Article by Tyler Moran

Governor Newsom recently signed a bill which has the potential to change the entire landscape of landlord-tenant law.  In an attempt to make housing in the state more affordable, AB-1482 instead created an incentive for all California landlords to raise rental rates an average of 7% per year, every year, regardless of changes in market value.

The bill consists of two parts: the “rent cap” requirement, and the “just cause” requirement, and mandates that notice be added to all leases informing tenants of these requirements.

The Rent Cap Requirement

Rental rates on residential real property cannot be raised annually more than 5%, plus inflation, up to a maximum of 10%.  The cap only applies to existing tenants over a 12-month period, and is not applicable if the tenancy is terminated and a new tenant moves in.  This portion of the bill is retroactive, and applies to all rental increases since March 15, 2019.  Though meant to keep rental rates affordable, it is likely that landlords will now raise their rates to the statutory maximum every year out of fear of falling behind.  If rental rates are allowed to stay stagnant, and market values suddenly increase sharply, property owners will no longer have the ability to make up the difference by raising rents above the cap.

There are several exemptions to the rent cap listed in the statute.  Two of the most important exemptions are for “housing that has been issued a certificate of occupancy within the previous 15 years” and “residential real property that is alienable separate from the title to any other dwelling unit.”  The first exemption provides that newly constructed properties are exempt for 15 years from the date they receive their certificate of occupancy.  This is a rolling date.  The legislature hopes this will avoid hindering new development.  The second exemption allows for single-family residences and condominiums which do not share title with other dwellings to be exempt so long as the owner is not a real estate investment trust (REIT), a corporation, or an LLC in which a member is a corporation.

The Just Cause Requirement

After a tenant has lawfully occupied a residence for 12 months, a landlord may not terminate the tenancy without just cause.  This is to prevent landlords from evicting tenants simply to avoid the rent cap requirement.  According to the bill, there are two types of just cause: at-fault, and no-fault.

At-fault just cause occurs when the tenant’s actions are the justification for termination.  The bill specifically enumerates what constitutes just cause, and includes: non-payment of rent, breach of a material term in the lease, committing nuisance, and other disruptive or illegal behavior.

No-fault just cause occurs when the landlord’s actions lead to the termination.  Again, the bill specifies what constitutes no-fault just cause.  These include intent to occupy the property by the owner or the owner’s family, withdrawal of the residential real property from the rental market, and intent to demolish or substantially remodel the property.  To terminate a tenancy for no-fault just cause, the landlord must compensate the tenant for the inconvenience of moving.  This may be accomplished by either providing direct payment for relocation assistance equal to one month’s rent, or waiving in writing the final month of rent.

This is likely to be the most litigated section of the new bill.  There is no specified time for how long an owner needs to occupy a unit, or for how long a unit needs to be off the rental market in order to satisfy this requirement.  This leaves a big loophole for landlords to evict tenants by moving in temporarily or by removing the unit from the market for a short period of time in order to increase rent on the next tenant.  As long as landlords are willing to forego rent for the last month of a tenant’s term, this loophole may arguably allow them to avoid the rent cap altogether.

There are several types of properties exempt from the just cause requirement, including single-family homes and condominiums (subject to the ownership requirements previously mentioned) and certain owner-occupied rental units.

Notice Requirement

Another important change to current law is the notice required for termination of a tenancy.  A “3-day notice to cure or quit” is no longer acceptable.  If a landlord wishes to terminate a tenancy due to a curable violation of the lease, the landlord must deliver a 3-day notice to cure.  If the violation is not cured within that time period, then the landlord can deliver a 3-day notice to quit without an opportunity to cure.

For more information you can read the text of the bill here: