Starting on January 1, 2020, a new law will take effect called the Tenant Protection Act of 2019. Additionally, a lesser known law – SB 329 – also takes effect the same day. I recently attended a meeting held by the San Diego County Housing Authority to learn about the impacts to landlords and tenants and came away a better understanding. Remember, I am not a lawyer so make sure you get legal advice on anything before acting!
SB 329 is primarily aimed at adding protection for tenants when it comes to Source of Income. SB 329 makes it a requirement for landlords to accept Section 8, or any housing subsidy, as a Source of Income and tenants with housing subsidies can no longer be told, “Sorry, we do not accept housing vouchers” by a potential landlord. Now, this does not mean that a tenant with a housing voucher must be accepted as a qualified tenant; if there is another reason that they do not meet the landlord qualifications, they can be denied (for instance, their credit score is too low). However, the reason for refusing to lease must be consistent with the qualifications you apply to all of your applicants. Additionally, a landlord cannot use citizenship status or immigration status as a reason for turning down an applicant. If you require a social security number to run credit and do a background check and the applicant does not have a SSN, you may turn them down because they do not meet your qualifications for applying.
The Tenant Protection Act of 2019 is anything but tenant protection, in my opinion. Rent control has been proven time and again to only negatively impact renters. There are some very clear exemptions to this new law, however. The clearest exemptions are if the property was built after 2004, is school-owned housing or is affordable housing with a deed restriction or agreement with a government agency. From here, the exemptions get a little cloudier as they go. If you rent a single-family residence or a condominium this law will only apply if you own this property in a Corporation or an LLC. If you own it in a trust or in your name, you are exempt from this law. This is great news for many people. Any properties that are more than 2 units (duplex) are all affected by this law, regardless of how title is held, with the only exception to this being a duplex where the owner lives in one unit and rents out the other unit, this situation would also be exempt from the law. All apartments, from triplexes on up, are required to follow this new law. Lastly, only leases that are 12 consecutive months are affected, which is an important distinction for our local vacation rental business.
The largest impact from this new law is that landlords can only raise rent two times in a 12-month period and the total of those rent increases can be no more than 5% + the current San Diego County Consumer Price Index (CPI) calculated on a March 15-March 15 basis. Here is an example: you rent your house for $2,000 per month and the lease is up on April 1st. You must give a 60-day notice to increase the rent because it is over 5%, so on February 1st you send a letter to your tenant. The current County Consumer Price Index (it is important to note that the CPI is for San Diego County, not California) is 2.2% based on the March 15, 2018-March 15, 2019 calculation and this will be added to the base allowance of 5%, resulting in an allowed total increase of 7.2% for the coming year, which can be a one time increase to renew the lease for another 12 months or it can be split into two rent increases totaling no more than 7.2%. Note that if you split the increase into two separate increases, it may affect the following year’s increase, as you can only increase the rent a total of that 5% + the CPI every 12 months, so if you split the increase this first year, it will result in you having to split the increase each following year as well. So, your renewal letter to your tenant will be for an increase of 7.2% ($144.00) making the new rent $2,144.00 per month. Additionally, the rent increase caps are retroactive to March 15, 2019. So, if you raised your tenant 10% after March 15, 2019, you are required to reduce that amount back down to the previous monthly rate on January 1, 2020 and can then increase it the max of 7.2% which will start your 12-month increase clock ticking again. You are not obligated to refund the “extra increase” that was collected during the retroactive period of this law. The San Diego CPI can be calculated by going to www.dir.ca.gov/OPRL/CAPriceIndex.htm and selecting Consumer Price Index calculator (click on the Excel link) and a calculator will appear. You can then choose the San Diego CPI from the drop down menu, choose All Urban Consumers and then choose March of the beginning year and March of the ending year and at the bottom of the calculator a percentage will appear.
The final part of the TPA of 2019 is the just cause section that determines a landlord’s ability to terminate a tenant’s lease. After a tenant has been there for 12 consecutive months you must provide that tenant a just cause reason for terminating the lease. If there is no just cause reason for terminating the lease you must pay that tenant one month’s rent to relocate. Just Cause reasons are characterized as “At-Fault” and “No-Fault” reasons. “At-Fault” is simple, the tenant has broken some part of the lease, either by failure to pay, paying late, nuisance reports, excessive noise, criminal activity, subletting, denial entry to landlord, etc. Any of these lease violations during the lease period can be given as a reason for an “At-Fault” lease termination. A “No-Fault” lease termination would be considered just cause, and therefore not require a relocation payment, if the owner intends to occupy the unit, removing the unit from the rental market, complying with a government order or ordinance, or if the owner intends to demolish or substantially remodel the property.
This is a new law that has many aspects left to be determined and sorted out. Some of the explanations were ambiguous, but for the most part this is a pretty thorough explanation of what to expect. If there are questions, it is best to get advice from a real estate attorney.
About the Author:
Myssie McCann started her career in property management and real estate by managing the residential properties that she and her husband, John McCann, acquired – from the first property John purchased at the age of 22 to the properties they added over the last 19 years of marriage. Myssie became a licensed loan officer in August of 2016 and 2 days later shifted her return to work in loans to come work for Coronado Shores Co. heading up the accounting department for Yvonne, a longtime family friend. Having always wanted to start a property management company, Myssie quickly became interested in purchasing the business. The timing proved to be perfect and John and Myssie became the new owners of Coronado Shores Co. and The Shores Group in June 2017. Myssie and John have a long history of being active in their community in Eastlake, where they are raising their four children, with John having served as a City Councilman in Chula Vista from 2002-2010 and from 2014 to the present. John is also an Iraq War Veteran and currently serves as a supply corps officer in the Navy Reserves. You will find Myssie in the office usually six days a week and late into the evenings, because she absolutely loves coming to work every day.
The McCann’s have three main goals for their company:
#1 – to provide clients the best real estate sales office possible to make the selling or purchasing of a home a positive and enjoyable experience.
#2 – to treat the properties we manage as if they were our own – providing the best investment return for our owners, while maintaining the condition of the property and building equity.
#3 – to give our tenants the most enjoyable vacation home or long term home possible, by matching them with the perfect property and responding to their needs in a timely manner.
We built them. We sell them. We lease them.