California Rent Control – What You Need to Know as an Investor and Owner

January 1, 2020 marked the beginning of a new decade around the world, but for the residents and real estate investors of California, the new year marked the beginning of something more. On this date, Assembly Bill 1482 went into effect. AB 1482, also popularly known as the Tenant Protection Act, enforces a cap on how much the cost of rent may be raised on any one property each year while hammering out other details regarding the landlord-tenant relationship within the state of California. It’s clear that this bill takes its role of protecting tenants seriously, but what does it mean for owners and investors? Understanding the effect this bill will have on you and your investment in the coming years is crucial to maintaining profits and keeping your business secure and stable.

What Does AB 1482 Do?

Simply put, the new bill, signed into law in October of 2019, places a number of protections for tenants who are renting homes in California, with the purpose of promoting stability in the housing market and reducing the rate of homelessness throughout the state via California Rent Control. The biggest way in which it achieves this is by imposing a cap of 5% plus local inflation on annual rent raises for homes across the state. However, this isn’t the only change the bill makes. Additional changes include:

  • Owners must give “just cause” when evicting a tenant
  • A new eviction process that includes relocation assistance
  • Expansion of rent control in cities that already have rent laws in place

Each of the legal additions AB 1482 is significant to both tenants and owners because it completely changes the interactions between these two parties.

What Homes Will Be Included in AB 1482?

Of the 17 million tenants in California, only around 8 million of them are expected to be effected by these laws. This is because the new law has a wide range of exceptions that include a huge number of homes from the list. The excluded homes include:

  • Single family homes
  • Homes constructed in the last 15 years
  • Homes in specific cities (Los Angeles and San Fransisco) that already have rent protection

It’s worth noting that the “homes built within the last 15 years” exception is based on a rolling calendar. For example, homes built in 2005 will only be covered until 2020, homes built in 2006 will be covered until 2021, and so on. This exemption is designed to encourage the building of new affordable housing options, which will be exempt from the new law while providing much-needed relief to the ongoing housing shortage crisis in California.

By and large, the law is aimed at apartment buildings, condos and a rare assortment of single family homes (those owned by corporation or real estate investment trust) and duplexes (when the owner lives in half of the unit).

How Long is AB 1482 in Effect?

Though AB 1482 went into effect on January 1, 2020, it acts retroactively back to March 2019, thus eliminating any anticipatory rent hikes owners may have put in place in face of the new law. It will last until 2030. The law is designed to provide immediate relief to tenants while working on a more long-lasting solution to the state’s housing crisis.

How Will AB 1482 Work in Cities With Their Own Rent Laws?

If you own property in Santa Monica, West Hollywood, Beverly Hills, Inglewood or one of the many other California cities that already have their own rent control laws, your rules won’t change much. The new state law will not override local laws that are already in place for existing homes. However, homes not covered by local laws will be covered by AB 1482. If you’re unsure when your building was built, finding out is as simple as copying the building’s address into an online assessor service.

How Can You Protect Your Investment?

Navigating these changes can be difficult, and according to economic professionals, it’s likely that owners and investors will see a dip in profits while this law is in effect. Fortunately, owners like yourself can invest in apartment and rental property insurance in order to protect any investment they may have. While this insurance won’t counteract the new law, it can help to keep your rental property safe and secure against liability claims and offers legal advice that can be extremely helpful as you learn to navigate AB 1482.

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