Q: How will family-owned, single family homes in San Francisco be affected by the new statewide rent control law?
A: The Tenant Protection Act of 2019 marks a new era of rent and eviction control in California, and it goes into effect on January 1, 2020. The Act, or TPA, does not replace any of the rent laws in San Francisco. Instead, it extends rent controls into areas that were previously exempt by local rent laws, including some single family homes.
For instance, before the TPA, all single-family homes were exempt from rent control under the Costa-Hawkins Act. Costa-Hawkins is still on the books, but the TPA narrows its application. Now, whether a single family home is exempt depends on who owns the property. If a real estate investment trust, corporation, or limited liability company with a corporation as a member owns the single family home, then that home is not exempt from the TPA.
If the home is held by owners individually, or in a trust, then the exemption can continue, but only if the tenant receives a written disclaimer, in 12-point type, stating:
“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”
This disclaimer may be given to the tenant as a stand-alone notice before July 1, 2020. After July 1, 2020, all new leases must have this disclaimer in the lease, or the property will not be exempt. This means that the familiar Costa-Hawkins exemption for single family homes will depend not only on the physical structure of the property, but also how it is rented to the tenant. Single family homes rented with oral agreements after July 1, 2020 will therefore not have exemption from TPA rent control.
If a property is covered by TPA rent control, then rent increases are limited to not more than 5% plus CPI, or 10%, whichever is lower, within any 12 month period. So if the CPI was 3.5%, rent could not rise more than 8.5% in a 12 month period. There also cannot be more than 2 individual increases within that 12 month period, if the same tenant is in residence for that time. This limitation does not apply to new tenancies in vacant units, consistent with the familiar rule in Costa-Hawkins. The TPA also prohibits subleases which (even in aggregate) rent for more than the master lease. However, this does not create a cause of action by landlords to evict or increase rents on master tenants who gouge their subtenants.
To summarize, the exemption for family-owned, single-family homes is no longer automatic. It also requires taking the affirmative step of giving the written notice exactly as required by law, and soon that notice must be embedded into the lease as part of a new tenancy. Landlords can protect themselves now by proactively changing the terms of their rental agreements to include the statutory notice printed above, and consult with an attorney to help ensure that your single family home properties will maintain their exemption under the Tenant Protection Act.
© 2020 by Fried & Williams LLP. All Rights Reserved. The information contained in this article is general in nature. For advice on any particular matter, please consult with our attorneys because the facts of your situation may be unique and the law changes from time to time