The New Year Brings New Tenant Protections in California

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iStock-943147634-tenant-protection-300x200Effective as of January 1, 2020, the Tenant Protection Act of 2019, signed by Gov. Gavin Newsom in the fall of 2019, provides certain new protections for residential tenants in the State of California. In response to what the statute refers to as “the unique circumstances of the current housing crisis,” the new legislation prohibits residential landlords from terminating leases without just cause for tenants who have occupied the rented premises for 12 months or more, and restricts the amount by which landlords may increase rent, as summarized in more detail below. California’s adoption of this new legislation makes it the third state in the country to implement statewide rent restrictions, a trend that will likely continue to grow in the face of rising rental prices nationwide.

Just Cause Requirement
Under the statute, a landlord may not terminate the tenancy of a tenant who has continuously and lawfully occupied a residential rental property for 12 months without just cause, which must be described in a written termination notice tendered to the tenant. “Just cause” is separated into (a) “at-fault” just causes, which include a default in the payment of rent, a breach of a material term of the lease, committing nuisance or waste, the tenant’s refusal to execute an extension or renewal of the lease after expiration for an additional term of similar duration with similar provisions, and criminal activity, and (b) “no-fault” just causes, which include withdrawal of the unit from the rental market, the landlord complying with a court or governmental agency order to vacate the unit or a local ordinance that necessitates vacating the unit, and the landlord’s intent to demolish or substantially remodel the unit. Tenants must be given an opportunity to cure any curable violation prior to eviction. In the event that a tenant is evicted due to a “no-fault” just cause, the landlord is required to provide relocation assistance to the tenant by either waiving the final month of rent or providing a direct payment to the tenant in the amount of one month’s rent.

Rent Increase Restrictions
The statute also prohibits landlords from, over the course of any 12-month period, increasing the gross rental rate for a unit by more than the lesser of (i) 5% plus the percentage change in the cost of living, or (ii) 10%. For leases where the same tenant remains in occupancy over any 12-month period, permitted increases may not be effected by more than two incremental step-ups. The statute also applies retroactively to any rental increases occurring between March 15, 2019, and January 1, 2020, such that if a landlord increased the rent by more than the new cap during such period, the rent as of January 1, 2020, will be reduced so that it does not exceed the rent as of March 15, 2019, plus allowable increases. The landlord is not required to reimburse the tenant for any rental payments in excess of such amount that were paid in 2019. The statute further protects tenants by providing that any waiver by a tenant of the rental restrictions shall be void as contrary to public policy. However, landlords are benefited by a provision allowing them to reset the rental rate for a unit at any price the landlord desires after a tenant vacates and the unit is placed back on the rental market.

Exceptions
Certain properties are exempt from the just cause requirements and/or rent increase restrictions, including, among others, certain dormitories, certain residences where the landlord resides as its principal residence, units constructed in the last 15 years, housing restricted for low or moderate income tenants, and units already subject to stricter local tenant protection laws. Some of the exceptions are quite technical and depend on factors such as who owns the unit and whether the unit owner shares certain space or amenities with the tenant, and some exceptions must be interpreted in conjunction with existing local housing laws. Landlords should be sure to thoroughly understand the new requirements prior to implementing polices for 2020.

The adoption of the Tenant Protection Act of 2019 has been applauded by many as a step in the right direction to easing California’s housing crisis. However, the law has also been subject to much criticism. For example, it has been noted that the statute incentivizes landlords to increase rent by the maximum permitted amount every year because “banking” rent increases—i.e., allowing the landlord to defer permissible increases and apply them on an aggregate basis in the future—is not permitted. Thus, tenants may be required to pay higher and more frequent increases. The banking concept is included in many analogous housing statutes.

Landlords should carefully read this new statute to determine the implications on their rental properties. If you have any questions on this topic, please contact the author at emily.bias@pillsburylaw.com or (213)488-7502.

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