On October 8th, 2019, California Governor Gavin Newsom signed Assembly Bill 1482 (AB1482) into law as part of on-going efforts to combat housing challenges facing Californian renters and lawmakers. For decades this issue has been fiercely debated and thrust into the public limelight, even as recently as the failed Proposition 10 that was rejected by California voters during 2018 elections.
But how does AB1482 actually affect renters and landlords when it goes into effect on Jan 1st? Should renters rejoice? Should landlords condemn these efforts? Is the great on-going California housing crisis finally solved? For the most part, the answers range from Maybe to Definitely Not.
Let’s break it down:
- Starting January 1st, 2020, AB1482 will apply to all California residential rental properties (there are some exemptions, noted below) where local rent control laws do not already exist (such as the Costa-Hawkins Rental Housing Act).
- Under AB1482 annual rental rate increases will be restricted to 5% (plus local inflation rates) on properties built prior to 2005. This is a “floating” 15-year period meaning in 2021 it will apply to anything before 2006, in 2022, anything before 2007, etc.
- There are exemptions for new construction that has opened within the last 15 years, so any new apartment complexes will be allowed to list units at whatever “market” levels they choose (of course landlords will have to adhere to any government-imposed restrictions as well such as Affordable Housing mandates, etc.).
- There are also exemptions for any rental Single-Family-Residences (SFRs) or condos/townhouses as long as they are not owned by a REIT (Real Estate Investment Trust), Corporation, LLC, etc. Duplexes will also be exempt as long as one of the units is occupied by the property owner.
- AB1482 also adds a provision requiring landlords to have “Just Cause” when removing a tenant, these can be understood as “At Fault” reasons related to the tenant’s performance or “No Fault” reasons related to landlord actions. Below are some examples of each:
- At Fault – Tenant stops making lease payments; Tenant is involved in criminal activity within the residence; Tenant breaches requirements of lease, etc.
- No Fault – Landlord plans to occupy property; Landlord plans to substantially renovate or rehabilitate property which requires tenant to leave premises; Landlord plans to complete demolish property, etc.)
- However, these “Just Cause” provisions only kick in once a tenant has been in place for 12 months or longer. For “No Fault” evictions, landlords will be required to provide one-month rent to offset tenant moving expenses, which can be in the form of direct payment or by giving free rent at the end of the lease term.
- There are still no new restrictions on rental rates after a space has been vacated, regardless of property age. So, once a tenant moves out, the landlord is free to bring the rental rate up to “market” level (the 5% cap + inflation does not apply).
Most discussions over AB1842’s potential long-term effect usually boil down to an ever on-going talking point – Supply vs Demand. When supply is constrained, and demand is high, rental rates will continue to grow. At the end of the day, it sounds like the biggest issue for the California housing market is still its lack of housing.