A week after a statewide rent control bill aimed at easing the housing crisis in California was passed by state legislators, the multifamily industry is still wrapping their heads around what exactly the law means for their business. Currently, the bill is still awaiting Governor Gavin Newsom’s signature, which he has said he will sign.
The news of the state law, known as AB-1482 Tenant Protection Act of 2019, garnered attention nationwide. A few days after the bill passed the state Assembly, Democratic Presidential candidate Bernie Sanders called for a national rent control standard, as part of a housing plan he would look to enact, if elected president. Later in the week, President Trump visited homeless encampments in Los Angeles, after bringing attention to the high numbers of homeless people in major California cities.
We spoke to Ninder Grewal, policy and compliance counsel at the California Apartment Association (CAA), the largest statewide rental housing trade group in the nation, to nail down the most important things to know about the new law.
There are two main components: the rent cap and “just cause” eviction
In a move designed by legislators to stop price-gouging across the state, annual rent increases are now capped at 5 percent, plus inflation. According to Grewal, the inflation figure (which has averaged about 2.5 percent in California) will be set regionally. “We’re hoping that they’ll give us our first number soon,” she said. The rent cap exempts properties less than 15 years old and most single-family homes, unless they are owned by a corporation or an LLC in which at least one member is a corporation.
The “just cause” eviction component means landlords will have to list one of several reasons why they want to evict a tenant from their property. This applies to any tenants that have been living in a unit longer than 12 months. The reasons include nonpayment of rent, breach of material term of lease, nuisance, criminal activity by a tenant, assigning or subletting in violation of a lease, and refusal to allow the owner to enter the unit. This part of the bill was designed to give a measure of protection to tenants, who can currently be evicted in California without a landlord having to list a reason.
However, there is also a no fault just cause stipulation in which an owner does have the right to evict a tenant if the owner intends to occupy the unit with a family member or make renovations to the property, but it has to be spelled out in the lease. An owner would also be required to pay a relocation fee.
There’s a 10-year sunset date, after which the law will be reevaluated
The law officially goes into effect on January 1, 2020 and expires after 10 years.
“It’s because we do have a housing crisis,” said Grewal. “And we can’t just build new buildings in a day to solve this housing crisis, so they’re hoping to come back on January 1, 2030 to reevaluate whether to continue to extend this law.”
The law covers all residential properties—even market-rate
All residential properties in California are covered in the AB-1482 bill, even market-rate properties. According to a report from the Terner Center, that could mean about 4.6 million households in the state would be impacted by the law.
“If a property has two units or more, it is covered in the bill, unless the owner lives at the property,” said Grewal.
City regulations supersede the state law
In certain cities where there are local rent control or rent regulation laws, like San Francisco and Los Angeles, the local measures would still rule. In cities with limited rent control, the bill will apply to properties built after 1995, which have historically been exempted from rent control measures by California’s Costa-Hawkins Act.
“Locals are still allowed to make more stringent laws or further caps,” said Grewal.
Rents will be rolled back to March 15, 2019
When the bill goes into effect on January 1, 2020, rents will be rolled back to March 15, 2019. From that point forward, the 5 percent annual rent cap plus CPI will be instituted.
“Let’s say if people were reading the news and thought well, we need to get the rent increase done now—if they raise now, there will be a rollback,” said Grewal.