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Your California Investment Property Will Become Rent Controlled

Your California Investment Property Will Become Rent Controlled

If it isn’t already…

We are now three years into Statewide Rent Control here in California and a lot of landlords are still completely unaware of it.

To be fair, when I say “landlords” I am referring to the term from the perspective of the types of landlords that we serve, which primarily own single-family homes, townhomes, or condos. If you are a landlord that owns an apartment building, you are probably very aware of rent control and the effects it has had on your property.

I say that a lot are completely unaware of it because we talk to dozens of prospective landlords every month that are engaging us to use our services, and we almost always ask what they know about rent control.

“Rent control? No, my home is in San Bernardino County, not L.A. or San Francisco. We don’t have rent control here.”

Which is sort of true. For the most part, cities in San Bernardino and Riverside counties don’t have local rent control ordinances. Some do, but it’s pretty rare. But we aren’t talking about local rent control when we ask that question. We are talking about Statewide rent control.

AB-1482 went into effect on January 1, 2020 and was quickly forgotten when COVID disrupted our lives a few months later. However, that law is alive and well and restricts the amount you can increase the rent as well as requiring “just cause” reasons to terminate tenancies.

The reason most landlords we encounter aren’t aware of it is because Statewide rent control has an exemption clause for most single-family homes including townhomes and condos, as long as the required exemption clause is contained in the lease (which many landlords leave out). So it does not apply to the vast majority of clients that we serve. When we ask prospective landlords what they know about it, most know nothing at all because it doesn’t technically affect them.

However, a certain Senate Bill wants to change that and usher in Statewide rent control for all properties that are 15 years or older.

Introducing SB 567 - A.K.A “The Homelessness Prevention Act”

As a landlord myself, I take no joy in saying this, but I hate to say I told you so.

In an article that I wrote in November of 2022, which you can find here, under the paragraph “What This Means For You,” I said the following:

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.

Now where I was wrong was when I said “over the next several years” because here we are, a mere 5 months after I wrote that paragraph, and SB 567 has been introduced seeking to do exactly what I predicted, and more!

Originally introduced by Senator Maria Elena Durazo back in February under the guise of “homelessness prevention”, SB 567 seeks to strike the single-family exemption from the law as well as further restrict rent increases to 5% or the change in CPI, whichever is less. Current law, assuming you aren’t exempt, restricts rent increases to 5% plus CPI, not to exceed 10%. Which means in our current inflationary environment, we can do 10% rent increases. If SB 567 were in effect, we would only be able to do 5% increases even though inflation exceeds that amount.

Effectively, AB-1482 would become significantly more restrictive at the same time that it became applicable to all landlords with homes more than 15 years old.

SB 567 would also make it much more difficult to terminate a tenancy for things like substantial remodel and owner move-ins. Every landlord in California that owns a home older than 15 years would be required to have a just cause reason to terminate a tenancy and in many cases, pay exorbitant relocation fees to tenants if they do end up having to terminate the tenancy.

I won’t go into all the details now because this thing is simply a proposal and is unlikely to fully pass in its current iteration. But even if it fails this cycle, expect legislation like this to come back again and again until something eventually does pass that further erodes property rights.

If it does end up passing, I will be sure to do a full write up on it with all the details that you need to know, similar to what I did when AB-1482 passed over three years ago.

If you want to follow the progress of this bill, you can do so here.

What Landlords Should Do About It

I would propose two ways landlords should respond- an active response and a passive response.

Active response is writing or calling your Senator and voicing your concerns. You can donate money to organizations like CAA that are actively fighting bills like this to try to protect California landlords. You can show up to public hearings that seek input from the community on bills like this.

Passive response is keeping your rents close to market value so if you are suddenly subject to rent control, you aren’t stuck with an under market tenant and nothing you can do about it. Make sure your lease is up to date and has all the required legal language. Remember, when AB-1482 went into effect, it had a retroactive clause that made it applicable to older leases, not just leases going forward.

Perhaps one of the most important things you can do is be a good landlord! Laws like this get introduced because landlords are perceived to be the problem. And unfortunately, many times they are the problem or at least part of it. Some landlords act badly, giving all landlords a bad reputation, leading to drastic bills like this being introduced to severely regulate them.

Abide by existing law (play by the rules), take care of maintenance requests quickly and correctly, and treat your tenants with respect.

Also, hire a property manager! And if you already have a property manager, make sure they know about this stuff! We are quickly approaching an environment in which you will need a lawyer to draw up rent increase paperwork or notices of lease violations. A property manager will be able to handle that for you and minimize your risk of getting sued for doing it wrong.

Even if you have all the time in the world to manage your own rental property, we are quickly heading for a world where it is unwise to do so unless you can keep up with all the legal requirements. As more and more restrictive laws are passed, I wouldn’t be surprised if California doesn’t just require property managers to have a real estate license, but a special property management license as well.

With all this being said, it is still a great time to be a landlord. Rents are high and demands for rentals are higher than ever. California may change the rules, but you can adapt and learn to play by them. Or lean on your property manager to play by them. Owning rental property is still a fantastic way to build generational wealth, even in the face of ever increasing regulation.