September 30, 2019
By popular demand, the following breaks down more precisely how Assembly Bill 1482 (aka, the “Tenant Protection Act of 2019”) is anticipated to impact owners of California residential rental property.
DOES THE LAW APPLY TO MY PROPERTY?
Generally speaking, the new law applies to all rented or leased “dwelling units” except those constructed within the last 15 years; those separately alienable (e.g., single family homes, condos, mobile home units that can be sold or mortgaged separately) not owned by corporations or trusts (the “separately alienable” exception); duplexes or quadplexes where the owner lives in one of the connected units; and rented rooms where tenant(s) and owner(s) share common kitchen and/or bathroom facilities.
The 15-year exemption means, for example, units built in 2010 will lose their exemption in 2025. Also, if a dwelling unit is owned by an LLC and one of the LLC’s members is a corporation, the exemption is lost.
For tenancies commenced or renewed on or after July 1, 2020, owners of dwelling units eligible for the “separately alienable” exception must include specific, statutorily-prescribed language in their leases or the exemption will be lost.
WHAT IF MY PROPERTY IS NOT EXEMPT?
For tenancies commenced or renewed on or after July 1, 2020, all owners of non-exempt units must likewise include precise, statutorily-prescribed language in their leases notifying tenants of the existence and impact of the new law.
WHAT MAXIMUM ANNUAL RENT INCREASE WILL NOW BE ALLOWED?
As presently written, the new law will continue in effect until January 1, 2030. During that time, owners will not be permitted to increase “gross rent” over any 12-month period by more than 5% or the percentage change in the cost of living within the metropolitan area, not to exceed 10%.
Gross rent excludes, among other things, rent discounts, incentives, concessions or credits offered by the owner and accepted by the tenant, but only to the extent such items are “separately listed and identified” in the lease or rental agreement and any amendments thereto.
The new law also provides if a tenant remains in lawful occupancy over any 12-month period, the gross rent shall not be increased more than two times during that same 12-month period.
The new law does not restrict an owner’s right to set rent for a new tenancy where no tenant from an earlier tenancy remains in lawful possession.
Sublessors may not charge subtenants higher rent than otherwise allowed under the new law.
WHAT IS THE IMPACT ON AFFORDABLE HOUSING PROPERTY?
The law authorizes owners of affordable housing property to establish an initial base rent upon expiration of the affordable housing restriction, but thereafter prohibits increases beyond those otherwise allowed.
WHAT IF I ALREADY INCREASED RENT MORE THAN THE NEW LAW ALLOWS?
The new law is retroactive to March 15, 2019, but provides if an owner increased rent between March 15, 2019 and January 1, 2020 more than now allowed, by operation of law the applicable rent as of January 1, 2020 will automatically become the rent charged on March 15, 2019 plus the maximum permissible increase. Owners will not be liable to tenants for any corresponding rent overpayment collected before January 1, 2020.
WHAT IF I INCREASE RENT BY LESS THAN THE NEW LAW ALLOWS THIS YEAR?
If an owner increases rent by less than the maximum allowed before January 1, 2020, the owner will be permitted to increase rent again, provided no more than two rent increases occur within 12 months following March 15, 2019 and the total increase does not to exceed the maximum allowed.
DOES THE NEW LAW ALSO IMPACT MY ABILITY TO OUST A TENANT?
Yes. The first section of the new law does not deal with rent control. Instead, it overrides all existing law by providing “… after a tenant has continuously and lawfully occupied a residential real property for 12 months, the owner of the residential real property shall not terminate the tenancy without just cause, which shall be stated in the written notice to terminate tenancy.” 2 (Italics added.)
Arguably, this guarantee of continued occupancy will have a greater economic impact on California’s residential rental market that the new restrictions on permissible rent increases.
WHAT IS “JUST CAUSE”?
The new law makes a distinction between “fault” and “no fault” just cause. This distinction is critical because, in the case of no fault lease 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, regardless of the tenant's means or income. 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.
“Fault” is defined as any of the following:
- failure to pay rent;
- any 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 withdraw 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.
- The type of just cause must be clearly stated in a statutorily compliant written notice given to a tenant. Lease terminations for any other reasons after 12 months of occupancy will now be unlawful.
MAY I EVICT A TENANT WITHOUT GIVING HIM OR HER AN ADVANCE OPPORTUNITY TO “CURE” A LEASE DEFAULT?
No. The new law expressly requires owners to give all tenants who commit “curable” lease violations an opportunity to cure or correct those violations pursuant to paragraph 3 of Section 1161 of the Code of Civil Procedure before instituting eviction proceedings. 3 Practically speaking, this means instead of immediately serving a defaulting tenant with a three-day notice to perform or quit, an owner must first now serve a defaulting tenant with a separate notice of the tenant’s right to cure, then re-serve the tenant with a second notice to quit within three days with no further opportunity to cure.
DO I HAVE TO PROVIDE RELOCATION ASSISTANCE?
As stated above, for no-fault terminations, the new law requires owners to waive the tenant’s obligation to pay the final month’s rent or rebate the equivalent of one month's rent. Any offer to waive the final month’s rent must be made in writing before the rent becomes due. All rent rebates must be paid within 15 calendar days of service of the notice terminating the tenancy.
Any failure to comply will render a lease termination notice void and unenforceable.
WILL I HAVE TO MAKE CHANGES TO MY LEASE AND OTHER RELATED FORMS?
Yes. As stated above, with certain exceptions, the new law requires owners to include new disclosure language in their lease documents and any ensuing notice declaring a lease in default or demanding a return of possession.
1. As explained in an earlier ECG advisory, even though AB 1482 was approved by the California Senate on September 10, 2019, it will not take effect until it is signed into law by Governor Newsom. Governor Newsom has publicly stated he supports this new law thus intends to take this final step.
2. An exception to this “just cause” requirement exists if additional adult tenants are added to a lease before an existing tenant has “continuously and lawfully occupied the property for 24 months.” In that case, the just cause requirement applies only if: (1) All the tenants have continuously and lawfully occupied the property for 12 months or more, or (2) One or more tenants have continuously and lawfully occupied the residential real property for 24 months or more.
3. By referring to subsection (3) of CCP Section 1161 (the existing statute dealing with lease defaults other than failures to pay rent), as opposed to both subsections (3) and (2) (the latter subsection dealing with failures to pay rent), the new law creates a degree of uncertainty.