California has passed several bills that will drastically affect the rental industry. Millions of tenants and landlords will feel the implications of these changes. From rent control to eviction requirements, here is what you need to know about the upcoming changes.
Statewide Rent Control Passed
The Tenant Protection Act of 2019, also known as AB-1482, is an effort to help alleviate the homelessness and housing crisis that has been witnessed in California. New laws have passed related to rent increases, evictions, and housing vouchers that have gone into effect as of January 1, 2020 and will remain in effect until 2030.
You cannot increase rent by more than 5% plus CPI
Under this passed bill, you cannot increase the gross rental rate for a property over a 12 month period by more than 5% plus the Consumer Price Index (or CPI) or by 10%, whichever is lower. The CPI is the change in the cost of living each year (think inflation/deflation and how that affects the cost of living). On average, CPI has been around 2.5% and that signals that on average it should be about a 7.5% cap on how much you can raise the rent. You can also not increase the rental rate by more than 2 increments over 12 months, given that the tenant has been there for 12 months.
Just Cause: You must have a reason to not renew a lease
To prevent landlords from getting around the rent increase cap outlined above, where you decide not to renew the lease and increase rent significantly, there are restrictions on whether you can evict a tenant. In other words, you have to renew the lease unless there is a “just cause” reason not to renew it.
This passed bill prohibits an owner of a rental property from terminating a tenant and their lease without just cause. What is “just cause” exactly? Here are some “just cause” reasons that allow you to evict:
- Default on payment
- Violation the lease
- Criminal activity
- Illegally subletting the rental
- Forbidding the landlord to enter when allowed
If there is a good reason to evict a tenant, the owner of the property must let the tenant know through a “notice of violation,” also known as an eviction notice, and give them the chance to fix the violation within a certain time. If the tenant does not do this, however, the owner can legally terminate the tenancy by going through the court system. Here is a summary of tenant landlord law, including evictions, in California.
No Fault: You may be able to move out a tenant but must provide relocation assistance
The first thing to know about this relocation assistance is that the evictions must fall under this “no-fault” category. So what does this mean? We just discussed how owners cannot evict tenants in California for no reason. There must be “just cause” or “no fault.” Some examples of “no fault” where relocation assistance is required include:
- Owner wants to occupy the property for himself or herself (or for direct family members)
- The property will no longer be rented
- Intent to demolish or remodel a property
- An order from local or government agencies requiring tenants to vacate the property
Basically there must be a reason why the tenant is being asked to move out that is a good and justifiable reason, even though the tenant didn't do anything “wrong.”
For “no fault,” the landlord must provide relocation assistance! This is equal to the payment of one month’s rent or waiving the final month’s rent. But of course, if the tenant does not move out in the time agreed upon, then that relocation assistance is recoverable by the landlord.
Exceptions to the new rent control law passed
It is important to read the fine print. Here are some exceptions to the new rent control and eviction law that recently passed:
- Properties built within the last 15 years are exempt, as a way to incentivize developing more rental housing units.
- A single family homes, unless owned by a real estate investment trust, a corporation, or an LLC in which at least one member is a corporation.
- Duplexes where the owner occupies one of the units.
- Cities with existing rent control laws that are more stringent.
According to MarketWatch, this law is expected to affect 8 million of the total 17 million renter households in California. If you are unsure whether it applies to you, please reach out to your county’s rent board to confirm.
Extended Notices for Rent Increases
AB-1110 requires that all tenants be given a 90 day notice for rent increases that are more than 10% and goes into effect on Jan. 1, 2020. If your rental is exempt from AB-1482, described above with rental increase caps, you have to provide sufficient notice of 90 days to increase rent by more than 10%. In past years, you could give 60 day notice for rent increases. The bill is to help tenants adjust to the large increase in their monthly rent and/or give them sufficient time to find a new place to live.
Mandatory Consideration of Section 8
California has recently passed a new bill, SB-329, that states that landlords cannot discriminate against Section 8 applicants and goes into effect on Jan. 1, 2020. Section 8 helps low-income families afford housing through a voucher program provided by the government. The program pays the landlord directly and the tenant then pays the difference between the amount subsidized by the program and the rent charged by the landlord. Visit Section 8 Housing Debrief for Landlords to learn more.
Anyone on Section 8 must get a fair chance
Previously, Section 8 was not considered a source of income so you could discriminate against applicants. However, Section 8 is now considered a source of income, something that a landlord cannot discriminate against based on the Fair Housing Act. A source of income is defined as income paid directly to the tenant, representative of a tenant, or to the landlord.
You can still require Section 8 applicants meet your criteria
Although you cannot discriminate against sources of income, you can still require that all applicants, including Section 8, meet your objective criteria for the rental property. An example of objective criteria is setting a minimum credit score to be considered for the rental.
Mandatory Consideration of Military Members and Veterans
SB-222, which goes into effect on Jan. 1, 2020, prohibits landlords from discriminating against veterans or military status tenants with housing vouchers. Vouchers are now considered to be a source of income, and as mentioned earlier, the Fair Housing Act states that you cannot discriminate against sources of income.
Veterans and Military Status cannot be discriminated against
This bill prohibits veterans or military status people from being discriminated against by a landlord. The Department of Housing and Urban Development Veterans Affairs Supportive Housing (HUD) gives housing vouchers to help with housing payments. This voucher is now considered to be a source of income.
Assistance provided if discriminatory activity occurs
This bill also requires that HUD provides assistance if a dispute occurs and is related to discrimination.
Lower Security Deposit for Service Members
California law states that landlords can request a maximum of 2 months rent, or 3 months rent for furnished rentals, for the security deposit. SB-644 changes these security deposits limits for people in military service.
You can only charge 1-2 months rents for the security deposit
Landlords can only charge a security deposit of 1 month’s rent for an unfurnished rental or 2 month’s rent for a furnished rental to active service members. To make sure service members get a fair chance, it is illegal to deny a service member housing because of the limit on what you can charge for a security deposit. Learn more about California’s tenant and landlord laws here.
Shelter those at Risk of Homelessness
AB-1188 allows tenants to shelter someone who is at the risk of homelessness as long as it does not violate the building occupancy limits. This law comes into effect on Jan. 1, 2020 and sunsets in 2024.
The tenant is responsible for the person at risk of homelessness
The tenant must take responsibility for the person at risk of homelessness and that person must abide by the lease agreement. If the landlord wants to evict the person at risk of homelessness they must give a 7 day notice giving the tenant time to cure any violations that might be the reason for eviction.
Landlords can be compensated
If a tenant shelters someone who is at the risk of homelessness, the landlord can adjust rent for the time the person is there. The landlord and tenant must have this agreement in writing.
Tenant landlord law is very complex in California. For questions, reach out to a local reputable real estate attorney. For a summary of CA Landlord Law, visit us here.