New California Real Estate Laws - April 2020
- April 2020 brings significant changes to some current real estate laws
- AB 1482 is the signature residential rent laws that applies statewide
- New real estate laws are also addressing affordable housing and tenant security
California took the exceptional step to place renters in the state under rent control. Landlords can only evict tenants for ’cause’ – like non-payment for rent or violating the rental agreement. Tenants can choose to stay in their rental even after the initial lease expires, and landlords are only allowed to increase monthly rents by 5% + CPI. There are some exceptions: recent construction, most single family homes, and duplexes.
AB 1482 is a significant legislative shift in one of the most expensive renal markets in the country. If you purchase an existing multifamily investments – it would be wise to adjust your future rental income in accordance with the possible limitations of AB 1482. Additionally, this could be seen as one move in a series of more significant changes to protect tenants. The 2020 presidential election will surely bring with it a sweep of state ballot measures to bolster tenant housing security. Ideas such as rent caps, state housing, and vacancy control are no longer out of the realm of possibility. You can read more on this subject in our analysis of the Costa Hawkins discussion.
SB 18 - "Keep Californians Housed Act"
SB 18 provides tenants notices of right of possession in a pending foreclosure. Month-to-month tenants get a 90 day notice in the event of a foreclosure on the property. Tenants with current leases can stay in the property until the lease expires. Residential leases ‘run with the land‘ – meaning a buyer is obligated to abide by the terms of the lease in place signed by the seller.
This was a law to extend those notice times from a temporary status to a permanent status – meaning longer notices to existing residential tenants for distressed properties in the foreclosure process. Note that SB 18 does not directly address non-residential tenants. Still, commercial tenants with existing leases also run with the land, just like residential tenants.
SB 330 - Housing Crisis Act of 2019
SB 330‘s main goal – reduce barriers to build new housing units. It does so by overriding local laws that could restrict new housing construction – by forcing municipalities to streamline the approval process for developers and remove barriers by local city planning committees. Examples of barriers could be a temporary housing moratorium on development, or delays as a result of environmental review. Multiple studies have shown that local authorities (like local development communities, city councils, and development committees) are a major factor in the housing crisis – causing delays with red tape, assisted with pressure from local NIMBYs.
The goal of the act is to transfer power over housing construction approval towards the state from the local communities.
November 2020 California Ballot Measures
Prop 13 Repeal for Commercial Properties
Cleverly labeled “California Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative,” is just a long complicated name for repealing proposition 13 for commercial properties. This will allow counties in California to reassess property taxes whenever they please and raise taxes on property owners. Proposition 13 for years kept property taxes near the purchase price, no matter how long you owned the property, and only allowed the county small yearly increases in assessment. If passed, this constitutional amendment will leave single family homes under the protection of proposition 13 (although activists also want to repeal that portion in a later date).
If passed, this will have significant ramifications for California investors. Long time holders of commercial income properties will see a significant cost increase to their bottom line. The higher costs will result in higher rents, less development (due to less projects being viable) and costs transferred to tenants. This is especially true in NNN leases – where it is the tenants that pay the landlord’s property taxes.
Costa Hawkins Repeal – Chapter 2.0
IT’s back – after failure to persuade voters in the last midterm election (and after multiple committees in Sacramento also rejected efforts to do the same) – the AIDS Foundation again chose to invest millions of dollars in an attempt to repeal Costa Hawkins. We reviewed this effort multiple times on our blog – prop 10 could have had a major impact in local renters and investors and it was rightfully repealed. This time around, the new ballot initiative is limited in scope compared to prop 10 – no longer includes single family homes and apartment buildings built in the last 15 years.
The timing of this ballot measure is surprising for 2 reasons. First, California already has implemented statewide rent control via AB 1482. While local cities are not allowed to enact rent control, the new rule has the same effect. A Costa-Hawkins will provide a lot more tools to impose stricter rules (and further expand rent control as the city council see fit) – but with no-fault evictions effectively outlawed in California and ceilings to rent hikes – it is unclear why we need this ballot measure.
Additionally, unclear why the AIDS Foundation continues to beat a dead horse when the voters rejected their last proposition so soundly. Proposition 10 was defeated by a 20 point margin, and in order to pass this time, 67% of voters will have to vote in favor of it. Meaning, it will have to do almost 40 points better this time around. Perhaps it is time the AIDS Foundation will spend its dollars in areas it can help renters and housing advocates by promoting more affordable housing and renter rights.