On October 8, 2019, Governor Gavin Newsom signed Assembly Bill 1482, known as the Tenant Protection Act of 2019. This legislation enacted statewide rent control throughout California, effective January 1, 2020. There are numerous provisions included in this bill that impact tenants and landlords alike. We’ll discuss the specific provisions and future impacts of AB 1482 throughout this article.
A Brief Summary Of AB 1482
Assembly Bill 1482 was introduced by Assemblyman David Chiu (D-San Francisco) and specified two statewide tenant protection measures. First, AB 1482 extends just cause eviction protections to residential property tenants that weren’t covered under the prior eviction laws. Second, it forbids landlords and property owners from increasing rent by more than 5% plus inflation or 10%, whichever amount was lesser, more than once per 12-month period for tenants who have lived in the same unit for over a year.
It’s worth noting that AB 1482 only applies to buildings 15 years after their construction. This is a rolling date, which means that units built in 2006 and 2007 will be covered under AB 1482 in 2021 and 2022, respectively. In general, AB 1482 only affects apartments and multi-family units, but it also applies to single-family homes, owner-occupied duplexes, and condominiums that are owned by a corporation or an LLC.
“Just Cause” Tenant Protections
Under AB 1482, landlords must have a “just cause” to evict tenants who have lived in a unit for at least one year. There are two types of just cause described within AB 1482, at-fault just cause and no-fault just cause.
At-fault just cause is defined as any of the following circumstances:
- Default (failure) in rent payment
- Criminal activity
- Breach of the material terms of the lease
For “curable” or fixable lease violations, landlords must offer renters the chance to resolve lease violations before eviction.
No-fault just causes under AB 1482 include any of the following scenarios:
- Repossession of property for immediate use by owner or owner’s family
- Withdrawing the property from the market
- Demolishing or remodeling the property
- Eviction efforts made in compliance with a local ordinance issued by a government agency
In addition to the “just cause” requirement, landlords must also give tenants pre-termination notice and either pay for the tenant’s relocation expenses or waive the tenant’s final rent payment. The amount of paid relocation assistance or rent waiver must be equal to one month of rent at the time of the landlord’s termination notice to the tenant.
Rent Increase Limitation
The second aspect of AB 1482 relates to rent increases, capping rent increases at 5 percent plus inflation, as calculated for the regional Consumer Price Index (CPI) with a maximum of 10%. This statewide rent cap only applies to cities without a pre-existing local rent control law. This means that regions under legislation that offers tenants greater protection, such as the San Francisco Rent Ordinance, and the Costa-Hawkins Rental Housing Act, are not impacted by the rent cap provisions of AB 1482.
Vacant units are also not impacted by AB 1482, allowing owners the opportunity to reset rental prices to the market rate during vacancy and resume conforming to AB 1482’s annual cap of 5% plus the regional CPI rate.
Does Rent Control Resolve Housing Issues?
Both tenants and lawmakers support legislation like AB 1482 because it provides long-time tenants with security against displacement due to unaffordable rent increases. As housing costs continue to rise, but wages stagnate, rent control legislation intends to offer a win-win solution. This security provides tenants, especially lower-income tenants, with the chance to gain and maintain their financial stability. Tenants of rent-controlled units can also enjoy neighborhood-specific capital without fear, like proximity to a job, a local school, or close friends among their neighbors. Landlords also benefit from rent control legislation because there are fewer tenant turnovers as tenants are more inclined to stay in their units for the long term.
The Reverse Effect
However, rent control efforts often backfire and have the opposite effect from what is intended. In a paper entitled, The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco, Stanford economists Rebecca Diamond, Timothy McQuade, and Franklin Qian analyzed San Francisco’s 1994 rent control efforts and found that landlords and owners reacted to local rent control laws by withdrawing properties from the market, selling property, or converting their rental properties into condominium units. The housing supply dwindled as affordable apartments were turned into upscale condominiums to avoid rent control legislation. Ultimately, the rent control legislation decreased the affordability and supply of housing – the exact outcome it was enacted to prevent.
“I Ain’t Moving.”
Similar research on the long-term effects of rent control has shown that a mismatch often occurs between tenants and their rental units. Once a tenant has moved into a rent-controlled unit, they will be very unlikely to move, even if their housing needs change. This unwillingness to move ultimately leads to empty nesters living in family-sized homes and young families inhabiting studio apartments. This inefficient, uncomfortable living situation is certainly not the intent of rent control advocates, who want to ensure affordable, adequate housing for all.
Dodging Rent Control Legislation
While this is not a legal advice blog, certain conclusions can be drawn from a careful analysis of the impacted building types described in AB 1482.
For landlords and owners who wish to avoid the rent cap imposed by AB 1482, there is a possible loophole that owners may be able to use to avoid the rent cap provision. AB 1482 only applies to apartments, multi-family units, and owner-occupied duplexes and condominiums owned by a corporation or LLC in which at least one member is a corporation. Theoretically, an owner could navigate the rent cap provision by switching ownership of their units to a partnership or individual. Of course, it is assumed that these units are not located in regions under local rental control, like Berkely, Oakland, and San Francisco, or similar legislation.
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If you decide to change ownership, note that a new public report will be required since the ownership entity or structure will have changed. You can trust our staff to deliver professional DRE public report services that are accurate and prompt, given our years of experience working specifically with the Department of Real Estate in California. Depending on the development type and time since your last public report, a reserve study may need to be conducted. A change in ownership would be considered a “material change” and can be a short expedited amendment, assuming no major changes are made. Request a proposal today and learn why California Builder Services is a trusted name among California developers and property owners.
