California Tenant Protection Act of 2019

(CA Assembly Bill 1482)

September 2019

Q: What is Assembly Bill 1482?

A: This bill limits apartment rent growth in California by placing an upper limit on annual rent increases and restricts tenant eviction:

• For apartment properties where rent control applies, rent increases will be limited to 5 percent plus inflation or 10 percent (whichever is lower). Concessions and discounts are excluded.
• The bill requires a landlord have and state a just cause for eviction of tenants who have occupied the premises for a year.
• This bill does not preempt any local rent control or just cause ordinances.
• The legislation will take effect in January 2020 and sunset in 2030; however, it is retroactive to March 15, 2019.
  • Rent increases between March 15, 2019, and January 1, 2020, are subject to this new cap.
  • Rent increases shall not be increased by more than two increments since March 15, 2019.

Q: When can rents be adjusted to market value?

A: When an apartment unit is vacated and rented to a new tenant, the new lease can be adjusted to market rates.

Q: What properties are affected?

• Apartments that are older than 15 years (built prior to 2005).
• Contain at least two rental units (non-owner occupied rental units).

Q: Are there exemptions?

• Properties that are less than 15 years old (rolling 15-year lookback starting with 2005)
• Properties regulated by local rent control laws under the Costa­Hawkins Rental Housing Act. Example:
  • The city of Irvine does not have a rent control ordinance in place but now must adhere to AB 1482’s provisions.
  • The city of Berkeley does have rent control provisions in place under Costa-Hawkins. While 1995 or later is defined as “new construction” under Costa Hawkins, it is not under AB 1842 and would be subject to the new provisions through 2005.
• Single-family homes, including condos, townhomes (anything separately alienable), unless owned by a REIT, corporation, or limited liability corporation in which at least one member is a corporation.
• A duplex or a house with a granny unit, if the owner occupies one of the units.
• Housing that is subject to an agreement that provides subsidies for persons and families of very low, low, or moderate income.

Q: What are the new guidelines for evicting an apart­ment tenant?

A: Landlords may only terminate a lease of residential real prop­erty “for cause” for a tenant who has lived in property for over 12 months, or 24 months in the case of two or more tenants.

• For any leases terminated without cause, landlord must provide relocation assistance of one month’s rent.
  • Just cause provisions now includes, but not limited to: nonpayment of rent, criminal activity, refusal to sign a written extension or renewal of the lease, and unauthorized subletting.
• Investors who want to convert a building to condominiums or make substantial renovations to units could evict tenants but would have to pay relocation assistance equal to one month’s rent.
• Landlords can still evict tenants for several reasons:
  • Nonpayment ofrent.
  • A breach of the material term of the lease.
  • Nuisance, waste, unlawful, or criminal activity.
  • Refusal to sign a written extension or renewal of the lease.
  • Assigning or subletting.
  • Refusal to allow the owner/manager to inspect the unit with appropriate notice.
  • The owner moving themselves or family into a unit.
  • To renovate.
  • To go out of business altogether.

Q: What does this do to apartment property values?

A: The new rent control legislation will have varying effects on property values depending on several factors. In outlying areas that rarely achieve rent growth above 5 percent, the implications will be minimal. Increased tenant rights, such as barriers to eviction, will come into play, but they will have a nominal effect on property valuation. In areas with more restrictive rent control there will likewise be little effect. For other areas, the implications could be multifaceted. Because rent control lowers the incentive to build more apartment units, supply limitations will restrain vacancy levels and increase pressure on rent growth. Property values will be highly dependent on tenant turnover and the ability to raise a specific asset to market.

Q: How does this impact me as an investor?

A: Investors can still achieve their strategies within the confines of the new legislation, but careful planning and a comprehensive under­standing of the market and regulations will be important. Investors must consider that rent control often deters new construction, so limited supply growth will mesh with limited rent growth under the new rules. As a result, vacancy rates will likely tighten even further, transform­ing the investment landscape into one of controlling costs and managing long-term slow growth revenue streams.

Q: What happens to property improvements going forward? Are there any advantages to “value-add” properties?

A: Restraining rents reduces the return on investments into rental housing, diminishing the quality and quantity of the existing stock. Main­tenance and repair can fall to the side as owners have to contend with slimmer margins. While the current cap should provide investors with enough revenue to keep up with property improvements, statewide rent control opens the door for more regulations and the possibility of a lower cap going forward.

Q: What were the most recent market average effective rent increases for each major California metro?

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