The South Bay Real Estate Market is Now Rent-Controlled

It is not 100% official, but California Assembly Bill 1482, which will create statewide rent control throughout California, has been approved by the State Senate and Legislature.

Governor Gavin Newsome has pledged he will sign the bill, making the new rent control law effective throughout California in a matter of days.

This new law is a resounding victory for tenant advocates and a disappointing loss to landlords.

As a result, the South Bay real estate market is now rent-controlled.

This is a new way of life for the local real estate community and it will take time for all to adjust to the new laws.

Since this is massive breaking news for California real estate, I will read every word of the bill over the weekend and post a follow-up blog next week outlining the new law in detail and how it will affect the South Bay real estate market.

For now, here are the rough highlights of the bill…

Highlights of the New Rent Control Law

Effective Immediately

If you are in a rush to give your tenant notice of a big rent increase in order to avoid complying with the law…forget about it. You’re too late.

The new law will retroactively apply to all rent increases on or after March 15, 2019. So, any and all new rent increases and/or notice to vacate will need to follow the new law.

Rent Control CAPs

Tenants who have continuously occupied the property for 12 months or longer will have protections that limit rent increases to 5% plus “the percentage change in the cost of living,” which some experts have claimed to be around 2.5%.

The maximum increase in all circumstances cannot exceed 10%.

“Just Cause” Evictions

The “just cause” evictions are well-known to landlords and tenants that already operate under the Rent Stabilization Ordinance (RSO) in the city of Los Angeles. However, this will be a big adjustment for landlords in the South Bay.

In the past, non-rent-controlled properties could give a “60-day notice to vacate” to their tenants on month-to-month leases. Prior to this new law, a landlord could take back possession of their rental unit for any reason.

That freedom with one’s property is now a thing of the past.

A landlord must now have a “just cause” reason to evict or terminate a tenancy. Those include some of the following:

• Default on payment of rent
• Violation of the lease
• Being a nuisance
• Committing criminal activity
• Etc. (the list goes on)

If a tenant is paying their rent and following the terms of the lease, then a landlord cannot ask the tenant to move out for any reason. There are only a few exceptions, known as “no-fault just cause” evictions. Here are some of those exceptions:

• The owner or owner’s immediate family intent to occupy
• Withdrawal of the unit from the rental market
• An issue ordered by the government or local ordinance
• Intent to demolish or substantially remodel the property*

*This is a massive loophole that I will discuss in next week’s blog.

Vacancy Decontrol

Although this is not in the bill, Vacancy Decontrol is worth mentioning because it was debated.

Vacancy Decontrol does NOT allow landlords to move their units up to market rate once a tenant vacates a unit. For instance, if a unit is worth $1,000 a month on the open market and is currently only charging $500 a month, vacancy decontrol would only allow the landlord to bring up their rent a certain percentage…not to the full $1,000 a month once a tenant vacates.

Today, landlords can ask whatever rent (market rate) when a tenant leaves their unit.

Two other states, Oregon and New York, have implemented statewide rent control laws.

Oregon did not adopt vacancy decontrol, while New York did adopt vacancy decontrol.

California decided to follow Oregon and not implement vacancy decontrol.

Exemptions and Applications

The following exemptions to this new state law apply to some cases below (there are more, but these are the most common):

• New construction property built in the last 15 years
• Duplexes which are owner-occupied as a principal residence (before tenancy commences)
• Single-family owner-occupied residences renting an ADU or bedrooms (up to two beds or two units)
• Any property “that is alienable separate from title to any other dwelling unit, provided…”
  • That the owner is not the following:
    • A REIT
    • A corporation
    • An LLC in which at least one member is a corporation

So, essentially single-unit dwellings like single-family homes, condos, town homes, planned unit developments (PUDs), that have their own assessor parcel numbers (APNs) and are owned by individuals, would be exempt from the law.

Some of the following applications of how the law would be applied to current areas and cities are as follows:

• Any area in the state that does not have its own current rent control laws will be subject to the new law
• Cities that already have rent control laws but that do not cover all properties
  • For instance, the city of Los Angeles has rent control on properties built before 1979
  • Now, properties that were exempt from Los Angeles rent control, aka property built after 1979, will have to abide by the new state law
• Of course, cities and counties can choose to implement more stringent laws if they so choose
  • For instance, the county of Los Angeles is imposing even stricter laws on unincorporated county areas and limiting increases to 3%

Final Thoughts

Since this is breaking news, I do not have my full thoughts on the bill.

As many of you know (or if you don’t know), I am a renter for my primary residence and own income property as a landlord (my portfolio includes rent control and non-rent-controlled property).

At the end of the day, everyone has to play by the same rules and laws. The market is efficient and adjusts to new laws accordingly.

Some people will be hurt by the law and others will gain from the law.

That is just how new legislation goes.

After I have time to really digest the new laws and think more deeply on the intentions, effects, and unintended consequences, I will share my thoughts and opinions on how it will affect South Bay landlords and the overall market in greater Los Angeles.

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