AB 1482 Tenant Protection Act of 2019 Can Backfire for Tenants

Happy 2020 everyone! I hope that this year brings lots of success for people, especially in finance and investing. The reason I stress these two things in particular, is because I believe that things won't be as easy as they are now. Easy is relative, I know, with high prices of just about everything. This includes rents. One of the biggest things in California to affect real estate beginning in 2020 is AB 1482, the Tenant Protection Act of 2019. This adds to existing rent control housing and newer housing by capping rent increases by no more than 5%. While the Act is a good step towards additional tenant protection, 5% is still a pretty large increase. For a rental that is $2000/mo, that's still a $100 increase the following year, then another $105 the year after that. That's not much protection in my opinion. What is expected to happen is that Landlords will take advantage of any applicable rent increases that they otherwise wouldn't impose--which is a sad blowback of this Act.

Plus there are so many exemptions to this Act, and below are just a few. Note: This act has basically skipped over DTLA, where the majority are individually owned condos! (And another reason I'm so bullish about buying DTLA housing!)

• New Construction – housing that was issued a certificate of occupancy with the previous 15 years. This means some of the housing previously exempt under Costa Hawkins will now be subject to the State’s rent control provisions.
• Owner-Occupied housing accommodations in which the tenant shares a bathroom or kitchen facilities with the owner who maintains principal residence with the residential real property;
• Owner-occupied duplex in which one of the units is the owner’s primary residence at the beginning of the tenancy and the owner continues in occupancy;
• Single-family homes and condominiums if the owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation.

For owners/landlords, DTLA is one of the best places for exemption from AB 1482.

For buyers, a 30-year fixed on a DTLA condo where the price of your mortgage won't change for 30 years can be better than living in a rent control property, where prices can (and will) be raised annually. 

New Rent Control Laws Affecting All of California

From the American Apartment Owners Association:

Creating rent control for a state as vast as California is no easy task. While California voters said no to rent control last year, lawmakers didn’t give up, and the new legislation includes compromises on a few key issues. The rule, California Assembly Bill 1482, excludes cities that already have rent ordinances. That happens to include the two largest cities, San Francisco and Los Angeles.

In California, if a tenant has lived in a unit for 12 months, it becomes far more difficult to evict them and they can only be evicted if they:

• don’t pay rent,
• breach the lease in some other way,
• are involved in criminal activity on the property, or
• cause some other public nuisance.

Landlords can also evict if their immediate family will occupy the unit or if it’s being converted into a condominium. The landlord must pay the tenant’s relocation cost.

The legislation also doesn’t allow any California cities to create an annual rent control cap lower than 5% plus inflation. Single-family homes and condos are exempt from rent control, protecting smaller real estate investors. The California Apartment Association didn’t oppose the bill, but the California Association of Realtors issued a statement saying the new rules don’t do enough to increase the supply of affordable rental housing.

What landlords need to keep in mind

Even if rent control isn’t an issue in your community yet, it may be coming. For landlords, it’s always important to stay aware of what’s happening in your community. Pay attention to the local news where your rental is located and attend town meetings if possible. As a real estate investor, you can make your voice heard.

City and state legislation tends to focus on two core issues: the cost of rent and the process of eviction. As you determine your budget and the rent you need to charge, know that city or state regulations may limit your rents now or in the future by updating legislation.

As we’ve seen with the examples above, most laws and ordinances aren’t universal — there are generally different rules depending on the size and age of the building. Know where your property falls with regard to your local legislation.

Eviction is never an easy process, but most laws favor tenants. As a landlord, you’ll need to understand the process in your area before you need to go through it. Documentation of reasons for eviction is critical. Keep as many records as possible documenting the situation. While it’s impossible to predict the future, one way to lessen your chances of having to evict a tenant is through careful screening.

Individual real estate investors can be an important part of the affordable housing crisis and by staying aware they can protect both themselves and their tenants.