Understanding the Two New Laws Affecting Landlords and Tenants
Starting April 1st, 2024, and July 1st, 2024, two new bills related to rental property businesses signed by Governor Newsom in 2023 will go into effect. These two new bills offer additional protection and legal advantages for tenants but also increase the financial risks for landlords. The bills are:
California Senate Bill 567, i.e., the Homelessness Prevention Act, seeks to cap rent hikes at 10% and prevents landlords from evicting tenants without a legal cause;
And
California Assembly Bill 12, i.e., the new residential security deposit law, limits the amount landlords can charge for security deposits.Â
Let's look at what these bills mean for landlords and tenants.
The Homelessness Prevention ActÂ
SB 567 changes the procedures for California property owners to evict tenants under specific circumstances. This law directly affects two categories of property owners:
Property owners and their close family members (i.e., spouse, domestic partner, children, grandchildren, parents, or grandparents) who plan to move into an occupied/leased property before the expiration of the lease term with the tenant.
"Fix and flip" investors planning on substantially remodeling or rebuilding an occupied/leased property for resale.
Under the current law (California Civil Code § 1946.2), after a tenant has continuously and lawfully occupied a residential property for 12 months, the landlord is prohibited from terminating the tenancy without "just cause." According to Brady Realty Group, for the termination of the tenancy to take place, the reason for it, known as "just cause," must be clearly stated in the written notice given to the tenant.Â
It's important to understand that current law distinguishes between two types of cause: "at-fault just cause" and "no-fault just cause." "No-fault just cause" doesn't involve issues like failure to pay rent or criminal activities on the property. Instead, it refers to reasons unrelated to these, as defined below:
The intent to occupy the premises by the owner and the owner's spouse, domestic partner, children, grandchildren, parents, and grandparents;
The withdrawal of the residential real property from the rental market;Â
The owner complying with specific government orders that necessitate vacating the real property or
The intent to demolish or substantially remodel the residential real property.
If a landlord is evicting a tenant for reasons unrelated to the tenant's behavior, such as renovations or the landlord's personal use of the property, in that case, the tenant can receive relocation assistance equivalent to one month's rent. However, landlords should be mindful that San Diego has even more stringent and substantial relocation costs and requirements, so we must abide by those.
Additionally, until January 1st, 2030, the current law prevents landlords from raising the rent on a residential property by more than 5%, plus the increase in the cost of living over 12 months. However, landlords cannot raise the rent by more than 10% if the cost of living increases.Â
Residential Security Deposit Law
Under AB 12, landlords can request security deposits equal to one month's rent for furnished and unfurnished properties. This marks a significant change from the current law, where landlords can charge up to two months' rent for unfurnished properties and three months for furnished ones. This law takes effect on July 1st, 2024, allowing landlords time to make any necessary adjustments to their practices, given this new approach to the security deposit amount.
Also, it's essential to understand that this new law includes an exception for "small landlords," defined as those who own no more than two residential rental properties totaling no more than four dwelling units available for rent. To be classified as a "small landlord," the property owner must hold the real estate as an individual, as part of a limited liability company where all members are individuals, or as part of a family trust.
If all these conditions are met, the "small landlord" can collect up to two months' rent as a security deposit. Again, it's worth noting that AB 12 will be enforced on July 1st, 2024. This means landlords in California who don't meet the criteria as "small landlords" have time to make any required changes before the law comes into effect.
Next Steps
We understand that these new laws may seem overwhelming and pose financial risks. Starting April 1st, at Priority One Real Estate we'll require landlords to involve an attorney when drafting eviction paperwork. This protects tenants from potential liabilities, which could be up to three times the actual damages plus additional costs. Additionally, at San Diego ‘s top-rated property management company, we're introducing a maximum limit on security deposits, set at 1x the rent, unless you can prove you qualify as a "small landlord."Â
If you have any questions or need more details about these new laws, please contact our office for a free consultation.