News & Events

articles

What Residential Landlords Need to Know About New Regulations

By Procopio Associate Sara G. Neva

Residential landlords across California should sit up and take notice as a new law goes into effect that could significantly impact their bottom line, both by capping rent increases and making it more difficult to evict tenants.

AB 1482, known as the Tenant Protection Act of 2019, places two major regulations on residential landlords. The new regulations will change current noticing requirements and termination practices and add additional form lease provisions. Subject to certain exceptions, AB 1482: (1) requires landlords to have “just cause” when evicting a residential tenant who has continuously and lawfully occupied a property for 12 months, and (2) caps gross rent increases within a 12-month period at 5% plus the change in the cost of living.

The bill was signed into law on October 8, 2019, by Governor Gavin Newsom. Unless extended by the Legislative, AB 1482 expires on January 1, 2030.

Just Cause Evictions

AB 1482 prohibits a landlord from terminating a residential tenancy without “just cause” when the tenant has continuously and lawfully occupied a property for 12 months. If any other adult tenants are added to an existing lease, AB 1482 protections apply if all of the tenants have continuously and lawfully occupied the property for 12 months or if one or more tenants have continuously and lawfully occupied the property for 24 months. When terminating a tenancy, the landlord must state the “just cause” in a written notice to terminate the tenancy.

“Just cause” includes both “at fault” and “no fault” justifications. The distinction between “at fault” and “no fault” is important because, for “no fault” terminations, the landlord must, at its option, either (1) provide relocation assistance payments in an amount equal to one month of the tenant’s rent in effect at the time the landlord issued the notice of termination, or (2) waive the last months’ rent.

  • At Fault: Examples of “at fault just cause” include failure to pay rent, breach of a material lease term, committing a nuisance or waste, criminal activity, refusal to sign a lease extension or renewal, unauthorized subletting or assignment, and failure to vacate when required.
  • No Fault: Examples of “no fault just cause” include the owner’s or the owner’s family’s intent to occupy the property, withdrawal of the property from the market, a governmental order or local ordinance requiring vacation of the property, and intent to demolish or substantially remodel the property. For leases entered into on or after July 1, 2020, just cause only includes the owner’s or owner’s family’s intent to occupy the property if the lease provides for such an option.

AB 1482 does not apply to residential properties already subject to a local ordinance requiring just cause for termination adopted on or before September 1, 2019 and does not apply to residential properties subject to a more protective local ordinance requiring just cause for termination adopted after September 1, 2019.

In addition, the “just cause” termination requirements do not apply to:

  1. Transient and tourist hotel occupancy
  2. Housing accommodations in a nonprofit hospital, religious facility, extended care facility, license residential care facility for the elderly, or an adult residential facility
  3. Dormitories owned and operated by an educational institution
  4. Housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner who maintains their principal residence at the property
  5. Single-family owner-occupied residences, including residences in which the owner-occupant leases no more than 2 units or bedrooms
  6. A duplex in which the owner occupies one of the units as the owner’s principal place of residence
  7. Housing that has been issued a certificate of occupancy within the previous 15 years (on a rolling basis)
  8. Residential property that is separate in title from any other dwelling unit (such as a condominium), so long as the lease includes the proper notice of the exemption and so long as the owner is not a REIT, corporation, or LLC in which at least one member is a corporation.
  9. Deed-restricted affordable housing for persons and families of very low to moderate income

Rent Cap

The other prong of AB 1482 is a rent cap measure capping gross rent increases each year at the lesser of (1) 5% plus the change in the cost of living or (2) 10%. It also prohibits landlords from increasing rent more than 2 times in a 12-month period.

AB 1482 does not limit the initial rent for new tenancies in which no tenant from the prior tenancy remains in possession of the property. AB 1482 does not apply to housing subject to a more restrictive rent cap measure.

Additionally, the rent cap does not apply to:

  1. Dormitories constructed and maintained in connection with any California higher education institution for use by students attending such institution
  2. Housing that has been issued a certificate of occupancy within the previous 15 years (on a rolling basis)
  3. Residential property that is separate in title from any other dwelling unit (such as a condominium), so long as the lease includes the proper notice of the exemption and so long as the owner is not a REIT, corporation, or LLC in which at least one member is a corporation.
  4. Deed-restricted affordable housing for persons and families of very low to moderate income
  5. A duplex in which the owner occupies one of the units as the owner’s principal place of residence

AB 1482’s rent cap measure applies to all rent increases occurring on or before March 15, 2019 and takes effect January 1, 2020. AB 1482 provides that, for example, if a landlord increases rent by more than 5% plus the change in the cost of living between March 15, 2019 and January 1, 2020, the applicable rent on January 1, 2020 will be the rent as of March 15, 2019 plus the maximum increase permitted under AB 1482. However, the landlord would not be liable to the tenant for any overpayment.

It’s important that residential landlords work with appropriate counsel to ensure they comply with this new law and other regulations.

 

Sara G. Neva is an Associate in our Real Estate practice group. She counsels clients on real estate, finance and general business transactions. Her practice involves real estate property purchase and sale, commercial leases and easements, joint venture formation and other equity investments, financing, land use and entitlements. Sara is experienced with developers, builders, lenders, borrowers, commercial real estate investors, entrepreneurs, non-profit organizations and commercial landlords and tenants.