Mcle Self-study Article: the New 2020 Landlord-tenant and Statewide Residential Rent Control and Eviction Laws
| Publication year | 2020 |
| Author | Michael J. Simkin |
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Michael J. Simkin
Michael J. Simkin is based in Los Angeles and has been practicing real estate, construction and business law since 1989. He is an Article Editor for the California State Bar Real Property Journal. Mr. Simkin has prosecuted and defended thousands of commercial and residential landlord-tenant matters. One of his favorable Court of Appeal opinions is Dromy v. Lukovsky providing that a landlord has a right to conduct open houses on weekends to show a rented unit to prospective purchasers under Civil Code § 1954. Mr. Simkin is also admitted in New York, a California licensed real estate broker, nominated as one of the Southern California Super Lawyers® and is AV Rated by Martindale-Hubbell.*
California's new statewide residential rent and eviction control laws change almost one-hundred and fifty years of legal precedent in California. These new laws are a political compromise that will change what smaller real estate investors decide to build, and how much rent they charge, while also protecting renters from rent increases and providing relocation benefits for no-fault evictions. The new rent control rules are contained in Civil Code section 1946.2 concerning termination of tenancies, which now require just cause, and Civil Code section 1947.12 concerning limitations on rent increases. Landlords must also be cognizant of additional new laws including, but not limited to, changing the content of leases, counting business days, not calendar days, for expiration of notices to pay or to perform or quit, and not inadvertently creating a rent-controlled property out of a rent-control-exempt property. These new statutes effectively repeal the Costa-Hawkins Rental Housing Act (Civil Code § 1954.50 et seq.), which the California voters decisively rejected by not passing Proposition 10 in the November 2018 election.1
Landlord-tenant law is an amalgamation of contract law, ancient real property law, and politics. Rent control laws are a political response to limited housing and rising rents, and are intended to prevent homelessness and civil unrest. Rent controls have been around since ancient Rome,2 usually enacted during times of national crises, such as during World War II and the OPEC oil crisis of the 1970s.3 California rent control law is intended to balance the exercise of a local government's police power to eliminate excessive rents, with providing a reasonable financial return on real property investments for landlords.4During good economic times, such as the 1990s, rent control rules were limited to promote new construction. Now, the political climate seeks to protect tenants suffering from rising rental rates and the removal of low-cost housing to build new, more expensive rental units.
In 1995, the State Legislature enacted the Costa-Hawkins Rental Housing Act5 codified in Civil Code sections 1954.50 to 1954.535. This Act prevents municipalities from imposing rent control on certain properties, e.g. new construction, and allows certain rental increases. However, as the economy changed from the booming mid-1990s into the mortgage meltdown of the late 2000s, the courts and Legislature have limited Costa-Hawkins' exclusions and allowed municipalities greater freedom to impose rent (price) and eviction controls.6 In addition to rent control, governmental entities can also use their police powers, including land use planning and zoning tools, to control where residential development is located.7 Limits on where people live or what types of properties can be built, e.g. only single-family dwellings, is sometimes referred to as exclusionary zoning.8 One example of historically applied exclusionary zoning was to require large lots, so homes were built for more wealthy persons, thus excluding more affordable homes. Zoning rules can also be used to promote where people live and affordability, such as to require construction of low-income units or payment of "in lieu fees" to promote low cost housing, for a developer to obtain a zoning change or building permit. This method is referred to as inclusionary zoning. To promote inclusionary zoning policies, the state passed various laws including the current Regional Housing Needs Allocation ("RHNA") law so local governments could better plan for their citizens by using police powers to promote low-cost housing.9 RHNA has been updated and our Governor has stated he is likely to further modify it to promote low-cost housing.
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Historically, tenants held non-freehold estates for a given period of time. In contrast, rent control provides tenants with vested rights that limit how and when landlords can terminate tenancies to take back property or increase rent. Under state rent control legislation, renter interests are protected by limiting residential rental rates and limiting landlord ability to terminate a tenancy without paying compensation to the tenant. The parties cannot contract to waive the rent control requirements.10
Under the new statutes, the state allows local governments to implement greater rent control restrictions than the state law imposes.11 Currently, out of approximately 478 California cities,12 about two dozen have enacted rent control ordinances. About 15 cities have traditional "rent controls" limiting rent increases, termination of tenancies with and without cause, and relocation payment requirements.13 Some cities have enacted mediation requirements, and some cities such as Cotati and Thousand Oaks have enacted rent control only for mobile home parks. Seeing the direction the state government was taking towards statewide rent control, during the summer of 2019, several cities and counties enacted temporary rent controls to protect tenants pending the imposition of statewide rent control taking effect on January 1, 2020. Each municipality with rent control has its own calculations for the amount rent can be increased, as well as relocation and filing requirements.
In addition to rent control ordinances, many California cities and counties have enacted, and will enact, all sorts of landlord-tenant related laws. They range from emergency renter relief programs, to revisions to Ellis Act evictions, to anti-displacement zones to promote low income housing when new luxury units are added.14
In 1987, the California Legislature enacted a statute titled "Commercial Rent Control," which essentially states that there is no commercial rent control.15 The purpose for Commercial Rent Control is to place:
Price controls on commercial rents [to] discourage expansion of commercial development and entrepreneurial enterprise. These controls also discourage competition in the open market by giving artificial price benefits to one enterprise to the disadvantage of another. Because the impact of these controls goes beyond the local boundaries within which the controls are imposed, the adverse economic consequences become statewide.16
Logically, the codified legislative purpose behind no commercial rent control should apply to residential property, because limiting market rents discourages building more rental units.
Commercial Rent Control economic logic and policies provide that,
In order to prevent this statewide economic drain from occurring, the Legislature hereby enacts a uniform system with respect to commercial rents, which shall apply to every local jurisdiction in the state. This legislative action is needed to prevent the imposition of artificial barriers on commercial rents, as well as to define those areas not included within the definition of commercial real property. In making these findings and in enacting this chapter, the Legislature expressly declares its intent that this chapter shall not apply or be interpreted to apply to local rental controls on residential real property.17
This is no longer a viable policy for residential housing. In 1995, the Costa-Hawkins Rental Housing Act18 was enacted to promote residential real estate development by allowing vacancy decontrol and exempting newly built residential units from local rent control. Today, the Legislature no longer views future financial incentive from market-driven rents as encouraging construction of more residential housing units. Local and state rent control generally limits the landlord to a three to five percent annual rent increase.19 In today's financial climate, it may be better to not make real estate investments.20 Why should an investor tie up millions of dollars with new housing units when there is a cap on the investment's return? Luckily, there is some upside for landlords, primarily a 15-year window on new construction and single-family housing when market rents can be charged.21
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Local rent control trumps state law because state law provides that the more restrictive, or depending on perspective, the more protective law applies.23 Civil Code section 1946.2(B) provides that the new rent control provisions do not apply to residential real property that is subject to a local ordinance requiring just cause for termination of a residential tenancy adopted on or before September 1, 2019, if the local law is more protective than the new state Civil Code section 1946.2.24
B. Which Properties Are Subject to State Rent Control? What Are the Exemptions?The new Civil Code section 1946.2 places all residential real properties under rent control, but with some exemptions. All residential real property can become rent controlled depending upon its use...
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