If you rent or manage rental properties in the State of California, you most likely are aware that on October 8, 2019, Governor Gavin Newsom signed Assembly Bill 1482, enacting certain residential tenant protections on a statewide basis in California. The new law, known as the Tenant Protection Act of 2019, will add new sections to California’s existing statutory rules for residential tenancies. Many specifics of the new law that are important for landlords and their property managers to understand, when looking for new investments to purchase, or when making decisions such as increasing the rent or evicting a tenant.
Summary
The new law will go into effect on January 1, 2020 and expire in 2030, unless lawmakers vote to extend it. There are two main components of the Tenant Protection Act of 2019. First, the new Civil Code §1947.12 (“CC §1947.12”) will regulate the amount that rent can be increased annually for specific dwellings in specific situations. Second, Civil Code §1946.2 (“CC §1946.2”) will set forth the circumstances under which a residential tenant in a covered unit may be evicted.
Rent Control
Generally, CC §1947.12 limits annual rent increases to 5 percent, plus the local rate of inflation, but it can never exceed 10%. The rate of inflation is tied to the Consumer Price Index in each metropolitan area. CC §1947.12 will apply retroactively to rent increases on or after March 15, 2019. Whatever a tenant was paying as of that date is that amount by which the increase must be based. CC §1947.12 expressly provides there is no limit on the amount of rent a landlord may first charge the tenant when renting a vacant unit. In addition, tenants are expressly precluded from entering into a sublease that would result in a total rent for the premises which exceeds the allowable rental rate. This will prevent tenants from taking pecuniary advantage of the new rent increase limits.
Certain properties are exempt from CC §1947.12. These include:
- Section 8 or other government subsidized housing.
- Units constructed as dormitories for occupancy by college students.
- Duplexes where the owner lives in one of the units.
- Units which are already subject to local rent control ordinances are exempt, provided the rent increase limits do not exceed the limits of CC §1947.12. The following California cities have rent control laws: Berkeley, Beverly Hills, Campbell, Cotati, East Palo Alto, Escondido, Hayward, Los Angeles, Los Gatos, Mountain View, Oakland, Palm Springs, Richmond, San Diego, San Francisco, San Jose, Santa Monica, Thousand Oaks, West Hollywood, and Westlake Village. For the most part, the rules will not change in these rent-controlled cities, except that CC §1947.12 will cover units that are not already covered by rent control laws. For example, in San Francisco, the local rent control law only applies to buildings constructed before June 13, 1979. Newer units that opened in the 26 years from 1979 to 2005 will be covered under CC §1947.12. A landlord of an apartment in San Francisco that opened before 1979, is capped under the provisions of the city’s law (it’s 2.6% this year). If the landlord owns an apartment building that opened after 1979 and is at least 15 years old, the rent increase is capped at 5 percent, plus inflation.
- Buildings which have a certificate of occupancy (“COO”) issued in the last 15 years are not subject to CC §1947.12. This, however, is a rolling date, which means that units with COO’s from 2006 will be covered in 2021; units with COO’s issued in 2007 will be covered in 2022, and so on.
- Residential property that is alienable separate from the title to any other dwelling unit, i.e. single-family homes, townhouses and condos, is also exempt, provided that the owner is not a:
- Real Estate Investment Trust (“REIT”) under IRC 856.
- A corporation
- A limited liability company in which one member is a corporation
Thus, landlords who hold rental property in their individual name (or in their revocable trust) or in a limited liability company are not subject to CC §1947.12. In order to take advantage of the exemption, the tenant must be given written notice that the residential property is exempt from this section using the following statement:
“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”
The deadline to provide this notice is July 1, 2020. For tenancies existing prior to this date, landlords may but are not required to provide this notice in a rental agreement. For tenancies commenced or renewed on or after July 1, 2020, the notice must be provided in the rental agreement.
Just Cause Eviction
Existing law (CC §1946.1) specifies that the landlord may terminate a periodic tenancy by serving a termination notice on the tenant at least 60 days prior to the proposed date of termination, or at least 30 days prior to the proposed date of termination if any tenant or resident has resided in the dwelling for less than one year. CC §1946.2 will change this rule and require landlords of covered units to show “just cause”—such as failure to pay rent—before evicting a tenant. This applies to any tenants that have been living in a unit longer than 12 months.
There are 11 “at fault just cause” reasons to evict a tenant:
- Nonpayment of rent;
- Breach of a material term of the rental agreement that has not been corrected after written notice under CC §1161(3) (the new law requires the landlord to serve an additional 3-day notice to quit after the cure period is passed);
- Maintaining or committing a nuisance as described in CC §1161(4);
- Maintaining or committing waste as described in CC §1161(4);
- Termination of the rental agreement without renewal, i.e. the tenant refuses to sign a written extension or renewal after written request or demand from the owner.
- Criminal activity by the tenant;
- Unapproved subtenant;
- The tenant has refused to give the landlord access to the unit as permitted by law;
- Illegal use of the unit;
- Failure to vacate after termination of employment or agency as described in CC §1161(1);
- Failure to deliver possession after the tenant provides written notice of intent to vacate or makes a written offer of surrender that is accepted by the landlord.
In addition, there are four “no-fault just cause” reasons to evict a tenant. - The owner, spouse, domestic partner, children, grandchildren, parents or grandparents intends to occupy the unit. For new or renewed leases entered into on or after July 1, 2020, the tenant must agree to this in writing.
- Withdrawal of the unit from the rental market.
- Compliance with a government or court order or local ordinance that necessitates vacating the premises.
- Demolition or substantial remodel of the unit. Cosmetic improvements do not amount to substantial remodel.
The statute also provides for relocation assistance— equal to one month of rent either paid directly to the tenant or waived by the landlord—in the event of a no fault just cause eviction. If the tenant fails to vacate after expiration of the notice, the amount of relocation assistance paid is recoverable as damages in an action to recover possession of the premises.
CC §1946.2 does not apply to the same types of properties listed above for CC §1947.12—single family homes and condos not owned by a REIT, a corporation or an LLC owned by at least one corporation—provided the same notice is provided as set forth above.
CC §1946.2 also does not apply to jurisdictions that have a just cause eviction ordinance. Currently, the cities requiring just cause for eviction are Berkeley, Beverly Hills, East Palo Alto, Glendale, Hayward, Los Angeles, Maywood, Oakland, Palm Springs, Richmond, Ridgecrest, San Diego, San Francisco, Santa Monica, Thousand Oaks, and West Hollywood.
Owners residential rentals which are subject to CC §1946.2 must provide the following notice to the tenant, either as a provision of a new or renewed lease, or as an addendum to an existing lease, or as a written notice signed by the tenant, with a copy of the tenant:
“California law limits the amount your rent can be increased. See Section 1947.12 of the Civil Code for more information. California law also provides that after all of the tenants have continuously and lawfully occupied the property for 12 months or more or at least one of the tenants has continuously and lawfully occupied the property for 24 months or more, a landlord must provide a statement of cause in any notice to terminate a tenancy. See Section 1946.2 of the Civil Code for more information.”
Takeaway Points for Owners and Property Managers
Owners and property managers of residential rental units which are exempt from the rent control limits of CC §1947.12 and or the just cause requirements of CC §1946.2 should provide tenants with either a lease addendum or notice signed by the tenant containing the provision set forth in the law (see above). As for owners of residential rental units which are subject to the just cause requirements of CC §1946.2, their tenants should be given a lease addendum or notice containing the above quoted language requiring just cause evictions as well as a provision permitting the owner to terminate the lease for an owner or family to move-in.
In the case of a unit that would be covered by CC §1947.12’s rent increase limits but for the age of the unit, owners and property managers are advised to verify when the COO was issued and determine if the unit could become subject to CC §1947.12 at some point prior to the sunset date in 2030.
If a landlord has issued a rent increase after March 15, 2019 for a covered unit, care should be taken to verify the rent increase is allowable under CC §1947.12. If not, rent should be adjusted on January 1, 2020. The risk for the landlord of not doing so is the potential loss of ability to evict a tenant for non-payment of rent. Fortunately for landlords, the law expressly provides that in the event the rent was increased by more than the amount permissible, the new rental rate shall take effect on January 1, 2020 and the owner shall not be liable to the tenant for any corresponding rent overpayment.
Finally, CC §1946.2 does not have a roll back provision, therefore it appears that 60-day eviction notices served pursuant to CC §1946.1 prior to January 1, 2020 are legally valid. In addition, given that CC §1946.2 applies to tenancies of 12 months or more, periodic tenancies less than 12 months presumably can still be terminated on 30 days’ notice without stating a cause. Continued monitoring of the development of case law is critical as the new law goes into effect.
Have You Unintentionally Disinherited Your Children?
I know a gentleman, “Sam”, who remarried after losing his wife of 32 years. His new wife, “Sally”, sold her home and moved in with Sam. Sam put Sally’s name on the deed to his home taking title as “joint tenants”. Sam also put Sally on his bank accounts. Sam has a will which leaves all of his property to his two sons. What Sam didn’t realize though, was that when he moved property into joint tenancy with Sally, his will no longer controlled the distribution of his home or his bank accounts when he dies. Since those were Sam’s only major assets, he essentially had nothing to leave his children by way of his will and when he dies, everything would be inherited by Sally as the surviving joint tenant of those assets.
Property held in joint tenancy; brokerage or bank accounts held TOD or POD, retirement plans, and life insurance are not controlled by a will or even the probate court, but rather are controlled by joint tenancy and beneficiary designations. So in Sam’s case, by holding property in joint tenancy with Sally, all of those assets would go directly to Sally without probate and without control by his will, thereby completely disinheriting his children. But even more shocking, those assets could even end up going to Sally’s children when she passes, even if Sam and Sally pass at the same time.
How have you planned your estate? Does you plan match your intentions and objectives? With the number of blended families these days, the problem of how to provide for your spouse without disinheriting your children (especially those from a previous marriage) is huge.
So how can we solve these problems? A living trust is one of the most common ways to provide for your surviving spouse while he or she is living, then upon your spouse’s death, the remaining assets will go to your children. A trust will give you added assurance – it can protect your children’s inheritances and keep the assets out of control of the probate court when your trust is properly funded and managed.
Each family is unique, which is why it takes careful planning with an experienced attorney who can look at various factors and options for your specific needs. CALL 925.516.1617 TODAY to schedule your estate plan consultation.
Mechanics liens – Don’t Miss that Deadline
Mechanics liens can be tricky, even for the most experienced contractor. It is important to make sure you keep track of certain deadlines in order to preserve your right to place a lien on privately-owned property under construction for which you have provided labor, service, equipment, or material.
The first step is to provide a “20-day preliminary notice” – sometimes referred to as a “pre-lien” – to the owner, the direct contractor and the construction lender if there is one. Service of a preliminary notice is a necessary prerequisite to the validity of any mechanics lien or stop payment notice. Disputes usually focus on:
- Whether all necessary parties were served;
- Whether the form and content of the notice met statutory requirements; or
- Whether the notice was properly served.
The preliminary notice for private works must be given within 20 days after the claimant has first furnished work or materials on the work of improvement. This means that if you serve it late, then you are limited to a mechanics lien only for work performed within 20 days immediately preceding service of the notice and continuing through completion of work.
What happens after you served your pre-lien? Hopefully you’ll get paid, and most likely you’ll be asked to sign a release of your claim upon payment. But if you don’t get paid, then you’ll need to record a mechanics lien, which must be recorded no later than 90 days after completion of the project if no notice of completion is recorded, or 30 days after recordation of a notice of completion if you are a sub-contractor (60 days if you are a direct contractor).
So now you’ve recorded your mechanics lien on the property, what next? At this point, most contractors have gotten the attention of the owner or the direct contractor and started negotiations to get paid. These discussions can often drag out for several months. What most contractors don’t realize is that they have only 90 days after recordation of their lien to file suit with the court. This time frame is not extended or “tolled” just because you were in settlement discussions to get paid. After 90 days, you can be forced to release your lien and you will have to pay the owner’s attorney’s fees if you refuse and the owner has to file suit. You can still sue to get paid for the work or materials you provided, but you won’t have the leverage of a mechanics lien.
Experienced counsel can assist a contractor to navigate through this complicated area of the law to avoid costly mistakes and preserve your legal rights.
Co-ownership and the Right to Partition
One of the most common real property disputes that I come across has to do with the breakdown of the relationship between co-owners of a piece of real property. Obviously, divorce is a very common scenario which requires the division of real property, but there are other situations as well. Often, parents unwittingly place their children in situation that is ripe for disagreement. After both parents have passed away, siblings who remain as co-owners of the family residence often disagree with what to do with it. Those children with less emotional attachment to the home – due to stress in their own lives, geographical distance, or a multitude of other reasons – are fine with either renting it out or selling it. Other siblings – who may even still be living in the home – might prefer to hold onto it, even when it does not make economic sense. These situations often turn into ugly family arguments, or worse yet, litigation over what to do with the property.
The right of a co-owner to seek partition is governed by statute. The basic statutory provision is section 752 of the Code of Civil Procedure which provides, in pertinent part, that “[w]hen several cotenants own real property … an action may be brought by one or more of such persons, … for a partition thereof according to the respective rights of the persons interested therein, and for a sale of such property, or a part thereof, if it appears that a partition cannot be made without great prejudice to the parties.”
It has been said that “a cotenant is entitled to partition as a matter of absolute right; that he need not assign any reason for his demand; that it is sufficient if he demands a severance; and that when grounds for a sale are duly established it may be demanded as of right.” (De Roulet v. Mitchel (1945) 70 Cal. App. 2d 120, 124.)
However, one well-recognized limitation is that the right of partition may be waived by contract, either express or implied. For example, in one case, the court held that a property settlement agreement between a divorcing couple which provided that the family home was to remain in the name of the parties so long as the wife did not remarry constituted a waiver of the right of either party to partition the property so long as the restrictive conditions existed. (Miranda v. Miranda (1947) 81 Cal. App. 2d 61). In another case, the court found there was an “implied” waiver of partition where cotenants agreed to a plan designed to develop property over a period of time (Thomas v. Witte (1963) 214 Cal. App. 2d 322) or invested in property which was subject to a long-term lease with a view toward obtaining a secure source of investment income (Pine v. Tiedt (1965) 232 Cal. App. 2d 733).
Whether or not these legal principles favor my clients, I always recommend trying to work out an amicable resolution rather than resorting to litigation, which can be expensive and uncertain. Sometimes it is necessary to initiate litigation in order to get the parties to the bargaining table, but mediation is still possible. Over the years, I have helped numerous clients resolve similar disputes, usually through some type of buy-out or sale of the property. Sometimes family relationships can be repaired too, and sometimes not. But at least all parties agree in the end and litigation can be avoided or dismissed.