Starting in 2020, most residential tenancies in California will be covered by some form of rent and eviction control. The Tenant Protection Act of 2019 extends a rent “cap” (which affects rent increases but not initial base rents) and eviction control to the entire state where rent control does not already exist. When the governor signed the bill, about 47 cities and counties had some form of strict rent control and eviction protection. The local strict rent control laws remain unaffected by the new legislation, and tenants covered by those existing laws will generally enjoy greater protections than the new state law provides.
Landlords who had previously not been subject to any controls might think that their ways of doing business will change dramatically. But for those landlords who follow what we describe as best practices, the new law will change the details but not the substance of what they do. And for tenants, the news is quite good (despite an unintended short-term consequence, see “Unintended Consequences,” below). The law is written so that when a local ordinance also applies, the landlord must follow the rule that gives the most protection to the tenant.
The law takes effect on January 1, 2020, with some of its changes implemented over several months during a transition phase. This article explains the basic provisions of the new law—who it affects, how it works, and how it affects both the advice and the forms in current editions of The California Landlord’s Law Book: Rights & Responsibilities, The California Landlord’s Law Book: Evictions, and California Tenants’ Rights. On each book’s companion page, you’ll find links to updated forms, as well.
A few types of housing will be exempt from just cause limitations, rent control, or both (an exempt unit is one that isn’t covered by the law). They are described below.
These properties and situations are exempt from rent control and just cause restrictions.
Under the new law, it’s unclear whether a local exemption would continue to cover a rental property when the new state law would not exempt that property. Unfortunately, based on two provisions in the law, which we will not discuss, two possible answers (yes and no) exist for that question. We’ll have to wait for a court (or the Legislature in “clean-up legislation”) to provide the answer.
In view of the new law's overall intent, though, we think that the new law should prevail over the local exemption. In those limited cases where the local law completely exempted the property, the better operating assumption is the new law will apply and will exempt only those properties where the state law specifically provides the exemption.
Some properties will be exempt from rent control but not just cause requirements, and vice versa. These piecemeal exemptions turn on technical factors, such as who owns the property, whether the owner lives in the unit in which the tenant also lives, and whether the owner lives in a self-contained dwelling unit but shares the property with tenants who live in their own self-contained units.
In some situations, the property will be free of rent control but subject to just cause eviction controls. As mentioned above, landlords will have to give notice to their tenants of the exemption.
Properties in this situation include non-owner occupied condominiums, single family homes, and other properties that are "separately alienable from title" (that’s a standalone property that can be sold on its own). In order to take advantage of the exemption, the title must be held by a natural person, a partnership or limited liability company owned by natural persons, or another form of natural person, such as a revocable trust for individuals. The exemption does not apply to corporately held property, such as a real estate investment trust (“REIT”), a corporation, or a limited liability company with corporation members.
Let’s explain this exemption a bit. The exemption’s purpose to limit the exemption to so-called "natural persons", not corporate entities. In other words, only landlords who are real people get relief from the just cause restraints.
So, suppose an owner has made a revocable (“living”) trust and has transferred title of the property to the trust. Because the owner (the trustor) is still the owner (albeit under a different legal umbrella), the property will continue to enjoy the exemption from just cause. The same will be true for a limited liability company or partnership, as long as all the members and partners are people, not entities
The just cause limitations of the new law apply to fully rented (non-owner occupied) duplexes and houses run as boarding houses or dormitories. The single family dwelling exemption applies only to owner occupied properties.
Now let’s look at the other situation—where properties are exempt from just cause restrictions, but subject to rent controls. This partial exemption applies to owner-occupied shared housing with common bathroom or kitchen facilities for use by the tenants or owner-occupied properties with no more than two in-law units. Under this partial exemption, the owner can terminate the tenancy without just cause but cannot raise the rent on the tenants more than the maximum permitted amounts.
This partial exemption does not apply, however, between tenants and subtenants (where the tenant, known as the “master tenant,” is also a landlord to a subtenant). The reason is because the master tenant is not an “owner” under the law.
New California Civil Code Section 1946.2 limits the reasons for terminating tenancies where all tenants have occupied the unit continuously for 12 months. When the tenants have changed over time, just cause protections attach when at least one of the tenants has occupied for 24 months or more.
The main "at fault" causes do not differ from the termination reasons set out in the standard lease in Nolo’s books. Failure to perform the terms of the lease still constitutes cause to terminate and, if necessary, evict a tenant. Tenants must still pay the rent, uphold their obligations under the lease, and not cause problems for the landlord or neighbors.
The causes listed in the new law therefore include the usual suspects:
Additional "at fault" causes involve tenant behavior that is at odds with California’s laws for tenant behavior (known as “statutory causes”):
In addition to the usual just causes and the statutory ones, the new law adds one very important one of its own: refusing to sign a new lease that is similar to the old lease.
Landlords can also terminate the lease for certain "no-fault" reasons (when the tenant has done nothing wrong), but must compensate the tenant with one month's rent for relocation expenses. The compensation is one month’s rent, and can be in the form of waiving the last month's rent or making a payment to the tenant.
No–fault termination causes include:
The new law addresses and forecloses one potential loophole concerning notice of the possibility of an owner (or relative) move-in. As explained above, the landlord can terminate an otherwise just-cause protected tenancy if the tenant has refused to sign a new lease that is “similar” to the old lease. But suppose the landlord’s proffered new lease includes the move-in notice, as it must if the landlord wants to preserve its right to take advantage of this ground for termination? Does the notice, not present in the tenant’s old lease, render the new one not “similar,” thus excusing the tenant’s refusal to sign it (and preventing the at-fault termination)?
The answer is no. Merely adding the move-in warning, without more additions or changes, will not make the new lease dissimilar to the old one, and the tenant who refuses to sign it can be terminated for cause.
From January 1, 2020 onward, all termination notices for no-fault terminations must include a statement of the cause that forms the basis for termination, as well as the tenant's rights to relocation assistance. If the tenant fails to vacate, the landlord can recover the relocation assistance if the landlord sues and lists that assistance as damages in an unlawful detainer action. We have updated the forms on our webpage to reflect these new notice requirements.
New California Civil Code Section 1947.12 limits annual rent increases as well as total rents charged by a master tenant (someone who rents all or part of the leased premises to a subtenant).
The new law does not regulate the amount of rent the landlord may charge for new tenancies. The statute permits the landlord to establish the initial rental rate with no maximum and controls only the future increase amounts.
The rules governing the maximum rent increase are retroactive to March 15, 2019. For any increase imposed between March 15, 2019, and January 1, 2020, the landlord can either capture the maximum increase or must reduce the amount to the maximum permitted increase as of January 1:
These rules are a bit hard to understand in the abstract. Let’s look at an example, where we explain the effect of the “look back” rule for rent increases.
On April 1, 2019, Lucinda Landlord raised the rent on Tyrone Tenant for his one bedroom apartment in Folsom, effective May 1. Tyrone's base rent on April 1, 2019 was $1,500, and as of April 1, 2019, the CPI increased 2.0% over April, 2018, for the region that included Folsom. (CPI is calculated and reported by the U.S. Department of Labor’s Bureau of Labor Statistics and covers metropolitan and geographical regions). We know now that under the new law, the most that Lucinda could have legally raised Tyrone's rent was 7% (CPI of 2% + 5% = 7 %). This results in a maximum hike of $105, with a new rent of $1,605.
Now let’s look at the results under the new law, with its look-back provision, under two scenarios: one where Lucinda raised the rent below what the new law allows, and one where her increase was above the legal limit.
Rent increase below the limit. Suppose Lucinda raised the rent only 4%, or $60 per month. Under the new law, Lucinda could have increased Tyrone's rent 7%, or $105 per month. So, effective January 1, 2020, Lucinda can increase Tyrone's rent an additional $45 per month to $1,605 per month.
Rent increase above the limit. Now let’s suppose that Lucinda raised the rent by 10%, or $150. 10% exceeds the maximum permitted rent increase (which is 7%), by 3%. In other words, Tyrone has been paying an additional 3%, or $45 per month extra. Therefore, effective January 1, 2020, Lucinda must reduce Tyrone's rent increase by $45, to the maximum allowed ($105), for a new rent of $1,605 per month. However, even though Tyrone paid more than the maximum during 2019, Lucinda does not have to refund any of the overpayments that Tyrone paid during a period of eight months ($360).
As happens with most legislation, negotiations with interest groups greatly affected the final version of the law (a situation almost guaranteed to introduce confusion). How the new law will play out in real-life situations is difficult to predict, and we expect the uncertainties to last over the next two years or so (during this time, lawmakers will probably pass clean-up legislation, and trial court decisions will be appealed and decided by appellate courts). Many challenges confront landlords, tenants, and judges. Among them are:
Unlike most local rent control ordinances, the Tenant Protection Act of 2019 does not contain an explicit provision allowing a landlord to save (or “bank”) rent increases for the future. Because of this “use it or lose it” provision, the law incentivizes landlords to raise the rent to the maximum permitted level every year or risk never being able to completely catch up to market rates. Conversely, it penalizes those who do not raise the rent. The upshot: Tenants who are paying a low rent (relative to the market rate for that unit) will tend to receive higher, more frequent increases until the rent reaches market rate. But tenants who are already paying market rate rents will receive fewer increases, because an increase above market rate will cause the higher rent paying tenant to leave. In other words, landlords have an incentive to penalize the low rent paying tenants while easing the burden on the high rent payers.
In practice, this consequence will hurt all below-market paying tenants, whether they’re renting an expensive unit or an inexpensive one. These are typically the tenants who are long-term, no-fuss, steady rent-payers, whom landlords wisely want to keep. One way to keep them is to offer below-market rates—to not raise the initial rent (or raise it very little), even though the rental would rent for more if advertised. In previously non-rent controlled situations, these landlords knew that at renewal time, they could always go to market rates if they needed to. But with the new state law, that possibility is foreclosed—they can raise the rent only by 5% of the existing rent, plus CPI. Landlords who are nervous about this potential limit might feel pressured to bring the rent to market rates now.
In fact, landlords in some areas have moved quickly to issue rent hikes (and no fault terminations) before the law takes effect on January 1, 2020. In response, at the end of October 2019, the Los Angeles City Council passed emergency legislation requiring just cause for all terminations effective immediately. Many other cities have done the same. To complicate matters more, a declared state of emergency limits rent hikes and no cause evictions until the Governor rescinds the declaration—see below.
In response to the Kincade and Tick Fires, on October 27, 2019 Governor Gavin Newsom declared a statewide emergency "...to remain in effect as long as necessary to respond to the direct effects of the extreme weather conditions....” That declaration triggered the state’s anti-gouging law, which is designed to prevent businesses from profiting from consumers who are in desperate straits following a declared disaster. (Cal. Penal Code § 396(j)(11)(A-D).)
In 2017, special rules for landlords were added to the anti-gouging law after California wildfires destroyed a significant number of homes and rental units. During a declared state of emergency, a landlord cannot raise the rent more than 10% from the unit’s pre-disaster “base rental price,” which varies depending on the lease and whether the unit was previously vacant.
Landlords also can’t evict tenants (unless the eviction was already underway) and then re-rent or offer to rent to new tenants for more than the evicted tenant could be charged. The anti-gouging law will limit those landlords who seek, before January 1, 2020, to raise the rent dramatically on below-market tenants; or who want to effect a no-cause eviction that would otherwise be problematic or impossible after January 1.