The greatest challenge for apartment owners today is not insurance availability and cost, maintenance and repairs, or vacancies. Keeping pace with new and proposed regulation as well as the impact of court decisions takes precedence over all other concerns. To that end here is a summary of some recent developments.

Proposition 33

The Justice for Renters Act will appear on the November statewide ballot as Proposition 33. If passed, it would repeal the Costa-Hawkins Rental Housing Act and allow any local jurisdiction to eliminate an owner’s ability to rent voluntarily vacated units at market value (vacancy control.) According to a survey by the Public Policy Institute of California, 55% of likely voters support allowing local governments to enact rent control, while 43% oppose it and only 2% are undecided. This indicates a significant level of public support for rent control measures in California. The initiative has received endorsements from over 100 California elected officials, including several members of Congress, state senators, and assemblymembers as well as the California Democratic Party and Unite here Local 11.  1. This means a yes vote recommendation for Prop 33 will appear on millions of voter guides sent to voters in the state. These guides are one of the main tools that many voters use in casting their votes.

National Rent Control

President Biden has proposed a national rent control measure. The key points of this proposal are:

1. A 5% cap on annual rent increases for corporate landlords who own 50 or more rental units. This would affect approximately 20 million rental units nationwide, about half of all rentals.
2. The proposal is designed as a choice for landlords: either cap rent increases at 5% or risk losing valuable federal tax breaks, particularly faster depreciation write-offs.
3. The rent cap would be in effect for the remainder of this year and the next two years, serving as a temporary measure until more housing supply becomes available.
4. New construction and substantial renovations would be exempt from this cap.
5. The proposal requires congressional approval to become law, which may be challenging given the current political landscape. 2., 3.

Ellis Act

In a recent court case a Los Angeles Superior Court judge ruled against the landlord’s attempt to evict tenants from the Barrington Plaza apartment complex using the Ellis Act. The judge determined the owner’s plan to temporarily remove tenants for renovations did not align with the Ellis Act’s requirement for landlords to permanently exit the rental business. The ruling is significant as it upholds tenant protections under the Ellis Act and the Los Angeles Rent Stabilization Ordinance (RSO), preventing landlords from using the guise of renovations to evict tenants and subsequently re-rent units at higher rates. 4,5

New Laws

Several important laws affecting rental property in California have recently been enacted or will take effect in 2024:

1. Security Deposit Limit (AB 12): Starting July 1, 2024, security deposits will be capped at one month’s rent for both furnished and unfurnished units. However, “small landlords” (owning no more than two properties with up to four units total) can still charge up to two months’ rent.
2. Homelessness Prevention Act (SB 567): Taking effect April 1, 2024, this law strengthens tenant protections by:

Capping rent increases at 10%

Preventing landlords from evicting tenants without just cause

Requiring owners or relatives to move into a unit within 90 days after evicting a tenant for owner move-in and live there for at least 12 consecutive months

Mandating more detailed notices for evictions due to substantial remodeling

1. Rent Increase Penalties: Landlords who charge rent exceeding the maximum allowable increase may face civil action and potentially triple damages if found to have acted willfully or with malice. 6.
2. Credit History Discrimination Prevention: New screening laws prohibit landlords from discriminating against applicants based on their credit history if they receive government rental subsidies.
3. Empty Home Tax: San Francisco introduced a tax on vacant residential units to encourage property owners to rent out their properties.7.

Proposed Laws

There are several important bills being considered by the California legislature that could affect existing apartment owners:

1. Assembly Bill 2216 (AB 2216), introduced by Assembly Member Matt Haney, aims to regulate the ability of landlords to prohibit common household pets in residential tenancies. Here are its key provisions:

Pet Ownership: Landlords cannot prevent tenants from owning or maintaining common household pets without reasonable justification.

Pet Fees: Landlords are prohibited from charging separate or additional rent for pet ownership.

Disclosure: Prospective tenants must inform landlords about pet ownership within 72 hours of entering a rental agreement.

Exceptions: Rental agreements signed before January 1, 2025, are exempt from these provisions.

The bill passed the California Assembly on May 23, 2024, with a vote of 43-8. The bill has been referred to the Committee on Judiciary (JUD) and is awaiting further action.

1. Assembly Bill 2747 aims to help renters build credit by allowing them to have their on-time rent payments reflected in their credit scores. Its key provisions:

Requires landlords to allow renters to opt into positive rent reporting for their credit scores. 8.

Prohibits a tenant who stops positive rental payment information reporting from electing rent reporting again for at least 6 months. 9.

Applies to landlords of subsidized, multifamily properties with 16 or more units, unless they are a real estate investment trust or corporation/LLC with a corporate member. 10.

Landlords can charge tenants the lesser of the actual cost to report payments or $10 per month, but the fee is not included in reporting to credit bureaus.

Tenants can opt out of rent reporting at any time, but must wait 6 months to opt back in.

 

As of June 2024, the bill has passed the Assembly and is currently in the Senate Judiciary Committee. 8

 

1. Senate Bill 976 would make it permanently illegal for local governments to require owners to live on-site in order to build an ADU.   It has been passed by the California State Senate with a bipartisan vote of 35-2. The bill is now moving to the California State Assembly for further deliberation. 11

 

Santa Monica Rent Registry

Santa Monica is in the process of implementing a citywide rent registry that would track all rental units in the city, both the approximately 26,689 rent-controlled units and an estimated 560 uncontrolled parcels containing one or more units .The registry would collect data from property owners on the name, property management, unit specifics, occupancy status, and tenancy details like move-in date and rent history. The city is focusing on start-up costs for the registry, which will be funded by fees associated with entering information. Primary costs include contracting for software, community outreach, and new staffing in a city department to manage the registry.

 

L.A.’s New City Council President

Marqueece Harris-Dawson has been confirmed as the next president of the Los Angeles City Council. Harris-Dawson, a 54-year-old councilman representing the Eighth District, was unanimously elected by his colleagues in a 14-0 vote. He will assume the position on September 20, replacing current President Paul Krekorian, who is stepping down due to term limits. He has been supported by the council’s left flank, which advocates for reducing police spending and expanding tenant protections. In his most recent election he was endorsed by the Democratic Socialists of America Los Angeles Chapter. As council president, Harris-Dawson will have significant influence over policy-making at City Hall, including the power to assign council committees and decide which issues are brought before the council for a vote.13.

 

Sources: 1. https://yeson33.org; 2. Kim Velsey reporting in curbed.com; 3. Mary Salmonsen reporting in multifamilydive.com; 4. Dailyjournal.com; 5. David Wagner reposting in laist.com; 6. Laya Dogmetchi of Much Shelist P.C. reporting in natlawreview.com; 7. Melanie Kershaw reporting in belonghome.com/blog; 8. a17.asmdc.org; 9. digitaldemocracy.calmatters.org/bills/ca_202320240ab2747; 10. turbotenant.com/blog/california-rental-law-sb-1157; 11. cresinsurance.com/new-california-laws-affecting-housing-in-2024; 12. Thomas Leffler reporting in the Santa Monica Daily Press;  13. Linh Tat reporting in the Los Angeles Daily News;

Written by Wesley V. Wellman

Wesley V. Wellman has been active in the financial services field for more than 40 years. His brokerage firm, Wellman Realty Company, specializes in multi-family and commercial investment property. Since the year 2000, Mr. Wellman has sold over $280 million of investment property. His sister company, Wellman Property Management Inc., manages rental property. He is a Santa Monica apartment industry leader and is frequently quoted in the local press about rental property issues. He is one of the founding directors of the Action Apartment Association, which was formed in 1980. As an advisor, Mr. Wellman draws on a wealth of educational background in real estate, taxation, securities and estate planning.