What Units are Covered by Rent Control and What Units Are Exempt?
There are two sets of laws that establish rent control and exemptions. While tenant advocates and the media call these exemptions "loopholes", they are very important rights for landlords. Know these exemptions.
A. Costa-Hawkins Rental Housing Act (CH) (California Civil Code Section 1954.50-1954.535)
1. Initial or Market Rent for New Tenancies
The Costa-Hawkins Rental Housing Act was adopted in 1995 by the California State Legislature. CH prohibits permanent rent limits on residential rental units that might otherwise be imposed by local municipalities. The purpose of CH was to end strong and unfair rent control policies where rents could not be increased when new tenants moved in. In general, CH ended vacancy controls that were in effect in certain cities (Berkeley, Santa Monica).
CH, implemented full vacancy decontrol beginning in 1999, by allowing landlords to charge a "market" rent (whatever rent they can get) when a new tenancy begins.
CH has nothing to do with regulating evictions and does not preempt any local eviction control laws. Just because a property might be exempt from rent control laws because of CH doesn’t mean the property is exempt from local eviction laws.
a. Exceptions to the New Tenancy Exemption
If a tenant vacates a unit after receiving a notice of termination of tenancy, or a notice changing terms of tenancy, the landlord may not increase the rent to the new tenant. CH only allows an unregulated rent increase where the prior tenant vacated voluntarily or left as the result of an “at fault” eviction (e.g., nonpayment of rent or nuisance).
2. Single Family Homes and Condominiums
CH also exempts most single family homes and condominium units from rent control (not eviction controls).
a. Exceptions to the Single Family and Condo Exemption
-Developer Control: A January 1, 2002 amendment to CH says that units that were subject to rent control and are converted into condos, but not sold separately to a bona fide purchaser for value are still regulated by local rent control laws if they were rented. In other words, if the same person owns the unit before and after it is converted, or if, for example, the owner merely transfers the property to a relative for a token amount, the unit is still subject to rent control. This amendment is designed to prevent owners from exempting units in rent-controlled jurisdictions merely by changing the form of ownership. Units that are converted into condos and then sold to a legitimate buyer, however, are exempt from the registration and rent ceiling requirements of the Rent Ordinance, but are still governed by the security deposit and good cause for eviction provisions of the Rent Ordinance.
-Tenancy After January 1, 1996: Any tenancy that was commenced before January 1, 1996, and still in existence is subject to local rent controls.
-Tenancies After Landlord Evicted Prior Tenant: See Berkeley Regulation 508.
B. Local Rent Control Laws
Local rent control laws, such as Oakland’s Rent Adjustment Ordinance or Berkeley’s Rent Stabilization and Eviction for Good Cause Ordinance, impose rent controls on certain units. Under these rent control schemes, most residential rental units are subject to rent restrictions. However, these rent laws also exempt certain units or tenancies from rent control and eviction controls.
1. Exemptions From Local Rent Control
a. The most common exemption under local rent control has to do with “new construction”. Each city that has rent control establishes a date after which newly constructed units would be exempt from rent control. These exemptions usually say that if a certificate of occupancy for a unit was issued after a particular date, then the unit is exempt.
-San Francisco: units in structures for which a certificate of occupancy was first issued after the date of the Ordinance (June 13, 1979) are generally exempt. There may be exceptions to the exemption (e.g.: a condition use permit was issued requiring rent control; but see the Palmer decision which says CH preempts inclusionary zoning laws).
-Oakland: the new construction date is January 1, 1983. OMC 8.22.030.
-Berkeley: the new construction date is June 30, 1980. BMC 13.76.050.
b. Units regulated by some governmental unit, agency or authority.
c. Accommodations in motels, hotels, rooming and boarding houses.
d. Substantially rehabilitated buildings. See local ordinances for procedures.
e. small owner occupied buildings. In Oakland, many two and three units, that are owner occupied, are exempt from the rent laws. In Berkeley, a “golden duplex” is considered exempt if the property was owner occupied at the end of 1979 and is still owner occupied.
If you would like to know if your property is exempt, or could become exempt, from rent and eviction regulations, consult with a lawyer who is knowledgeable about rent control and CH.
Copyright © 2017 by Fried & Williams LLP. All Rights Reserved. The information in this article is general in nature and should not be considered legal advice. For any specific matter, please consult with an attorney.