Summary of California’s Statewide Rent Cap Law

On October 8, 2019, the Governor of California approved Assembly Bill 1482, which establishes statewide rent and eviction controls.  The new law is effective on January 1, 2020.  The following is a summary of the rent cap portion of the new law, which is found in the newly created Civil Code Section 1947.12.

STATEWIDE RENT CAP LAW

• Rent Cap. Yearly rent increases capped at 5% plus CPI; Not to exceed 10% per year.

• Concessions Excluded from Base Rent. In determining the base rent, any rent discounts, incentives, concessions, or credits (“Concessions”) are excluded. The base rent and any Concessions must be separately listed in the lease or rental agreement or in an amendment to an existing lease or rental agreement.

• CPI. The percentage change in the cost of living means the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics or, if a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the California Department of Industrial Relations.

• Maximum of Two Rent Increases Per Year. If the same tenant remains in a rental unit over any 12-month period, the rent for the rental unit cannot be increased in more than two increments over that 12-month period.

• Applies to Rent Increases Occurring on or after March 15, 2019. If an owner increased the rent by more than the amount permissible under the rent cap law between March 15, 2019, and January 1, 2020, then the rent on January 1, 2020 is the rent as of March 15, 2019 plus the maximum permissible increase under the rent cap law and the owner is not required to refund the overpayment.

• Vacancy Decontrol. For a new tenancy in which no tenant from the prior tenancy remains in lawful possession of the residential real property, the owner may establish the initial rent. The rent cap will apply to subsequent increases.

• Rent Cap Applies to Subleases. A tenant subject to this rent cap law may not enter into a sublease that results in a total rent for the premises that exceeds the allowable rental rate authorized by this rent cap law.

• Written Notice of Rent Increase. Written notice of a rent increase must be given in accordance with California Civil Code Section 827 (i.e., 30 days prior written notice for increases of 10% or less and 60 days prior written notice of increases over 10%; effective January 1, 2020, 90 days prior written notice will be required for increases over 10%).

• No Waiver of Tenant Rights. A tenant cannot waive the rent cap.

• Sunset Date. The rent cap law will remain in effect until January 1, 2030.

Exemptions From Rent Cap

• Certain Affordable Housing. Housing restricted by deed, regulatory restriction contained in an agreement with a government agency, or other recorded document as affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the Health and Safety Code, or subject to an agreement that provides housing subsidies for affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the California Health and Safety Code or comparable federal statutes.

• Dormitories. Dormitories constructed and maintained in connection with a higher education institution within the state for use and occupancy by students in attendance at the institution.

• Housing Subject to a More Restrictive Local Rent Control Ordinance. Housing subject to rent or price control by a public entity that restricts annual increases in the rental rate to an amount less than that provided under California’s rent cap law.

• New Housing. Housing that has been issued a certificate of occupancy within the previous 15 years.

• Single Family Dwellings and Condominiums. This exception does not apply if the owner is a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation. For this exception to apply the tenants must be provided with written notice that the residential real property is exempt using the following statement: “This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.” For a tenancy existing before July 1, 2020, the notice may be provided in the rental agreement. For a tenancy commenced or renewed on or after July 1, 2020, the notice must be provided in the rental agreement.

• Owner Occupied Duplexes. A duplex in which the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.

The law firm of Wallace, Richardson, Sontag & Le, LLP represents landlords, property management companies, institutional and private lenders, employers and insurance companies throughout the State of California in real estate, business and employment litigation. The information provided herein is for general interest only and should not be relied upon or construed as legal advice.