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What is "Rent Control" in California?

 

Investors living outside the state often ask: What is “Rent Control” in California?

Due to recent legislation signed by Governor Gavin Newsom on October 8, 2019, affecting rent control laws in California let’s explore this new law first.

 

California Rent Control Law of 2019

 

The California Tenant Protection Act of 2019, authored by San Francisco Assemblyman David Chiu provides major reforms to the current California rental housing situation.

Originally known as AB 1482, this law does not remove existing rent control laws in many California cities. But, it puts a cap on rent increases at 5 percent after inflation until January 1, 2030, for certain rentals. It also puts restrictions on no-cause evictions.

In addition, while this law takes effect on January 1, 2020, it prohibits rental increases occurring on or after March 15, 2019, which prevents landlords from raising rents before January 1st.

 

California Housing Crisis

 

This law attempts to combat a housing crisis across the state. California contains nearly 50% of the nation’s unsheltered homeless population of around 200,000.

The NY Times recently ran a story, claiming more U.S. households rent rather than own than at any time in the past 50 years. Also, nearly 25% of all tenants nationally pay more than half their income in rent.

The NY Times also reported that California experiences the highest state poverty rate (18.2%) in the nation after adjusting housing costs.

Homelessness dominates California politics where voters recently approved billions of dollars to build shelters and subsidized housing for the homeless.

Despite of those efforts, the city of Oakland recently reported a 47% homelessness increase over the last two years. San Francisco registers a rise of 17 percent of homeless people since 2017. Los Angeles reports an increase by 16% of the homeless since 2018.

 

The New California Rent Cap Rate

 

The Los Angeles Times Magazine reported on October 11, 2019, that over two million tenants statewide not covered by local cities’ rent control laws will benefit from the new cap. This law should keep down typical high annual rent increases.

For example, the new law cannot cancel Los Angeles rent control laws which only apply to buildings built before 1978. But a Los Angeles building built after 1978 and at least 15 years old must cap rent increases under the new law.

Nolo, the legal publication authored by lawyers, provides this explanation of California’s new law published on October 30, 2019:

  • Caps rent increases of qualifying rentals at “5% plus inflation”; or
  • 10% of the smallest gross rental rate imposed during the last 12 months before the increase; and
  • Whichever is the lowest;
  • Also, raising rent can only occur once every 12 months.

The new law does not supersede any more restrictive city or county rent control laws. But, it may apply to rentals not covered by local rent control laws.

 

California Local Rent Control Laws

 

Currently, 50 California cities and counties maintain rent control laws.

To save time, we provide you with a link to the Nolo California Rent Control Chart for all 50 jurisdictions (including San Diego) with a summary of their laws and a citation to the specific ordinance. Here

 

New California Just Cause Eviction Protection

 

The new law also provides just cause eviction protections. Less than 20 California jurisdictions require just cause evictions.

Those jurisdictions with no rent control ordinances or a tenant with a no fixed-term lease, landlords hold the power to terminate tenancies without a reason. The only limitations requiring advanced notice include:

  • 60 days for tenants occupying a rental for at least one year; and
  • 30 days’ notice for tenants occupying a rental for less than one year.

The new law prohibits landlords from ending a residential rental:

  • Without just cause; and
  • Giving written notice if the tenant occupied the rental for at least 12 months.

 

“Just cause” means either an “at fault” or a “no-fault” just cause. Let’s explore these two.

“At fault” just cause includes:

  • Breaching a material term of the lease;
  • Failing to pay the rent;
  • Criminal conduct by the tenant in the rental property;
  • Using the rental for unlawful purposes; and
  • Subletting or assigning the unit to another person in violation of the lease agreement.

 

“No-fault” just cause includes:

  • Removing the residential rental from the rental market; or
  • Property owner’s (or owner’s spouse or blood relatives) intent to occupy as an “owner move-in eviction”; or
  • Intent to substantially remodel or demolish the property.

 

The new law requires the landlord before terminating for a “curable” just cause to give the tenant notice with an opportunity to cure.

With a no-fault just cause termination the new law gives the landlord two options:

  • Help the tenant to relocate with a direct payment, equal to the current one month’s rent to the tenant; or
  • Waive the final month’s rent payment in writing.

 

Exceptions to the New California Rent Control Law

 

The main exceptions to the new rent control law include:

Vacant units where the new law does not restrict how much rent a landlord may establish for a vacant rental. Thus, landlords maintain the right to set the initial rent.

An Owner-Occupied Duplex where the owner lives in one and rents the other.

Single-Family Condos and Homes where the owner is not a corporation, real estate investment trust, or a limited liability company (LLC) where at least one member is a corporation.

New Construction housing with a Certificate of Occupancy issued within the last 15 years.

Other exceptions exist for specific circumstances. For more information Click Here.

 

History of California Rent Control Laws

 

“Rent control” refers to a city or county ordinance limiting the rent landlords charge.

Another definition explains rent control as restricting the amount a landlord increases rents to long-time tenants.

Besides freezing rents, such ordinances may allow gradual rent increases (like 4%) and how often landlords may raise rents. Sometimes, the annual Consumer Price Index (CPI) determines what percentage rents increase.

In 1972, Berkeley became the first California city to adopt a rent control ordinance. Other cities followed Berkeley, as well. This created a political backlash by landlord associations and politicians.

In 1995, the Costa-Hawkins Rental Housing Act became law. It limited local rent control regulations from applying to condominiums, single-family homes, and rental units built after February 1, 1995.

This law also allowed “vacancy decontrol” of any rent-controlled unit. Thus, it allows landlords to raise rents up to market value after a tenant moves out.

Other exceptions included:

  • Owner-occupied buildings up to three or four units (subject to local ordinances);
  • Government-subsidized units (except for Berkeley and San Francisco);
  • Short term rentals (like Airbnb); and
  • Detached (mother-in-law or granny) structures that owners can’t sell independently of the main house.

 

Conclusion

 

The answer to the question: “What is Rent Control in California?” dramatically changed in October of 2019.

That’s when the Governor of California signed a new law placing a cap on residential rent increases. The new law allows 5% after an inflation rent increase.

Also, the new law places restrictions on no-cause evictions. Landlords must provide just cause to all and written notice to renters occupying for at least 12 months.

The purpose of this law includes combating homelessness in California. Many cities recently reported sharp increases in their homeless populations.

“Rent control” refers to a county or city ordinance that limits rental increases by landlords.

In 2019, 50 California cities and one county maintain a rent control law. This new law provides protection to all other counties and cities not covered by rent control ordinances. Experts estimate over 2 million Californians to benefit from this new law.

 

Confused by the New California Rent Control Law?

 

Contact Us to learn more and use our professional property management services in the greater San Diego area.

Steven Rich, MBA – Guest Blogger

 

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