We have talked to you about the new rental laws that are now in effect in California, and we want to take some time to really discuss – in detail – what the Tenant Protection Act means for landlords and their properties.
Everyone knows that AB 1482 limits the amount you can increase rent on tenants. But, you may not know if your property is exempt or included, and you may not know how to handle any rent increases you implemented towards the end of 2019, before this law went into effect.
You may also have questions about what you need to do to update your lease agreement. You’ll want to ensure it’s compliant with the new laws and lets tenants know whether the home they’re living in is affected.
We are covering these details today, as we discuss what the Tenant Protection Act means for rent increases at your California investment home.
Rental Properties Exempt from AB 1482
Apartment buildings and other multi-family properties that are at least 15 years old are really the main targets of rental restrictions. If you own these buildings, you are likely included in the new law.
The rent control limits do not apply to all California rental properties. For example, if you have a single-family home that you own yourself and not as part of a real estate investment trust or a corporation, your rental property is not subject to the rent control restrictions.
Not only are single-family homes exempt, but any residential unit that is separate and independent from any other home. So, if you own a condo, that condo is exempt. While it’s true that most condos are in buildings or communities of other condos, you own the entire unit and you can sell it separate from all the other condos. This is different from a duplex or a tri-plex, in which you would have to sell the entire building and not just one of the homes in the property.
So, a single-family home and a condo would be exempt. A duplex would not be exempt, unless the owner of the duplex is living in one of the units. If you own a duplex and you live on the top floor and rent out the bottom floor, your property is exempt from the new rent control laws.
You also have to consider the age of your property when you’re determining whether it’s exempt or subject to the new law. Properties that received a certificate of occupancy within the last 15 years are not subject to this rent control restriction. But, every property only gets 15 years of exemption. So, if the property you own was built in 2010, it isn’t subject to the rent control laws this year. But, in 2025, it will be.
Communicate with Your California Tenants about Rent Control
Tenants throughout California are likely wondering if the home they’re renting is covered by the new statewide rent control laws. Make sure you let them know, if you haven’t already, whether or not AB 1482 applies to their property. Any tenancy that is begun or renewed on or after July 1, 2020 must come with an explanation of whether rent control applies. With the tenants who are already in place, you need to provide a written addendum to your current lease before August 1, 2020. You can get a copy of the correct verbiage from the California Association of Realtors or from your property management company. Feel free to contact us at Progressive Property Management if you’d like a template.
How to Calculate the Allowed Rental Increases
If you read the summary and any analysis of this new law, the rent cap seems pretty simple. You cannot raise your rent more than five percent, with the Consumer Price Index (CPI) factored in.
But, what does that mean? How do you know what the CPI is going to be when you determine a rental increase and a new rental value?
The CPI changes from year to year and it can also fluctuate depending on the city you’re in. For most of the homes, we manage, the maximum increase in 2019 with the current CPI would have been 7.2 percent. That’s the 5 percent rental increase that’s allowed plus the 2.2 CPI amount. In some areas, the CPI may be a bit lower or a bit higher. You’ll need to check the CPI for your specific county and add that amount to the 5 percent to get your total rental increase limit for 2020.
Landlords may have seen rent control coming and decided to raise their rent before the end of 2019. That’s acceptable. But, if you raised it more than the 7.2 percent, you’ll have to roll it back to meet that limit in 2020. So, if you were renting out a home for $2,500, and you raised the rent 10 percent, to $2,750, you’re going to have to decrease the rental amount in 2020 to meet the rent control standards.
Does Your Community Already Have Rent Control Ordinances in Place?
If you lived in a city that already had rent control rules in place before the Tenant Protection Act was passed and signed, things will more or less stay the same for you and your rental property. The new laws will not override any existing rental control statutes in local cities, counties, and municipalities. But, if a rental home was not covered by the rent control laws that were already on the books in your community and it meets the threshold for this new law, it will be covered.
Here’s an example. Los Angeles has rent control laws locally. But, those laws only applied to properties that were built before 1978. With AB 1482, any newer units that received their certificate of occupancy at least 15 years ago will be included in the statewide rent control law, even if they were constructed after 1978.
What’s Next: Why Professional Property Management in California Makes Sense
As the rental real estate market in California adjusts to this new law, there may be changes made and modifications debated. As it’s currently written, the law will be in place until January 1, 2030.
A lot can happen between now and 2030. While self-management might have seemed easy enough in the past, it’s really incredibly risky now. Tenants have a lot of legal resources at their disposal, and they understand their rights. If you make a mistake or violate the new rent control laws, you’ll face some pretty uncomfortable and expensive penalties, even if the error was unintentional and even if it was due to you misunderstanding something that’s new or unexpected. It’s not worth taking a risk like that.
Professional property management companies have been planning for this scenario for years. We understand the details of AB 1482 and we’re prepared for its enforcement. We’re also committed to educating ourselves and staying up to date on what other states are doing in terms of landlord and tenant laws, and what those trends may mean for us here in California.
There are dozens of good reasons to hire a professional property management company. One of the most important reasons is to protect yourself and your investment property, and to access the peace of mind you need to have a successful and positive rental experience.
We know this law inside and out, and we’re happy to talk about it with our current clients and any other investors or landlords who find it confusing. Contact us at Progressive Property Management, and let’s make sure you’re ready to comply with the new Tenant Protection Act.