California Rent Control

California Rent Control and What It Means For You:

Statewide Rent Control in California is officially here but I promise it’s not so bad for us as property owners. I will explain the ins and outs of the Assembly Bill below. Here are the big items:

1. Just Cause Eviction

You cannot give a 30 or 60 day notice to vacate any longer without “Just Cause,” meaning the tenant is violating their lease. Section 1 of the Bill highlights the reasons and you can find the link here.

2. Rent Caps

12 month rolling rents are capped at 5% + Regional Consumer Price Index. For those that are not checking inflation measures on a day to day basis the figures for CPI May 2019: Los Angeles-Long Beach-Anaheim, 3.3% (So as a landlord you may raise your rents 8.3% annually if you own in these neighborhoods.)

3. No Fault Just Cause

A owner MAY vacate a tenant for the following reasons:

A. Intent to occupy the residential real property by the owner or their spouse, domestic partner, children, grandchildren, parents, or grandparents.

B. Withdrawal of the residential real property from the rental market

C. If owner is required to in order to comply with a government agency or a local ordinance or court.

D. If the owner has intent to DEMOLISH OR SUBSTANTIALLY REMODEL the residential real property

“substantially remodel” means the replacement or substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or the abatement of hazardous materials, including lead-based paint, mold, or asbestos, in accordance with applicable federal, state, and local laws, that cannot be reasonably accomplished in a safe manner with the tenant in place and that requires the tenant to vacate the residential real property for at least 30 days. Cosmetic improvements alone, including painting, decorating, and minor repairs, or other work that can be performed safely without having the residential real property vacated, do not qualify as substantial rehabilitation.

If An Owner Does Utilize 3.D. They Must:

(A) Assist the tenant to relocate by providing a direct payment to the tenant (1 Months Rent)
(B) Waive in writing the payment of rent for the final month of the tenancy, prior to the rent becoming due.

If a tenant fails to vacate after the expiration of the notice to terminate the tenancy, the actual amount of any relocation assistance or rent waiver provided pursuant to this subdivision shall be recoverable as damages in an action to recover possession.

How This Affects Us As Property Owners:

So yes we have rent control, and no you cannot raise your rents more than 8.3%, but most owners don’t ever raise rents even close to 8% a year. So in this case most owners are not affected.

The big question becomes, if my property is now rent controlled, is my value significantly decreased. The simple answer is no, but there are nuances. The third item I listed “No Fault – Just Cause” is a property owners saving grace. If you are a owner manager property owner, your rents are probably well below market. In your case, if someone wants to buy your building, they can still vacate the tenants and not have to pay absurd buyouts because of the NO FAULT – Just Cause provision of the bill. Significant remodels to a unit/building allow a new buyer to come in and vacate the tenant to renovate the asset. Yes you do have to give 1 months free rent or pay them 1 month worth of rent, but that is pennies compared to rent buyouts in Los Angeles which can range between $10,000-$60,000.

So yes we have rent control, and yes it will probably get worse over time, but for now we are ok.

Suggestions for Property Owners:

  1. Parking is not rent controlled: Separate your leases before January and all future leases. Keep Parking on a separate lease because you cannot rent control parking
  2. Instill RUBS on all your properties. This is a program that requires your tenants to pay all of their own utilities even water bills. Just because you can’t raise rents doesn’t mean you need to pay your tenants raising utility bills.
  3. Create much more stringent lease agreements.
  4. Setup Video Cameras at your properties. It’s difficult to evict tenants because we rarely can get other tenants to testify in court. Setup cameras so you can have evidence for evictions
  5. Give a notice to VACATE NOW – Nothing in the new law is stopping owners from giving a notice to vacate now. There is no retroactive law for vacating in the provision and it doesn’t go into affect until January 2020.

You can not, however, give a rent increase today of greater than 8.3% as the bill does have a retroactive policy for rent increases going back to March of 2019.

If you own in Long Beach, Los Angeles, Inglewood, Unincorporated LA – it’s business as usual as the local ordinance will take priority over AB1482. The assembly bill only would take precedent if it was more stringent.
If you own in Redondo Beach, Manhattan Beach, Hermosa Beach, Orange County, or any other city without local Rent Control measures, AB1482 is your new normal policy.

If you have any questions please feel free to reach out.

Sincerely,

Austin Zahn
Vice President
Lyon Stahl Investment Real Estate

310.613.1251 | Austin@LyonStahl.com

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