The California Tenant Protection Act of 2019: A Guide for Landlords and Tenants
The housing crisis has been a big issue in the US, especially in populous states like California. According to Orange County, the housing shortage stood at 3.8 million homes in 2019, more than double the 2012 figures. California devised a long-term solution to the housing crisis—the California Tenant Protection Act.
The tenant protection legislation introduced far-reaching regulations relating to rental price increments and the eviction of tenants from buildings. This article provides in-depth information on vital provisions of the act and its impact on tenants and landlords.
The California Tenant Protection Act
The California Tenant Protection Act is also known as Assembly Bill (AB) 1482. In October 2019, Governor Newsom signed the AB 1482 act into law, which outlined the relationship between the tenant and landlords in California.
It went into effect in January 2020 with an expiration date of January 2030. The act puts rent limitations, control policies, and restrictions on rental properties in California. It came into existence to curb California’s housing crisis and was meant to instill better rental control where there are no rent controls.
The overarching principle is that a landlord needs a ‘just cause’ to evict a tenant. It applies to all houses except some of the following:
- Homes constructed during the last 15 years
- Properties that have restrictions placed by a recorded document, deed, or regulation limiting their affordability to moderate or low-income families.
- Certain dormitories
- The property gives the tenant notice that the house is not subject to a “just cause” clause
- The unit is already under a local rent control ordinance limiting annual rent increases to less than 5%
Important Provisions of the Act
The signing of the Assembly Bill 1482 heralded a new regime of rent control legislation that affected landlords and tenants. Some of the main points of the tenant protection act include:
An annual cap on rent increases
As of January 2020, the law enforced a statewide cap on rental properties, with landlords only allowed to increase rent by only 5% annually, plus inflation. Inflation is defined by the Consumer Price Index of the area. This can be found out on the U.S. Bureau of Labor Statistics website. The website has CPI for every county. The law is to stay in operation for the next 10 years unless voted otherwise.
For instance, if the current CPI is 3.3%, the landlord is allowed to increase the rent up to 8.3%. But the increase cannot exceed 10%. Further, property owners may not increase rent more than twice in 12 months. The total increase they can do in a 12 month period cannot exceed the above formula of 5% + CPI.
Owner residing properties exempted
The AB 1482 act applies to all buildings and apartments with more than one unit. Units under exemption are single-family houses and duplexes where the owner resides in one of the bedrooms or units. However, if a cooperation or an investment trust owns such facilities, the tenant protection act will still apply to them.
The evictions should have a just cause
Another provision of the tenant protection act limits the powers of eviction by a landlord. Property owners cannot evict tenants who have lived in a building for more than a year or have their leases renewed ‘without a just cause.’
Instead of evicting the tenant, the landlord should give them time to correct lease violations. However, if a landlord is to evict the tenant, they can proceed to do so using the following types of ‘just causes:
- At fault cause: Where the tenant engages in activity that justifies getting evicted, such as participating in criminal activity or failing to pay rent.
- No-fault just cause: Occurs when the landlord needs the tenant to vacate the unit, although they are not at fault. For instance, the property owner wants to conduct a major remodel of the property or occupy it, or the government needs it vacated.
That said, if the owner decides to evict a tenant due to a no-fault just cause, they should pay a relocation assistance fee equal to one month’s rent. Before they evict the tenant for an at-fault offense, they must give them a chance to rectify their violation.
The Impact on Landlords
Although these rent control laws benefit tenants more than landlords, this is not always the case. The AB 1482 act benefits landlords by incentivizing tenants to stay in the rental property for the long term. As such, this saves the landlord money, which they would have lost if the house was to be vacant.
Moreover, some economic studies have revealed that rent control has led to misallocation between the tenant and the rental unit. For instance, an empty nest family will prefer to continue living in their family-sized building rather than move out, as it would mean they would have to pay more for a smaller unit. Larger families bear the brunt of this due to the low supply of such units.
In our opinion, AB 1482 doesn’t affect landlords that negatively as advertised. It still allows a significant amount of rent increase every year. When a tenant vacates the unit, it also allows the units to be rented at market rent. We have an issue with excessive rent control enacted by some cities or counties in California, in addition to AB 1482. Unfortunately AB 1482 doesn’t prevent stricter laws by the municipal bodies.
The Impact on Tenants
It’s impossible to overestimate the law’s positive impact on tenants, at least in the short run. The act aimed to control rising rental prices and reduce tenant evictions, and it has been spot-on ever since. For instance, it has helped limit the displacement of tenants by providing price caps preventing wanton rental increases.
In the long run, however, the rent control policies can lead to increased risks of rent appreciation. That’s especially true for long-term tenants who have neighborhood-specific capital and stay near their workplaces. Additionally, although rent control is beneficial, the overall cost is significant.
To stem the disastrous effects of the housing shortage, California passed the Tenant Protection Act (AB 1482), which has attained some level of success. Since it came to effect on January 1, 2020, it provided extra protection against evictions for tenants who have lived on a property for more than a year.
But it’s not just one-sided. Landlords benefit from the act because it incentivizes long-term stay, allowing landlords to increase the rent in pace with the inflation.