Costa Hawkins Prop 13 Rent Control

The Dual Threat to California Rental Properties

Assembly Constitutional Amendment 1 (aka ACA 1) and The Justice for Renters Act Seek to Undermine Prop 13 & Costa Hawkins

It is widely believed that the local Los Angeles (and California) rental real estate markets have long been propped up by two major pillars: Prop 13 and Costa-Hawkins. Simply put, your lower property taxes are protected by Prop 13 and your ability to raise rents to market when a unit becomes vacant (also known as vacancy de-control) is protected by Costa-Hawkins. In 2024, property owners will face two pieces of legislation that threaten to undermine and/or eliminate these important protections.

& The Threat to Prop 13

The ACA 1 ballot measure will not itself upend Prop 13, nor will it approve any additional special taxes or bonds.  Instead, it asks voters whether the threshold to pass taxes and bonds that cities use to pay for local services and affordable housing should be lowered from 66% to 55% – which is the same bar required to pass bonds for school renovations.

  • The Threat to Prop 13: ACA 1 directly challenges Proposition 13’s taxpayer protection by lowering the voting threshold required to pass these local special taxes and bonds.  Currently,  a two-thirds vote of the electorate is required for any taxes and bonds to pass.  Opponents of ACA 1 believe this is a direct attack on Prop 13 in that it would open the floodgates to higher taxes.  Struggling taxpayers may be hit with higher local taxes after every election, thereby exacerbating the cost of living and property ownership that exists in California.

The Justice For Renters Act
& The Threat to Costa Hawkins

  • Aiming to Upend Costa Hawkins:  The Justice for Renters Act seeks to repeal the Costa-Hawkins Rental Housing Act of 1995, which would allow local governments to impose stricter rent control on newer apartments and single-family homes.
  • Vacancy Decontrol at Risk:  The JFR Act may also eliminate the state’s ban on vacancy control, giving local authorities the power to regulate rents between tenancies.  Currently, vacancies are de-controlled – ie vacant units may be leased at market rent upon re-rental.
  • Expansion of Rent Control:  Additionally, the act would prevent the state from limiting the right of local governments to implement or expand residential rent control. Despite California’s passage of a statewide rent control law (AB 1482) in 2019, which capped rent increases for most of the state’s multifamily housing stock at 5% plus the consumer price index (or a maximum of 10%), there are continued efforts to undermine or eliminate the Costa-Hawkins Act.

You can expect for both of these bills to be widely discussed and contested leading up to November 2024.  As the last election has shown (specifically with the passage of The Mansion Tax), voters have not shied away from passing anti-property owner legislation. Where we go from here, only time will tell.

Los Angeles Multifamily Rent Control

Next Allowable Rent Increase for LA Rent Controlled Properties

LA Housing Department Stipulates the next allowable rent increase for rent controlled properties effective in 2024.

7% is the number as of right now.

After a 3+ year rent freeze due to Covid-19 Renter Protections, the Los Angeles Housing Department has stipulated the next allowable rent increase for 2024. This information was published on July 1, 2023.

Here are the details for LA RSO Rent Increases:

  • Landlords of RSO properties can resume allowable rent increases effective February 1, 2024. No banking or retroactive rent increases are allowed.

  • The annual allowable rent increase under the RSO from February 1, 2024 through June 30, 2024, will be 7% unless amended by City Council. An additional 1% for gas and 1% for electric service can be added if the landlord provides the service to the tenant.

  • Landlords must provide an advance 30-day written notice for all rent increases of less than 10%.

This information can be found on the latest LA Renter Protections Notice updated in July 2023. You can access that notice here.

Legislation Rent Control

California’s Housing Legislative Lineup 2023

As we move further into 2023, the California legislative lineup for laws and bills affecting property ownership and the real estate industry continues to evolve. In the past year, there have been several changes and updates that are important for property owners and investors to keep up with. Below is a closer look at the 2022 and 2023 California legislative lineup and explore how these changes may affect property owners and the broader real estate market in California.

SB 466  

Costa-Hawkins Rental Housing Act: Rental Rates
Status:  Hearing

  • Costa Hawkins at Risk (Again):  This legislation would dissolve core elements of the landmark Costa-Hawkins Rental Housing Act, California’s most important rental housing-protection law.  Costa-Hawkins prohibits cities and counties from imposing local rent control ordinances on any type of housing built after 1995, although the cutoff is earlier in some cities with rent control ordinances that pre-date Costa-Hawkins. It also bans local rent controls on single-family homes and condos of any age. SB 466 would undo these tenets of Costa-Hawkins.  SB 466 would authorize California cities and counties to impose strict rent controls on single-family homes, condominiums and apartments as soon as they turn 15 years old.

AB 1532

The Office-to-Housing Conversion Act
Status:  Introduced

  • What to do with Aging Office Buildings:  AB 1532 could make use of $400 million in grants Gov. Gavin Newsom has outlined in his recent budget proposal specifically for the conversion of office buildings to apartments. But questions remain about how many conversions that amount of money could actually help get off the ground given the difficulty and high costs of converting offices to apartments.

  • In its current form, the bill would: Prevent local governments from blocking or delaying office-to-housing projects through special permitting processes, design and planning reviews, or appeals, require conversions be allowed in all areas regardless of local zoning laws, require planning departments to respond to conversion applications within 90 days of submission, limit development fees on conversion projects and require that all conversion projects set aside dedicate 10% of housing units for low- or middle-income residents.

AB 2097 

Parking Requirements 
Status: Passed

  • No Parking Minimums within Half-Mile of Public Transit. This law prohibits public agencies from imposing minimum parking requirements on residential, commercial or other development projects located within a half-mile of public transit.

  • While the law provides flexibility for builders to respond to market conditions and voluntarily provide parking, such parking may be required by the public agency to require spaces for car-share vehicles to be shared with the public, or to charge parking owners for the parking stall.   Public agencies may still require builders to provide electric vehicle supply equipment and/or accessible parking spaces that would otherwise apply to the development project.

SB 897 

Increased Height Limits for ADUs
Status:  Passed

  • SB 897 provides minimum height limits of 16 feet (for detached ADUs on same lot with an existing or proposed single-family or multifamily dwelling); 18 feet (for detached ADUs located on lot that is within a half-mile of a major transit stop, or detached ADUs on lot with an existing or proposed multistory, multifamily dwelling); or 25 feet or base zone height, whatever is lower (for attached ADUs).

  • The law introduces the potential for two-story ADUs if certain conditions are met, but ensures local agencies are not required to permit three-story ADUs.  SB 897 now clarifies that two detached ADUs may be constructed (and qualify for building permit ministerial review under Subdivision (e)) on lots with proposed multifamily dwellings. This change will allow developers to include two detached ADUs in their design and planning processes for new multifamily residential projects.

AB 2011

Housing Development on Commercially Zoned Sites
Status: Passed

  • Housing Development on Commercially Zoned Sites. The centerpiece of this year’s housing production legislation are two different laws that aim to advance residential development on sites currently zoned and planned for commercial and retail use.  AB 2011 provides a streamlined ministerial approval pathway, comparable to Senate Bill (SB) 35 of 2017, for qualifying multifamily projects on commercial zoned land that pay prevailing wages and meet specified affordable housing targets.   This law does not take effect until July 1, 2023.
Legislation Los Angeles Multifamily Rent Control

What to know About LA’s Latest Renter Protections

LA County Eviction Moratorium Extended by 2 Months

The LA County Board of Supervisors has voted to extend the countywide renters protections once more. The moratorium will now expire at the end of March 2023. County leaders have indicated that this will be the last time they push the end date.

According to the LA Times and other sources, because properties located in the City of Los Angeles will no longer have its own eviction moratorium (as of January 31, 2023), the eviction moratorium for LA County will apply to the properties and residents of the City of Los Angeles starting February 1, 2023 and ending March 31, 2023.

The Latest Renter Protections in LA

In addition to the LA County eviction moratorium extension, last week the LA City Council also approved additional sweeping renter protections outlined below which pertain to properties located in the City of Los Angeles:

There are three main components to the LA City expanded renter protections:

  • Universal Just Cause: The LA Rent Stabilization Ordinance currently lays out specific allowable causes for evictions. These include reasons such as failure to pay rent, illegal activity, etc. Just Cause requires a landlord to specify the reason for eviction from the RSO list. In cases where landlords evict tenants without an approved cause (called a “no fault” eviction), then the landlord would be required to pay tenant relocation costs.

  • Relocation Assistance for Tenants subjected to Large Rent Increases over 10%: While this certainly does not apply to most landlords whose properties are already subject to LA Rent Stabilization, Landlords who raise rents by an amount greater than 10% of their tenant’s current rent will be required to pay the renter relocation costs. Relocation fee amounts are determined based on the length of tenancy with additional relocation fees to be paid to qualified renters.

  • There will now be a Minimum Threshold for Failure to Pay Evictions: Landlords will not be allowed to evict tenants who fall just a small amount behind on rent. You may only proceed with an eviction if the unpaid rent amount exceeds one month’s worth of fair market rent for that unit type (currently $1,747 for one-bedroom, $2,222 for two-bedroom). IE if a tenant lives in a one-bedroom unit and owes total back rent of less than $1,747 – that tenant cannot be evicted.

Legislation Rent Control

2021/2022 California Rent Legislation Review

A quick summary of some key California Legislation significant to the Real Estate industry.

Senate Bill 9

  • On September 16th, 2021, California Senate Bill No.9 (SB 9) was signed into law and will take effect Jan. 1, 2022. 
  • SB 9 could lead to up to four homes on parcels where currently only one exists. It would do so by allowing existing single-family homes to be converted into duplexes; it would also allow single-family parcels to be subdivided into two lots, while allowing for a new two-unit building to be constructed on the newly formed lot.
  • There are several exemptions to the ministerial approvals because the bill requires that a development or parcel to be subdivided must be located within an urbanized area or urban cluster and cannot be located on prime farmland, wetlands, high fire zone areas, or land within a 100-year floodplain or land in an historic district.

Senate Bill 10

  • SB 10 creates a voluntary process for local governments to access a streamlined zoning process for new multi-unit housing near transit or in urban infill areas, with up to 10 units per parcel.
  • The legislation simplifies the CEQA requirements for upzoning, giving local leaders another tool to voluntarily increase density and provide affordable rental opportunities to more Californians.

Senate Bill 219

  • This bill allows a county tax collector to cancel property tax delinquency penalties when failure to make the payment is due to a documented hardship arising from a shelter-in-place order, and if the principal amount of tax due is paid no later than June 30 of the fiscal year (FY) in which the payment first became delinquent.

Senate Bill 315

  • January 1, 2023 of Assembly Bill 139 (scheduled to be repealed January 1, 2021) which accomplishes the transfer of real property by means of a revocable transfer upon death deed (TOD).

Senate Bill 539

  • Late last year, California voters approved Proposition 19 to allow those who are age 55 or older, persons with disabilities, and victims of wildfires greater freedom to transfer their property tax basis and provide revenue for fire districts and local governments.
  • SB 539 provides necessary clarifications for the proper implementation of Proposition 19’s provisions. These clarifications will help ensure Proposition 19 is implemented consistently throughout California and provide certainty to qualifying homeowners and those with family farms.

Assembly Bill 175

  • AB 175 prescribes various requirements to be satisfied before the exercise of a power of sale under a mortgage or deed of trust and prescribes a procedure for the exercise of that power.
  • This bill would revise the process for finalizing the trustee sale and extends the date for recording the trustee’s deed from 18 to 21 calendar days. 
  • The bill would also extend the date that the trustee’s sale is deemed perfected, if an eligible bidder submits a written notice of intent to bid, based on the recording of the trustee’s deed, as described, from 48 days to 60 days.

Assembly Bill 345

  • AB 345 requires each local agency to allow an accessory dwelling unit to be sold or conveyed separately from the primary residence to a qualified buyer if specific conditions are met, including that the property was built or developed by a qualified nonprofit corporation and that the property is held pursuant to a recorded tenancy in common agreement.

Assembly Bill 803

  • AB 803 authorizes a development proponent to submit an application for the construction of a small home lot development, as defined, that meets specified criteria. 
  • The bill would require a small home lot development to  meet a minimum unit requirement and to consist of single-family housing units with an average total area of floorspace of 1,750 net habitable square feet or less.

Assembly Bill 1466

  • Assembly Bill 1466, which requires that the county recorder of each county establish a program to identify and redact unlawfully restrictive covenants from California real property records. Among the various requirements imposed on county recorders under the program, recorders will be tasked with creating an implementation plan that outlines the methods by which they will carry out the unlawful restrictive covenants’ identification and redaction.
  • In addition, the bill requires that, if requested before the close of escrow, a title or escrow company directly involved in a pending transaction shall assist in the preparation of a restrictive covenant modification (RCM) form for submission and possible redaction of the unlawful restrictive covenant.