Legislative Update on the Rental Housing Industry
I first want to applaud the Southern California Rental Housing Association (SCRHA) and the work they do for our industry. While we work our deals, improve our properties, and navigate the market the SCRHA is working on our behalf to make sure unjust ordinances and laws aren’t passed without proper opposition and representation. On Wednesday, May 3 2023, they presented an overview of potential legislation and what their impact could be. Last week's article focused on amendments to AB 1482 (you can read that HERE) so we won’t dive too deep into these changes and we’ll only touch on a few key points that were brought up. The rest of the article will focus on SCRHA’s top priority bills and other notes from the meeting. If you have any questions about what was discussed or reported please do not hesitate to reach out.
Here are some quick touches and clarifications on the local ordinance discussion (AB 1482):
New and more strict noticing (to the city/state) parameters were put in place but until a proper online portal is established these won’t be mandated (eta July 2024). This does not include the new tenant notices which will still need to be delivered in specific fonts and time frames.
Relocation Assistance will be based on contract rent and not the Department of Housing and Urban Development (HUD).
Short term lease workarounds exist currently for AB 1482. A 3 month lease can be offered 3 times before the tenant falls under the tenant protections.
**Biggest takeaway** - IF a current owner removes a property from the rental market and then decides to sell, the NEW owner does not have any obligation to the previous tenant (refer to SB 567 for potential change to this).
Abating hazards is different than needing to do a substantial remodel that needs permits pulled. Some projects may need the tenant to vacate but won’t be necessary to pull permits. This could at minimum help with the cost/time of permits.
Expected to go into law June 1, 2023 with minimal or no changes expected.
Top Priority bills:
We’ll focus a bit more on SB 567 (Durazo) as the SCRHA seemed to be the most opposed to what is in this bill and it remained their focus throughout the meeting. This would also alter the new AB 1482 which is yet to be in effect long enough for any reporting to be provided on its impact.
Lowers rent cap at CPI or 5% (whichever is less, currently at 10%).
Retroactive to rent increases from March 1 2023
No more exemptions for SFR or condos
Protections kick in day 1 of tenancy
In order to owner occupy or have a qualified family member occupy they must move in within 90 days and stay for a minimum of 3 years.
If this is violated the owner must:
Rerent to previous tenant and previous rental rate and lease terms
Provide reimbursement for moving costs incurred (in excess of relocation assistance that was given)
Units removed from the rental market must remain off the rental market for 10 years.
If the owner sells the unit(s) the new owner must keep the unit off for a minimum of 5 years.
First right of return offered to the tenant would be at HUD fair market rental rate and not “just” the new rental price.
**The biggest change proposed** Substantial remodels do not affect the tenancy:
Tenant would be supplied a suitable living arrangement during remodel
Tenant can return to the remodeled unit at the same rental rate and lease terms
Other bills to note:
SB 644 (AB 12) - Security deposit caps at one month for all units/tenants.
SB 919 - First right to offer: (2 year bill)
There are too many requirements here to list but to summarize: Before other offers can be accepted the tenant has up to 60 days to submit an offer to purchase.
All said the most important bill to be watching is SB 567. This bill makes drastic changes to AB 1482 and could change the industry when it comes to being a property owner. Restrictions will tighten in order for the government to reduce “loopholes” around property ownership and tenant rights. It is important to make sure you are in contact with San Diego Apartment Brokerage right now so Christina can provide a proper evaluation of your property. With pending regulation you have to remember:
Rent Increases: Is 2023 the last time I will be able to raise my rents 10%? And if so, how does my property stack up to market rents? Not making the correct adjustments now could negatively affect your properties value in the future.
In 2023 this may be your only opportunity to capitalize on removing your property from the rental market in order to sell and not have the new ownership burdened by low rents or post sale regulations.
If your property is in distress and substantial remodels are needed your property will likely drastically lower in value as the new owner will not be able to raise the rent after the remodel.
Relocation allowances may sky rocket if based on HUD and not contract rent.
Thanks for reading and if you’d like to discuss the current status of your rental property, schedule a call with Christina HERE.
Our blogs are provided on selected topics and should not be relied upon as a complete report of all new changes of local, state, and federal laws affecting property owners and managers. Laws may have changed since this article was published or may have been misinterpreted. Before acting, be sure to receive legal advice or consult a licensed CPA.