What is California Assembly Bill 1482 & How Does it Impact Landlords?
California Assembly Bill 1482 which takes effect January 2020 places a limit on how much rent can be increased in a year and places certain restrictions on tenant evictions. Rent is limited to a 5% annual increase plus inflation, with the combined total not exceeding 10% a year.
The Bill also requires a landlord to have and state “Just cause” for eviction of a tenant that has resided on the property for a year or more, or twenty four months in the case of two or more tenants. Just cause reasons for eviction include nonpayment of rent, criminal activity on the property, unauthorized subletting or refusal to sign a written renewal of the lease.
Any material breach of the rental or lease agreement like creating a nuisance or waste is also just cause for eviction, as well as refusal to allow the landlord to inspect the premises with adequate notice.
For any lease that is terminated without cause, the landlord must provide relocation expenses equal to one month’s rent. For example, eviction without cause is allowed if the owner or a family member of the owner is moving into the unit. Other common reasons for eviction without cause include remodeling the unit, converting an apartment to condos, or the landlord getting out of the rental business.
Rent values may be reset without the limitation of rent control with new tenants.
What Rental Properties are Covered by this New Law?
The Bill does not preempt local rent control or just cause eviction ordinances in communities where they currently exist. However, it can expand rent control to cover units that are not already protected in areas that currently have local rent control ordinances depending upon the age of the building.
Properties that will be affected by AB 1482 are building that are older than 15 years old and contain a least two rental units that are not occupied by the owner. Buildings that are less than 15 years old are not. This is a rolling date, meaning in 2021 a building built in 2006 would be covered.
In this way, AB 1482 can impact buildings within communities that currently have rent control that do not cover structures within that 15-year period. For example, in the City of Los Angeles, the Rent Stabilization Ordinance known as LARSO only covers buildings constructed before 1978. There are thousands of apartment units that were built from 1978 to 2005 that will be covered by AB 1482.
California Assembly Bill 1482 primarily applies to apartments and other multi-family buildings with a few exceptions. Single-family homes, condos, and duplexes where the owner lives in one unit are exempt, unless they are owned by a corporation or real estate investment trust (REIT) in which case they are covered by this new law.
How is the Rate of Inflation Determined?
The rate of inflation is determined by the Consumer Price Index which is unique in each metropolitan area. For example, in the last 15 years, the CPI has averaged 2.5 percent in the Los Angeles Metropolitan Area.
How will California Assembly Bill 1482 Impact Property Values?
The impact will vary depending upon several factors, including if the rental property is located in urban areas that have been experiencing the highest rental increases or outlying areas that do not usually see increases above 5 percent a year.
Rent control reduces the incentives to build new rental properties which in itself increases pressure on rent growth by limiting vacancies. Over the long term, rental property values – which are usually based upon multiples of annual rental income – will become dependent upon tenant turnover to raise the value of the property to market value. This has been found to make a significant impact on property values in cities that have had rent control for extended periods of time like Santa Monica.
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