Locke Lord QuickStudy: Tenancy Protection Act of 2019

There has been significant research questioning the efficacy of rent control laws in maintaining affordable housing. Indeed, some studies have concluded that such laws adversely impact the supply of affordable rental housing in favor of more expensive housing.  Despite those findings, in October 2019, the California Legislature enacted, and Governor Newsom signed into law, AB 1482 entitled the “Tenant Protection Act of 2019”, which became effective January 1, 2020.  The Act conditions the right of a residential landlord to terminate tenancies solely upon the basis of “just cause”, and limits annual rent increases.

Prior to January 1, 2020, the leasing of residential real property, for a term not specified, is deemed to be renewed at the end of the term implied by law unless one of the parties gives written notice to the other of that party’s intent to terminate.  The owner of a residential dwelling is obligated to give at least 60 days’ notice of termination, but if the tenant has resided in the unit for less than one year, only 30 days’ notice is required.

The Act prevents an owner of residential real property from terminating a tenancy without “just cause”, and requires notice of such “just cause” to be stated in the termination notice when tenant has continuously and lawfully occupied the residential real property for 12 months (except as otherwise provided in the Act).

The Act prohibits an owner of residential real property, during any 12 month period, from increasing the gross rental rate of a tenancy more than 5% plus the percentage change in the cost of living, or 10%, whichever is lower.  For a new tenancy, where no tenant from the prior tenancy remains in lawful possession of the rental unit, the owner may establish the initial rental rate that is not subject to the COL + 5% or 10% limitation, however thereafter, increases will be subject to such limit.

Tenants are prohibited from entering into subleases where the total rent for the leased premises exceeds the permitted rent under the Act.

There are two types of “just cause” terminations: at fault just cause, where tenant is in breach of the terms of its tenancy, and no fault just cause, where circumstances require the termination of the tenancy absent a tenant’s breach.

The following circumstances constitute grounds to support an at fault just cause termination:

1. Default in rent payment
2. Breach of material term of lease
3. Maintaining, committing or permitting a nuisance
4. Committing waste
5. A written lease terminated and tenant refused to execute a written extension of renewal in compliance with 1946.2 of Civil Code.
6. Criminal activity by tenant in the residential real property
7. Assigning or subletting lease in violation of lease
8. Refusal to allow owner access as authorized by Civil Code §§1101.5 and 1954 and Health and Safety Code §§13113.7 and 17926.1
9. Employee, agent or licensee’s failure to vacate after termination of status as employee, agent or licensee (CCP §1161(1))
10. Failure to deliver possession after tenant provides notice to Owner of tenant’s intention to terminate

For just cause terminations resulting from violations that are curable, the Owner must give written notice of the violation or default to the tenant, and must provide the tenant with the opportunity to cure the violation or default prior to issuing notice of termination.  If the violation or default is not cured within the time period set forth in the notice, the owner may serve a three day notice to quit upon the tenant.

The following circumstances constitute grounds for an Owner’s termination of a tenancy on a no fault just cause basis:

1. Owner’s intent to occupy by owner, spouse, domestic partner, children, grandchildren, parents or grandparents; an Owner’s right to terminate on this basis is required to be specifically set forth in leases entered into after 7/1/2020
2. Withdrawal of residential real property from rental market
3. Owner complying with

i. Order of court or government agency relating to habitability that necessitates vacating the residential real property
ii. Order of court or government agency to vacate
iii. Local ordinance requires vacating

4. Owner’s intent to demolish or to substantially remodel the residential real property

If an Owner issues a termination notice based upon a no-fault cause described above, regardless of tenant’s income, the Owner is obligated to provide: (a) notice of assistance to the tenant to relocate by offering one-month’s rent, which must be provided within 15 days of service of the notices; or (b) notice of waiver of the payment of rent for the final month of the tenancy, which notice of waiver must be provided before the due date for the last month’s rent.  If no relocation assistance or rent waiver is provided, the notice of termination is void.  If government agency or court determines any of the circumstances described in (3) above have been caused by the tenant then the tenant is not entitled to relocation assistance.

With respect to the no fault just cause termination described in (4) above, the Act defines “substantially remodel” as “the replacement or substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or the abatement of hazardous materials, including lead-based paint, mold, or asbestos, in accordance with applicable federal, state, and local laws, that cannot be reasonably accomplished in a safe manner with the tenant in place and that requires the tenant to vacate the residential real property for at least 30 days. Cosmetic improvements alone, including painting, decorating, and minor repairs, or other work that can be performed safely without having the residential real property vacated, do not qualify as substantial rehabilitation.”

It is still early in the life of the interpretation of the Act, so there are no cases that have been decided addressing particular facts to the definition of “substantial remodeling”.  Limited case law is available on this concept under similar statutory regimes.  For example, the Ellis Act (Cal. Gov. Code sections 7060-7060.7) provides landlords a legal way to withdraw units from the rental market, but requires all of the units in a particular building to be withdrawn.  The Ellis Act does not define or address “substantial remodeling” or “substantial rehabilitation”, but requires all units so removed from the market to remain off the market for at least five years.  The City of Los Angeles Rent Stabilization Ordinance (“LARSO”) exempts residential property that has undergone “substantial rehabilitation” from its rent caps, and defines “substantial rehabilitation” as “housing accommodations for which renovation work was started and completed on or after September 1, 1980 which work cost at least $10,000 for a unit with no bedrooms; $11,000 for a unit with one bedroom; $13,000 for a unit with two bedrooms; $15,000 for a unit with three bedrooms; and $17,000 for a unit with four bedrooms or more (L.A.M.C. Section 151.02, amended by Ord. No. 165,251.)   In addition, LARSO requires that the contemplated renovation of the unit(s) to be in compliance with a Tenant Habitability Plan filed by the landlord with the Los Angeles Housing and Community Investment Department.

The Act is not applicable to the following properties:

• Transient and tourist hotel occupancy
• Housing in nonprofit hospital, religious facility, extended care facility, licensed residential care facility for the elderly or adult residential facility
• Dormitories
• Housing where the tenant shares bathroom or kitchen facilities with the owner
• Single family residences, owner occupied, where owner rents or leases no more than two units or bedrooms
• Duplex where owner occupies a unit as principal residence
• Housing where certificate of occupancy was issued within the previous 15 years
• Residential real property alienable separate from other dwelling units provided (i) owner not a REIT, corporation or LLC (where at least one member is a corporation) and (ii) written notice that property is not subject to the Act is provided to tenant(s)

The Act does not override or supersede the Costa Hawkins Rental Housing Act or existing local rent control ordinances.  For example, LARSO applies only to buildings constructed before October 1978 and caps rental increases on such buildings.  For buildings in Los Angeles not subject to LARSO, and not constructed within the last fifteen years, rent increases and termination will be subject to the limitations provided in the Act.