There are 2 new laws that impact certain rental properties in California for 2024. There is also a ballot proposition that could impact all properties to be voted on next November. That ballot measure, again funded by the same group that put it to the vote in both 2018 and 2020, would allow local entities to maintain, enact or expand rent control on any type of property. The last two measures failed terribly, so this ballot measure should also be defeated handily by the voters and it may, or may not come to pass. Here are the two new laws that have been signed by the Governor and will absolutely impact rental properties in California:
This puts “teeth” into AB 1482, the statewide rent control measure. To remind you, AB 1482 put an annual rent increase cap of 5% over the consumer price index for all properties greater than 2 units in size. If the tenant has been in the property more than one year, they can only be vacated with “just cause”. It exempted any property built within 15 years and allowed an owner to end tenancies for substantial remodeling or if the owner chooses to sell the property or re-occupy the property. But for owners who skirted the law, who told the tenant they intended to remodel but failed to do so, there were no substantive penalties. Now there are.
Owners still have the right to remodel their property and have the tenant vacate, but they must now detail the intended work and inform the tenant of their re-occupancy rights if the work does not commence or isn’t completed. The owner must provide copies of permits of the work and state to the tenant the terms of the rental (new rent rate) and ask if they are interested in re-occupying the unit following the substantial remodel. The tenant must tell the owner if they have interest and provide their contact information to the owner.
If an owner wants to take possession of the property, the owners or their immediate family must reside in the unit for at least 12 months and move in within 90 days of the tenant’s departure.
If an owner violates this law, a tenant may sue and be entitled to treble (triple) damages. Here is a good example of this law being potentially exercised. An owner gives a tenant in a rent controlled unit paying $2,500 when they market rent is $3,500 notice to vacate because they intend to sell. The tenant moves out and finds a comparable unit for $3,500. The owner does not sell, waits a few months, and leases the property for $3,500. The tenant sues the owner claiming they intended to live in that property for 10 more years, had moving costs of $3,000 and files a claim for $123,000. That is the difference in rent they had to pay ($12,000 x 10 years) plus the cost of moving. The court finds in their favor and demands payment of $369,000 from the owner. Ouch. This should discourage owners from circumventing rent control laws. This law is effective April 1, 2024.
Currently, any owner of any investment property can collect up to 2 month’s rent as the security deposit for an unfurnished unit and 3 month’s rent for a furnished unit. Now, whether furnished or unfurnished, the security deposit is limited to one month’s rent. Owners with two or fewer properties with a total of four or fewer units, are exempt from this law. But any active military, regardless of ownership, are limited to one month’s rent. This law, which goes into effect July 1, 2024, is not retroactive and landlords are not obligated to refund security deposits in their possession if greater than one month’s rent.
Real estate and apartment association lobbyists were able to carve out the “small” investor from this reduction in security deposit, but now many owners will be limited to the one month’s security deposit. This is problematic because many tenants give notice to vacate and then decide not to pay the last month’s rent and say “just keep the security deposit”. But if there is only one month’s rent on hand and there is damage to the unit, now the owner has no funds on hand to repair the unit. Sure, the owner could file a claim against the former tenant and take them to small claims to try to recover those funds, but that may take weeks to secure a court date, and it will require the owner to appear in court and spend potential hours waiting for their turn at justice to recover those funds. Most owners will not to waste their time, and owners who are out of area or out of state will just eat that expense.