Rent Control is Already Here - So What’s Next?
We are coming up on 3 years since AB 1482 went into effect and all multi-family rentals in California became subject to rent caps as well as just cause requirements in order to terminate tenancies.
Single-family homes owned by corporations as well as those who did not send a required notice or incorporate new language to their leases were also affected alongside multi-family owners.
Since then, we went through the COVID-19 pandemic which brought a slew of renter protections, many so complicated that even those who were responsible for enforcing them couldn’t make sense of them.
Most COVID-19 era restrictions have now been done away with (with the exception of L.A. County, which sunsets on 12/31/22), but the rental landscape remains only slightly less complicated today than it did a few months ago.
So what’s next for California landlords? Are things “back to normal” or are there more changes that California landlords should be on the lookout for?
Let’s analyze a few trends we are noticing and peer into the proverbial crystal ball to predict what the future may hold and what you can do to be prepared.
One thing that has been really interesting to watch is the steps certain cities are taking to enact their own forms of rent control and/or restrictions on tenancy terminations.
In August 2022, the City of Pomona enacted Urgency Ordinance No. 4320 which applies to properties that are already subject to AB 1482.
In this ordinance, the City uses its police power to protect what it perceives as the most vulnerable citizens - renters of multifamily units. Instead of the 5% + CPI increase restriction of AB 1482, the City of Pomona restricts rent increases to 4%. Prior to this urgency ordinance, Pomona landlords could increase the rent by the AB 1482 limit which was 5% + CPI, not to exceed 10%. With CPI being so high, that restriction has been 10% and is now reduced to 4%.
In a country currently experiencing 7.7% year over year inflation, the City of Pomona thinks it's “fair” to limit rent increases to almost half of that at 4%.
Beyond just the rent increase, landlords also have to send their reason for terminating the tenancy by certified mail to the City. If the landlord does not do that, the tenant can use the landlord’s failure to follow this emergency ordinance as a defense in an unlawful detainer. The City also increases the amount of time that a tenant has to cure a material breach of the agreement from the State designated amount of 3 days to 10 days.
And that’s just when your tenant is doing something wrong such as not paying rent or violating the lease. There are additional restrictions for landlords who want to terminate tenancies for “no fault just cause reasons.”
Landlords are restricted from terminating tenancies of tenants who have resided in the premises for more than 10 years and check certain demographic boxes.
And if the landlord is determined to meet the required justifications for terminating the tenancy for no fault just cause, they have to pay the tenant two times the rent plus $1,000 in relocation assistance.
So if you own a duplex in Pomona currently rented out for $2,200 per month and want one of your kids to be able to move in, you have to jump through serious hoops to satisfy both the City and State and then pay the outgoing tenant $5,400 to leave.
Just last month, the City of Claremont enacted Urgency Ordinance No. 2022 which does away with the extensive remodel just cause reason that landlords are able to give tenants under AB 1482 to recover possession of their own property.
For the next 6 months, landlords of properties with more than 20 units that are normally subject to AB 1482 are unable to use the most common just cause reason for terminating tenancies.
While Claremont’s restrictions are significantly less extreme than the neighboring city of Pomona, they are still an additional step beyond the statewide rent control that already exists.
And remember, statewide rent control and just cause restrictions have only been in effect since 2020. City restrictions are accelerating quickly considering it was just 3 years ago where neither State nor local restrictions were in existence for Inland Empire landlords.
What this Means for You
You may be breathing a sign of relief because you either don’t own a property in one of these cities or you own a Single-Family home, townhome or condo. Here is where we get to the crystal ball speculative portion of the article.
My prediction is that over the next several years, the exemption clauses of AB 1482 for Single-Family homes, townhomes and condos will be removed. The law is currently written to affect all residential properties in California and then has a quick exemption clause added to remove its effect on SFRs. It would be very easy for either voters or the legislature on their own to strike that exemption clause.
Additionally, it is likely that many local counties and cities will watch what others are doing, seemingly successfully, and implement their own rent control and just cause measures. These measures get implemented very quickly in just a few city council meetings, and tenants make up the vast majority of the public who shows up to voice support or concern for measures like this.
I hesitate to make an exact prediction, but if I were a betting man, I would venture to guess that all residential rentals in California will be under some form of rent control by 2030.
The affordability crisis is real and the California breakdown of tenants vs homeowners is just about 50/50. For many tenants, the prospect of ever owning a home in the future seems impossible. Because of that, many tenants will continue to vote for every tenant protection type of law that comes up.
And as the State slowly shifts to a tenant majority State, politicians will be more motivated to tailor their platforms to tenants and increased tenant protections.
Additionally, California will continue to make it more and more difficult to screen tenants. Earlier this year, failed AB 2527 sought to make it so that landlords could not use credit reports when screening tenants.
You read that right. No use of credit reports or credit scores to screen tenants. Landlords would have to resort to the “Eeny, meeny, miny, moe” method of selecting tenants.
Again, that bill failed but the fact that we have legislators introducing this type of nonsense should give you pause.
California also makes it basically impossible to use any form of criminal history as an adverse reason to refuse to rent to a tenant. For more about that, check out the most recent DFEH regs. This is due to the unintended bias theory and it will likely become illegal at some point in the future to use any form of criminal history as a reason to deny tenancy.
What You Can Do
It is almost entirely certain that going forward, it will be more restrictive than ever to screen tenants and harder than ever to remove bad tenants.
You must have a solid tenant screening process in place. Don’t ever believe a tenant sob story or make an exception to your rental criteria. The stakes are way too high if you place a bad tenant.
You also must keep up with market rent as best as you can on your existing tenants. You may not be subject to any form of rent control right now, but you don’t know what tomorrow will hold. Keep your tenants as close to market rent as you can so you don’t get behind and have to face extreme rising costs without the ability to raise rent to cover them.
Finally, hire a property manager if you don’t want to navigate this alone! We follow developments in landlord/tenant law and we don’t just react to new laws. We do our best to monitor our crystal ball and make moves on your behalf to put you in the most secure position possible to face these future uncertainties.
The State sees you as the enemy but we couldn’t disagree more. If you are willing to face this difficult legal climate in order to provide rental housing, you deserve to be celebrated!
Keep up with the laws. Screen your tenants with strong requirements and in compliance with Fair Housing laws. Increase the rent when you can and to as close to market as you can. California is still an extremely lucrative State to own rental property in. And if you haven’t already, hire us. Let us handle all this so you can do anything except try to keep up with all these laws and rules. We’ve got your back.