An Overview of California’s State-Wide Rent Control

The housing crisis isn’t a new development in California; since about 1970, the state has experienced an increasing housing shortage, and by 2018, California ranked 49th in the nation in housing units per capita. Rising rents, stagnant wages, and overall high cost of living have all been named as factors in the increase in homelessness and poverty, leading lawmakers to pass Assembly Bill 1482, a statewide form of eviction and rent control. In this blog, we’ll be looking at the rent control portion of the bill. Please note that this is for informational purposes only and is not intended as legal advice.

Assembly Bill 1482 took effect on January 1, 2020, and is set to automatically expire on January 1, 2030. Known more widely as the Tenant Protection Act of 2019 or Protection Act, the law limits the ability of landlords to increase rent rates beyond the cap in a single year. Prior to the passage of the Protection Act, as many as 47 cities and counties already had strict rent control protections. The passage of the law extended rent caps (on rent increases only) anywhere in the state where rent control wasn’t already in place.

If the city your property is located in already had rent control laws, the Protection Act won’t override them. However, it does cover units that weren’t previously covered by local rent control laws. For example, in the city of Los Angeles, the local rent control law only applied to buildings that were constructed prior to 1978. With the passage of the Protection Act, newer units built between 1978 and 2005 now have rent control.

Rent Control Exceptions

The Protection Act covers all multi-family rental units in the state, with some exceptions:

  • New buildings are exempt until they reach 15 years old
  • Duplexes, where one unit is occupied by the owner, are exempt
  • Single-family home and condos are exempt unless they’re owned by a corporation or real estate investment trust (REIT)

How Much Can Rent be Increased?

One of the main questions on many rental housing professionals’ minds is how much they’ll be legally allowed to raise the rent. Annual rent increases are capped at 5% of the gross rental rate, plus the cost of living, and is not to exceed 10%. 

Please note that during a declared State of Emergency, whether statewide or in a single region, California Penal Code Section 396 prohibits charging a price that exceeds more than 10% of the original price before the State of Emergency was declared. This is considered “price gouging,” and is banned for 30 days after the State of Emergency declaration unless otherwise extended by the governor. For more information on whether your region is currently affected by a State of Emergency declaration, as well as the projected end date, please contact your county officials. 

The gross rental rate is determined by using the lowest rental amount charged in any month in the immediately preceding 12 months. This doesn’t take into account things like incentives, discounts, or credits. Even If the rent increase doesn’t exceed the amount permitted under the statute, landlords are still prohibited from increasing the rent more than twice during a continuous 12-month period.

Landlords are required to give tenants notice of their rights under the rent control law. For leases entered into, on, or after July 1, 2020, the statutory language must be included as an addendum to the lease or as a separate written notice that’s signed by the tenant. For leases that existed before July 1, 2020, the notice was required to be provided to the tenant or an addendum to the lease added no later than August 1, 2020.

For sub-tenancies, the rent paid by the tenant plus the rent paid by the subtenant cannot exceed the amount of rent allowable under the Protection Act (tenants can’t make money subleasing). The Protection Act is also careful to point out that the “no profiteering rule” on subleasing doesn’t mean that tenants have the right to sublease without their landlord’s consent.

New Territory for California

California’s rent control law put an additional 2.4 million units under regulation, bringing the total for the state to about 8 million. Will rent control solve the problems that it’s meant to address?

Like most legislation, it will be difficult to know exactly how the Protection Act will play out, especially with factors like the COVID-19 pandemic and continued economic instability. It’s also possible that lawmakers will pass clean-up legislation prior to the expiration of the rent control law. In the meantime, state-wide rent control is new territory for California, which means there are likely to be some kinks for landlords, tenants, judges, and lawmakers alike to work out.

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