Biggest Things to Know About New Rent Control Law

by on November 4, 2019 · 5 comments

in Ocean Beach, San Diego

Whether you’re a tenant or a landlord, you need to be up to date on the new rent control law coming to San Diego and the rest of California in 2020. [The following is taken largely from the San Diego Union-Tribune of Oct. 27, 2019.]

Rent control was signed into law when Gov. Gavin Newsom put his signature on the legislation – Assembly Bill 1482 – about a month ago, in early October.

The basic rule of thumb: rent increases will be capped throughout California from 7 to 8 percent a year. It’s especially important for renters to know the law – as many landlords will get special briefings from their associations. The rent cap will expire in 10 years, but lawmakers are likely to extend It.

Rent is now capped: Landlords cannot raise rent more than 5 percent plus inflation as of Jan. 1, 2020.

  • The legislation Is backdated to March 15, 2019 so a landlord cannot raise rent excessively In the next few months to try to beat the law.
  • The Inflation rate used by the new law was 2.2 percent as of March, so a landlord could not raise rent more than 7.2 percent in a year. For example. If a renter was paying $1,200 a month In March, the most a landlord could raise rent—based on the new law—would be around $86 to $ 1,286 a month.
  • The Inflation rate Is based on the California Consumer Price Index published by the state’s Department of Industrial Relations.
  • No matter the inflation rate, rents are capped at a 10 percent yearly increase.  (For example, if there is a year with 6 percent inflation, it prevents a landlord from Increasing rents up to 11 percent.)
  • If a landlord raises the rent more than allowed, a tenant must take them to court, but, ideally, that could be avoided before with a conversation or letter. For help to avoid court: The Alliance of Californians for Community Empowerment, or ACEE, has set up a tenant hotline. (888) 428-7615, to advise renters.
  • It should be noted that the law applies to people with leases and those in month-to-month situations.
  • Once a tenant leaves a rental unit, the landlord can raise the rent as much as they want for that apartment.

There are a bunch of exemptions

  • The new law only applies to rentals that are more than 15 years old.
  • If a rental property Is exempt from the new law, a landlord is required to provide a written notice to the renter on why they are exempt. Renters can double-check the exact age of their rental unit at any of the five locations of the San Diego County Assessor’s Office to request records. The database is not online yet, but private websites — such as Zillow or Redfin — often will list the age of the property.
  • The biggest exemptions under the law are single family homes and condos.
  • If a single-family home or condo is owned by a big corporation, they are not except. The law targets real estate investment trusts and limited liability corporations that own many single family homes. Finding out the owner of a property can be dicey even with access to deeds and expensive online databases, because names are often obscured by LLCs and other means.
  • If the renter lives in a duplex, and the owner is living in the other unit, that apartment is not covered under rent control.
  • Mobile homes are exempt.
  • Granny flats are exempt if they are less than 15 years old.

New Tenant Protections

  •  After a renter has lived in a unit for one year, they can only be evicted with “just cause.” Just causes are: not paying rent, violation of part of the lease, doing significant damage to the property, or using the building for illegal purposes.
  • If the landlord wants to move into the property, the landlord must give the tenant one month’s rent as relocation assistance.
  • If the landlord no longer wants to use it as a rental and sell it, the landlord must give the tenant one month’s rent as relocation assistance.
  • if a landlord raised the rate on a renter by more than 7.2 percent since March, they will need to lower that renter’s rate on Jan. 1.  However, that renter does not get paid back for the extra money above the cap before 2020.

These tenant protections were necessary because a landlord may try to evict someone for no reason so they can raise the rent rate of their unit.

Will rent automatically go up?

It might make sense for a landlord to raise rent, under the 7 to 8 percent cap, because they will be limited for at least the next 10 years on how much rent can be increased. (The law is set to expire Jan. l, 2030, unless lawmakers decide to extend it)

According to Philip Molnar, the reporter at the U-T:

… it is pretty rare for the average rent in San Diego County to go up more than 7 percent. Asking rents are up 2.6 percent in a year as of the third quarter, said real estate tracker CoStar, to an average $1,848 a month. Although rents were up 7.5 percent annually in the third quarter.

So, it would probably make sense for a landlord to jack up the rent at least 7 percent every year, right? Not necessarily, said C2 Financial Corp. real estate analyst Mark Goldman.

“The statutory limit might be 7.2 percent, but the market might only be appreciating at 2 or 3 percent per year” he said. “A landlord isn’t going to put in the max (of 7.2 percent) unless they want to expose themselves to empty units.”

Some areas of San Diego County have seen flat, or minor decreases, in rent in recent months, making it unlikely a tenant would stay in an apartment if a landlord raises rates substantially. In the competitive East Village rental market, home to several new buildings, the average asking rent was down 1.2 percent to $2,503 in the third previous quarter, said real estate tracker CoStar.

Remember, when there’s trouble with the landlord, there won’t be any “rent cops” who will come around and enforce the law. The tenant will still need to go to court – unless the parties can work out something and avoid court (see above).

{ 5 comments… read them below or add one }

Avatar Gregg November 5, 2019 at 12:30 pm

Can the landlord increase the rent on new tenant as much as he wants if the market will bare it? Or are they subject to rent control rules based on previous rent?

Reply

Avatar Rufus November 6, 2019 at 11:38 am

Once a tenant leaves, by choice or by eviction, rent can be raised to any amount someone is willing to pay.

I want to know…now that the government is limiting my profit as a small landlord, when are they going to legislatively limit my expenses?

Hey, and did you know that the big developers got a pass? That’s right, if you own an apartment complex that’s less than 15 years old, there is no rent control. How did that happen? Political donations to elected officials by the big apartment developers, that’s how.

Screw the little guy.

Reply

Avatar Michael November 7, 2019 at 9:39 pm

There are a ton of restrictions on tenants, both contractually and structurally. There is no apartment development in costal areas due to a myriad of restrictions. You benefit from commercial prop 13 which is a handout.

Wages go up 3% on average and you want to raise your rents by more than 8%?

The lack of income producing property development is a direct result of government restrictions.

Try and see past yourself and understand we’re all playing by the same rules.

Reply

Avatar Rufus November 12, 2019 at 7:04 am

Michael…you’ll find that the “restrictions” have tilted against landlords with this last round of legislation. As far as development in the coastal zone, why is government making it hard for people to live here? NIMBY?

And your biggest myth, Prop 13 a handout? I don’t pay property taxes, my tenants do via their rent. Each of my four tenants contribute $450 a month towards my property tax bill. Yep, 25% of my tenants rent is passed through to the county. If If Prop 13 is rescinded for commercial property, the grocery store, your local restaurant, your favorite surf shop will pass those costs onto you, their customer.

Is that what you want Michael?

Reply

Avatar Peter from South O November 6, 2019 at 12:04 pm

The IRS depreciates residential rental buildings over 27.5 years. Newer buildings are allowed to depreciate by approximately half their financial expected lifetimes before the restrictions on rent increases kick in. Legislation is compromise.

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