I’ve had a few consultations lately with first time buyers looking to acquire a duplex or triplex in the Los Angeles Area. What I learn (and the potential buyer learns) is that they have no idea what laws they are to be subjected to, more specifically what they CANNOT do with their property in many parts of the Los Angeles Area. When looking to purchase residential rental real property in the Los Angeles Area for the first time, here are some things one needs to become educated on before deciding to submit an offer.

Limitations on Evictions

Let’s start from the state level and go down to the local level. California does have a form of rent control known as the California Tenant Protection Act of 2019 (a/k/a, Assembly Bill 1482 or “AB 1482”). AB 1482 governs certain types of residential rental properties and gives tenants residing at a property subject to it two main protections: (i) a limit or “cap” on rent increases and (ii) “Just Cause” eviction protections, or in other words, as an owner you can’t just end a month-to-month lease at anytime.

At a local level the laws are more restrictive. Many of the cities in the Los Angeles Area have their own rent control outside of AB 1482. Many of these cities restrict or even prohibit evictions for things that AB 1482 does allow. For example, not all cities within the Los Angeles Area allow property owners to evict a tenant in order to substantially remodel their rental unit. Those that do allow you to remove a tenant to substantially remodel usually make the right unilateral, as in under the control of the tenant who can opt for permanent relocation money if the owner wants to remodel the unit, or the tenant can have you pay for temporary relocation and can later move back in at their existing rental rate if they wish to do so.

The risk here is that you just invested a lot of money in temporary relocation and the remodel, and won’t be able to recapture that back in the form of market rent or any reasonable rent increase amount. Further, more cities are even throwing in properties that are exempt from AB 1482 into their “Just Cause” eviction restrictions, such as condominiums and and single-family houses.

Be aware of owner occupancies because those too are not set in stone. Some jurisdictions prohibit a landlord from evicting a tenant to “owner occupy” a rental unit when a tenant has resided there for a specified period of time and/or is past a certain age, disabled, or terminally ill. There may also be a limit to the number of units an owner or close family relative of an owner can occupy themselves. Owners usually have to occupy the property for a minimum of one or two years, fill out a lot of paperwork, and provide personal information about the owner or family member that will be occupying the unit. The eviction restrictions and regulations make the process of getting a unit back and even owner occupying very cumbersome and expensive.

Not Every Part of the Los Angeles Area is the Same

Within Los Angeles County there are hundreds of local jurisdictions that are within its boundaries, but not all these jurisdictions are covered by the County’s laws and regulations. Los Angeles County’s unincorporated areas have their own regulations, and Los Angeles City, being the largest city within the county has it’s own set of regulations along with many other smaller cities.

An address may go by “Los Angeles” but may actually be located within an area outside of the City of Los Angeles’ jurisdiction. For example, for Culver City, part of it is Los Angeles and part of it is the City of Culver City. Sometimes people use Los Angeles, and sometimes people use Culver City for their address, and Culver City and Los Angeles city have two different rent controls.

When looking to buy real estate you need to know the exact jurisdiction that a property is located in. Otherwise, you are potentially making purchasing decisions based on the wrong laws and regulations. Each local jurisdiction has their own way of doing things, and are adopting new regulations all the time or even establishing rent control boards they did not have before.

Illegal Units are not “Bonuses”

The illegal unit or “bootleg unit,” especially one that is tenant occupied, may be listed as a “bonus” but in reality it is a nightmare. You want to make sure the certificate of occupancy matches what is in place. An illegal garage conversion, guest house, or addition can be very cumbersome to deal with if it has a tenant in place. The process to get the unit vacant is not very straight forward, incredibly expensive, and comes with a substantial amount of liability.

No, You Cannot Contract With Tenants Outside of the Law

So often buyers or landlords reach out to me asking if they can sign a contract with a tenant to raise rent in excess of allowable rent increase limits and the answers is a resounding NO! You cannot raise rent or otherwise have a tenant agree to waive their rights outside of the law. Even if a tenant signs a whole new lease and agrees to the increased rent amoun and agrees to waive any of the “Just Cause” eviction restrictions, that contract is illegal, potentially void on its face, and certainly voidable. The established housing and tenant protection laws are not waivable or optional, even if the tenant is month to month. That is the whole point of rent control and tenant protection regulations…to control the landlords ability to raise rents and evict tenants.

The Ellis Act Is Not Always Your Best Bet

For those unfamiliar with the Ellis Act, in short, the Ellis Act is a law in California that allows landlords to go out of the residential real estate business. The Ellis Act carries with it the property, even when it is sold, and recorded on title. The application of the Ellis Act can vary by local cities if they have local, additional rules. Under the Ellis Act, landlords who elect to go out of the rental housing business CANNOT rent their units out at all. You also have to take ALL UNITS at the property off the rental market, and not just select units.

The Ellis Act to me, in my view, is a last resort. You “Ellis Act” the property if you are unable to get units back legally through lawful eviction or tenant buyouts. The Ellis Act comes with lots of strings attached. Many of these restrictions include giving tenants the right of first refusal to re-rent the unit if it goes back on the rental market within a specified period of time and at potentially the same rent or their rent at the time of enacting the Ellis Act plus applicable rent increases, civil penalties and liability in cases when a property owner “Ellis Acts” their property and then puts the units back on the market before expiration of a specified time period.

While people may buy residential properties for owner-occupancy, life often changes. You may be in a position that you need to sell the property instead, but its value is drastically impacted by the Ellis Act because now the pool of potential buyers is smaller (e.g., owner occupiers only) rather than other landlords trying to grow their portfolio of income properties. This is especially true if you “Ellis Act” a property with three or more units because many buyers of those only need one unit to live in and would need the income from the other units to offset the mortgage and other costs but will not purchase it because the property is subject to the Ellis Act.

Conclusion

Some buyers are buying in the Los Angeles Area for the first time, relocating from out of the state or country, and they have no idea what rent control is nor the severity of it. Every real estate deal is different. There are certainly properties that one can buy and owner-occupy. But the real purpose of this article is to stress the importance of getting educated and doing your due diligence to become thoroughly informed on each property you are potentially looking to buy. It may behoove a buyer to hire an attorney to discuss the particular aspects of a property and what risks may exist based on information available from the seller and public records.

By Sasha Struthers, Esq., Struthers Legal APC

If you are interested in learning more about tenant buyout agreements and wish to have a one-on-one session to go over your specific situation, you can sign up for a consultation with Sasha. Sasha Struthers is a California licensed Attorney and Real Estate Broker with a law practice that focuses on ‘Cash for Keys’/ tenant buyouts and government agency complaints such as REAP, CRD, and Orders to Comply. Sasha’s experience managing a 15-building real estate portfolio, including five apartments subject to LARSO has allowed her to help landlords strategically reposition their portfolios, maximize income, and reduce management stress. You can check out her law practice at www.struthers.legal.