparable federal statutes.”
    • On the other hand, the new law does appear to apply to mobile home parks and housing provided by for-profit hospitals and healthcare facilities. 
  • The new law exempts properties subject to even more restrictive rent control: e.g., those in San Francisco and Oakland.

Details

Rent Control

Subject to certain conditions, AB1482 now prohibits landlords from increasing “the gross rental rate” for a dwelling unit by “more than 5% plus the percentage change in the cost of living, as defined, or 10%, whichever is lower of the lowest gross rental rate charged for the immediately preceding 12 months.”

Gross rent excludes any rent discounts, incentives, concessions or credits offered by the landlord and accepted by the tenant; however, such excluded items must be “separately listed and identified” in the lease or rental agreement and any amendments thereto.

AB1482 also provides if the same tenant remains in occupancy over any 12-month period, the gross rent shall not be increased more than two times over that 12-month period.

AB1482 does not impose any restriction on a landlord’s right to set rent for a new tenancy where no tenant from a prior tenancy remains in lawful possession.

Where subleases are permitted, tenants may not charge subtenants higher rent than allowed under the new law.

The new law is retroactively applicable to rent increases occurring on or after March 15, 2019; however, AB1482 provides for a complicated set of rules to limit landlord liability in the event of rent increases in excess of those now allowable “between March 15, 2019, and January 1, 2020.”

Different rules for affordable housing apply.

New Limitations on a Landlord’s Right to Oust Tenants

With certain exceptions, AB1482 now prohibits landlords from terminating a tenancy without “just cause”, as defined, when the tenant has continuously and lawfully occupied rented property for 12 months or more.

AB1482 puts “just cause” into two categories: (1) regular “just cause” and (2) “no fault just cause”.

Regular “just cause” is defined as a tenant’s:

  • failure to pay rent;
  • other “material” breach of a lease (with material being a specially defined term); 
  • permitting, committing or maintaining a “nuisance” on the property (with nuisance being a specially defined term); 
  • committing “waste” on the property (with waste being a specially defined term); 
  • refusing to sign a written renewal or extension of a lease for a term of similar duration with similar lawful provisions after an earlier lease has lawfully terminated on or after January 1, 2020 (after the landlord makes a written request or demand for the tenant to sign such a renewal or extension);
  • engaging in criminal activity on or around the property, including criminal activity or a criminal threat off the property directed at the landlord or his/her agent(s);
  • assigning or subletting the property in violation of the lease;
  • refusing to allow the owner to enter the property as otherwise authorized by law;
  • using the premises for an unlawful purpose;
  • failing to vacate after the tenant’s termination as the landlord’s employee, agent or a licensee;
  • failing to deliver possession of the property after giving the landlord written notice of the tenant’s intention to terminate his/her tenancy, or making a written offer to surrender the property once the offer has been accepted by the landlord in writing.

“No fault just cause” is defined as:

  • With (several) limitations, when the owner or owner’s spouse, domestic partner, children, grandchildren, parents, or grandparents decide to occupy the property;
  • With (several) limitations, when the owner decides to withdrawal of the property from the rental market;
  • When necessary to comply with a governmental or court order; and
  • With (several) limitations, when the owner decides to demolish or to substantially remodel the property.

AB1482 puts the following limitations on a landlord’s ability to remove tenants:

  • For instances of “curable” just cause, the landlord must now give a tenant the opportunity to cure: e.g., pay back-due rent or remove a nuisance.  A three-day notice to quit may now issue only after the tenant fails to comply.
    • Note: No exception is provided on the face of AB1482 for tenants who habitually breach lease obligations: e.g., for tenants who habitually fail to timely pay rent or who repeatedly commit other “curable” lease violations.  As such, for the time being at least, it appears repeat “cure” opportunities must be given before lease forfeiture and eviction proceedings can go forward.
  • For no fault just cause terminations, the landlord must give the tenant written notice of the tenant’s right to receive free last month’s rent or monetary assistance in relocating.  Such monetary assistance must be “equal to one month of the tenant’s rent that was in effect when the owner issued the notice to terminate” and be paid within 15 calendar days after notice of the lease termination is given. 

A landlord’s failure to strictly comply will render any notice of termination void.

Caution

Although AB1482 is likely to become law in the next several days, it is not yet law.  In theory, Governor Newson could reject it and, in so doing, require changes.  Again, however, at this point this seems unlikely.

Also, the foregoing is a “nutshell” overview only.  The reader should consult legal counsel familiar with the full text of the new law before taking action to respond to, or comply with, its many requirements.

If approved by Governor Newson, AB1482 will require new and additional language to be included in future leases, lease termination notices and related documents.  To ensure compliance, landlords should consult counsel familiar with the new law for advice in making these changes.

Author: David A. Robinson, President and Founding Shareholder, Enterprise Counsel Group