Rent Control Law: 2020 COVID-19 Update

Juan Huizar:
Who is Bruce? Bruce is the premier Long Beach real estate attorney for all landlords. If you’re a landlord and you’ve had some issues with tenancies or contracts or estate planning, you come to Bruce. Bruce’s office is terrific. They’ve been around for a long time. The Apartment Association of Southern California Cities plays an important role for all landlords. They provide us with forums, contracts. We could always call them for advice when we’re not quite sure on which measures to take. Bruce is one of their biggest supporters. He backs them. He’s always a presenter for them. It’s important to note that the forms that we all use through the Apartment Association, the addendums, the contracts, et cetera, the rental increases that we use, most of those were developed by Bruce’s office, and so he knows this well. It’s great that we get to sit down with Bruce today and learn what he has to tell us.

Juan Huizar:
When there’s an issue, where there’s a concern, everyone knows to reach out to Bruce Menke, and we are pleased that he’s here today to shed some light, maybe help clarify some of the questions that I know you have. And so let’s get started. So Bruce, tell us about you and your company.

Bruce Menke:
As far as the services that our office provides, in addition to real estate-related issues, as well as landlord tenant issues, over the years a number of our clients have also requested that we get more engaged, and we have become more engaged, with estate planning. Especially in these difficult times with the pandemic and all, a lot of people are motivated to at least think about that sort of thing. We do provide a lot of support to our clients for estate planning. We also do a fair amount of probate, as well as just trust administration. A lot of our clients do think about us as landlord-tenant related, and that is a component of our practice for sure, but we also deal with real estate, other related matters, including transactions as well as litigation.

Bruce Menke:
But the common theme is our typical client is either involved directly in investment real estate, management in real estate, some development of real estate, or small business, because most real estate owners are small business owners. And we also support them with LLC formations, incorporation, maintenance, and that sort of thing.

Juan Huizar:
Thank you for being here, Bruce. The first question is, if I own a four-unit building and I want to now occupy one of those units, there’s now state law with relocation fees. Am I going to trigger a relocation fee if I’m going to occupy one of my units and it’s a four-unit building?

Bruce Menke:
Well, before going into the answer on that, let me make a general comment that applies to everything we’re discussing today. That is, this is a general conversation. Every situation has the opportunity for nuanced differences. The laws that we’re dealing with are now more complicated than ever. And for that reason, it is incredibly important that you deal with the specifics of a given situation with competent counsel or by doing your own homework. Failure to do that can have serious negative consequences.

Bruce Menke:
Generally speaking, the burdens that are placed upon landlords with recently passed legislation and continuing pending and expected future litigation imposes significant burdens on landlords by way of educating tenants and otherwise. Also providing more extensive consequences for a failure to abide by those provisions. So to answer your question, the first issue is whether or not the just cause eviction control situation applies. So assuming… By the way, generally speaking, the exemptions that are available under the state set of laws dealing with just cause and rent control are basically a single family residence, a condominium. There are other enumerated items such as university-

Juan Huizar:
Dorm rooms and stuff life that.

Bruce Menke:
Dorm rooms, thank you, dorm rooms. In those situations, or a federally subsidized or state subsidized housing, which is there but we’re not going to touch upon, the primary thing that most people are going to be dealing with is single family residences or condominiums. And what is different is that you are … unlike LA rent control, where if you’re a single family residence, you’re exempt. You don’t need to worry about anything else. You’re exempt from their rent control. However, under the state umbrella, rent control exemption for a single family residence or a condo also requires that you educate the tenant and give a specific notice. So exemption is not automatic.

Bruce Menke:
Obviously that doesn’t apply to your four-unit question. So the question then becomes if a owner wants to occupy one of the units, does it trigger a relocation fee? The first question has to be is the unit subject to the just cause eviction requirements. That would only be the case if the tenant has been in place for more than a year. So if you have a tenant who’s been in place for less than a year, you don’t need to worry about the relocation scenario.

Bruce Menke:
However, so if you have a tenant where the property is and the tenancy is subject to the just cause eviction controls, you would have the opportunity to have a tenant occupy, I’m sorry, an owner occupy the unit, but there are some conditions. If the agreement that the tenant is living in the unit under is a agreement that was in place prior to July 1, and the previous owner has given the appropriate notice regarding the opportunity for owner occupancy and the obligation to vacate. Under that situation, then, you would have a ability to go ahead and move forward with a 60-day notice to quit.

Bruce Menke:
If the agreement is entered into after July 1 of 2020, there is a specific obligation that the information be provided to the tenant, not just by notice, but would also require that it be part of a rental agreement that was executed after that day. So right now that wouldn’t be an issue because you’d be under a year. So we wouldn’t have to worry about that part of it. But you would end up having to make sure it’s either an agreement provision with specific language or an addendum which is signed by the tenant.

Juan Huizar:
Okay. Okay. So to recap, both the apartment association came out with a lot of forms that said we need to give notices either now to a current tenant or we need to do it when someone new is coming in. I believe the California Association of Realtors has provided those forms also. So it’s important that the owners out there are utilizing them so that they know what they can and can’t do.

Bruce Menke:
I do. And this is my opportunity to “plug.” You mentioned Apartment Association. If I may, give a shameless plug for the Apartment Association of California Southern Cities, it’s an organization that’s been around for over 80 years. It’s one that I’ve supported both by way of a board membership, financially, and actively involved in legislation as well. It is the preferred association, from my perspective, for a lot of reasons including their activity and legislative action.

Juan Huizar:
Perfect. And there’s nothing wrong with that. I’m a member of the Apartment Association and I prefer to use their forms on all the leases that we do as well. So certainly we …

Bruce Menke:
Most of which I’ve either drafted or modified or touched. So if you want the benefit of my services with the price of a membership, that’s one way to get it.

Juan Huizar:
Oh, that’s great. And that’s great to know. Okay. So a lot of what was happening in Long Beach is that these, some larger developers were coming in and they were buying properties that had not been improved in years. I mean, they were dilapidated buildings. These investors were coming in, they were giving notices, and they were really bringing life back to these buildings, repositioning them, and almost starting this domino effect where other neighbors kind of catch on and they start improving these neighborhoods, making them much better. The umbrella that we’re under now, can we sell an eight-unit building to an investor and they say, okay, our goal is to renovate this building, but how are we going to do it? Like, are we able to get access to the units to reposition them? What’s the best route for them?

Bruce Menke:
So the question really is, do you have the ability to require tenancies, which are otherwise subject to the just cause requirements? It really is, is a substantial renovation a just cause for eviction? First off, if you remember, and again, they’ve been there for less than a year, these provisions don’t apply. Just like in the previous question, there will be a relocation fee equal to one month’s rent. Specific notice requirements in how you deal with that. That’s a very important part of the process. But to answer your question as you presented it, is that on the issue of the ability to evict tenants so that you can do a rehab, the answer is a qualified yes. It has to be a substantial rehabilitation, and that is one in which major systems, electrical, plumbing, et cetera, are being redone or refurbished such that permits are required.

Bruce Menke:
Also, if you’re complying with a court order, which is pretty rare, or if you’re compliant with a governmental order, which has also a rare. So generally speaking, if it’s a substantial innovation, it has to be a more than a cleanup. It has to be something that requires permits. A lot of rehabbers and flippers are not necessarily interested in pulling permits, but this becomes more important in this situation. So it has to be substantial.

Bruce Menke:
It also includes a requirement that it cannot be safely done while the tenant is in possession of the property. And it must take a minimum of 30 days. You have to meet each of those requirements before you can take advantage of the opportunity for a just cause, no-fault eviction of the tenant.

Bruce Menke:
If I didn’t mention before, the relocation fee is the equivalent of one month. And again, if it is a just cause requirement, you’re going to end up with the obligation to give a 60-day notice to quit, with specific language in the notice as well.

Juan Huizar:
Okay. So that’s good to know that it is still possible, but it all has to be done properly.

Bruce Menke:
Add the additional requirement that depending upon the city your in, the specific city may have its own special requirements regarding the notice, the content of the notices.

Juan Huizar:
Okay. So it’s important to know. So one of the questions I got from one of my clients is they said, “Juan, am I allowed to raise my tenants rent?”

Bruce Menke:
The answer’s yes in Long Beach, consistent with the rent control restrictions that exist at the state level. Given that we have a situation, there’s no local rent control, which would supersede, so the state rent control limits would apply.

Juan Huizar:
And the reason the question was asked, because we thought that at the state level, or even, maybe even at the county level, and I wasn’t sure how that affected Long Beach, I thought that they halted any rental increases. But did that not impact Long Beach or was it never cast?

Bruce Menke:
It does not impact Long Beach.

Juan Huizar:
Okay. Last year when we spoke, most landlords were under the assumption that we could go 5% plus, call it 3.3%. That’s that’s what our CPI was showing us. Because you told us to look at April as our marker. Now that we look at April as our marker, it looks like that has dropped. So the CPI has dropped. Is that correct?

Bruce Menke:
Substantially.

Juan Huizar:
Substantially.

Bruce Menke:
Yeah. From 3.3 to 0.7.

Juan Huizar:
Okay. So advising our clients today in terms of, legally, what right do they have in terms of a rental increase? What are we telling them? 5.7? Do we do it, do we play it safe and go 5.5? Or do we go 5%?

Bruce Menke:
One of the problems with this particular part of AB 1482 and the changes to the civil code is that it is horribly drafted. It refers to the area region. There is some pending cleanup legislation that will clarify this point, such that … first off, all of California and approximately 10 or 11 other states are part of the Western region. The current legislation or the current law refers to region, in which case the Western region is the only CPI index that applies. In which case last year that was a less generous number. This year it’s a more generous number.

Bruce Menke:
So under circumstances and the current law, the regional CPI that is for the Western region is a higher number, actually 1.3. So it’d be 5% plus 1.3. But there’s also you need to remember that 6.3% or 5.7% as compared to when? You have to look at the effective date of the new rent, go back 12 months in time, look at the rent that was in effect at that point in time. And then go ahead and see if you are in compliance with the prior rent compared to the proposed rent, making sure that you meet those limits. With the additional restriction that you can only raise the rents twice in any given 12-month period.

Juan Huizar:
Okay. Okay. So just a small recap, so moving forward, the 5% increases is obviously still in place, but the inflation, or the CPI has dropped. And so it’s important that we know what that is and that we’re able to play within the rules that we’re given.

Bruce Menke:
And on that issue, if the cleanup legislation goes through, for the city of Long Beach at least, we’ll be able to use the metropolitan, the LA, Long Beach, Anaheim, metropolitan CPI, which generally speaking, I think that was clearly the perceived intention and is born out by the fact that is the corrective legislation. That was basically the approach where you got to the 8.3 last year, as opposed to the lower rate associated with the Western region.

Juan Huizar:
Okay. So that makes sense. If we’re selling a legal duplex and there’s an unpermitted third unit, so there’s no permits for the third unit. The zoning calls it a duplex, city records calls it a duplex. Under current state law it says that if it’s owner occupied, it’s exempt. Where we’ve had the question is, but what happens when there’s three dwellings, even though one of those is not permitted? Is it still exempt?

Bruce Menke:
The usual lawyer answer is it depends. That is not the case in this question. The answer is no. You do not have the ability to expand the exemption available to a duplex by adding additional illegal units.

Juan Huizar:
Got it. Okay. So that’s pretty clear cut. Now how about in a situation where you have a single family home and you add an ADU. Legally, I don’t believe that they would call it a duplex under that, because it’d be a single family home with an ADU. Is that considered now two dwellings? How is that perceived in the world of rent control?

Bruce Menke:
There are exemptions available for owner-occupied, single family residence and associated ADUs, auxiliary dwelling units. Those auxiliary dwelling units are either going to be truly AD, auxiliary, outside of the building, or they can be a junior ADU, which is part of the existing structure. So there is the opportunity for an exemption in that scenario for the single family residence and associated ADU or ADUs.

Bruce Menke:
But there is a little bit of uncertainty in the language of the code. That is that it says two bedrooms or units. So the question then becomes is, well, does that mean you can have two units, but more than two bedrooms, or does it mean regardless of how many AD, because you could have an auxiliary ADU as part of the structure, a second ADU outside of the structure, which all of which of course is limited by whatever’s available for the local jurisdiction.

Bruce Menke:
And then I think the most conservative approach is, you can only have two bedrooms regardless of the number of units. You can either have a total of two units, a maximum of two units or a maximum of two bedrooms cumulatively. Now what’s interesting, though, is I mentioned before that on the single family residence exemption to be exempt, you had to give a specific notice to the tenants. What’s interesting is there is no such notification requirement in the ADU provisions of the code. One interpretation would be you don’t have to give any kind of a notice. You may want to go ahead, though, and still give that single family residence notice to the tenant in that situation, even though I think arguably it’s not required.

Juan Huizar:
Got it. And I think what’s important to note here is that when it comes to a duplex, the exemption could be in place if it’s owner-occupied. Because I know some of our clients, they just have them as investments and they just take the assumption that they’re exempt, but that is not the case if they’re an investor, if tenants are occupying both of-

Bruce Menke:
Well, let’s be clear though, too. We just talked about owner-occupied, single family residence associated with auxiliary dwelling units. Then we just flipped back to single family residences. Single family residence and condos, because the code actually says properties that are capable of the title of being transferred independently, which would apply to a condo or a single family residence. The single family residence exemption is available to investors as well, which is basically what we had in place with Costa-Hawkins and remains in effect, although subject to a threat with the upcoming election. But the single family residence exemption is available to investors. The single family residence/associated ADU exemption is only available if it’s owner occupied and a single family.

Juan Huizar:
Got it. Got it. Okay, perfect. Thank you for answering that. Okay. So here’s another situation that we’ve come across. If I’m selling a duplex property, it’s investor owned. So right now it’s not exempt. It’s going to be purchased by someone who’s going to occupy one of those units. At what point does it go from the property is obviously clearly subject to rent control to, now it’s owner occupied, now it’s not?

Bruce Menke:
So the question is when does it transition to the opportunity for there to be an exemption for the new owner?

Juan Huizar:
Yeah.

Bruce Menke:
The three requirements are that it has to be owner occupied at the time that the residence for the tenant was occupied. When your new owner wants to move in, if he has in place the opportunity to go ahead and remove somebody because he wants to live there, but the other tenant that is in the units, in the duplex, the other unit of the duplex, is there when they go into possession of the other unit, then it doesn’t work.

Bruce Menke:
Because it has to be owner occupied at the inception of the, as a principle residence, by the way, at the inception of the tenancy. And it has to be owner occupied at the beginning, and it has to be, he has to continue to rent it, be occupying the space. So if he moves in and has the opportunity to be exempt, he … for instance, the guy can move in, brings in a new tenant and decides to give an eviction notice and move forward, that he can do that. But he’s not going to be able to have that scenario where he has the opportunity and then sell it to another investor and have it carry forward.

Juan Huizar:
I see. So it’s not going to carry forward in someone coming in who’s going to occupy one of the units, that they’re going to have to play by the rules that are in place.

Bruce Menke:
Right.

Juan Huizar:
In terms of …

Bruce Menke:
The other tenant.

Juan Huizar:
In terms of the other tenant.

Bruce Menke:
He’ll be able to get into the unit because of owner occupancy, but he does not get the opportunity to expand that owner occupancy to an exemption for an existing tenant.

Juan Huizar:
Got it. Okay. Okay, perfect. Thank you for answering that. When does a new certificate of occupancy in an apartment building exclude a building from rent control? We’ve seen a few properties hit the market, and they’re older properties that have been completely remodeled, and it says that they’re not subject to rent control. And I’m just wondering, was it a certain type of permit that they got with the city, that has then said, hey, for the next 15 years you’re excluded from my control?

Bruce Menke:
Well, first off what the law says is that if you have a certificate of occupancy that was issued less than 15 years ago, that the property is exempt. So the first question becomes, when is the certificate of occupancy issued? Now under some circumstances where you have an older property, and they’re kind of rare circumstances, that if you have an older property, that you actually have a new certificate of occupancy issued. Even on properties that have been red tagged. You may have a situation where you may have a certificate of occupancy revoked, but the question then becomes when you solve the problem that caused the revocation, are you getting a new certificate of occupancy or are you reinstating the previous certificate of occupancy?

Bruce Menke:
And that’s an important question because one does not fall within the 15 year period and the other does. So the biggest difference between this and Costa-Hawkins or even rent control as an example, both of those bits of legislation dealt with firm dates. So what’s new in what we’re talking about right now is this 15 year rolling. So you can buy a property that is within that 15 year period of the certificate of occupancy issuance and be exempt from rent control. And then with the passage of time, you can have an exempt property convert to non-exempt. That’s the critical part, that certificate of occupancy date and it’s a rolling 15 year period. So that’s the day when the clock starts and whenever the 15 years is up, the year, it’s up.

Juan Huizar:
Okay. Okay, perfect. Thanks for answering that. One question that I would like to ask and just curious to get your thoughts on it. Currently in place, I believe that through the end of July, we have an eviction moratorium within the city of Long Beach. Okay. And obviously there’s, that could be extended-

Bruce Menke:
And there’s discussion expected as to whether they’re going to extend that.

Juan Huizar:
Got it. Can you give us any thoughts on the eviction moratorium and what you believe is going to happen?

Bruce Menke:
In the city of Long Beach?

Juan Huizar:
Correct.

Bruce Menke:
The good news for the city of Long Beach, generically speaking, the city of Long Beach ordinance has been kinder to landlords than a lot of other cities. And in that regard, the obligation for prior notice, the obligation for documentation to be provided, et cetera. The problem, however, though, is despite the fact that the city of Long Beach was, in fact, in place earlier on and kind of went their own way. The more recent adjustments to the ordinance have intentionally by the city council begun to align themselves more closely with the adjoining cities in the area. So that does not bode well for the timing of any extension, because other cities, like the city of Los Angeles and of course the executive orders recently issued by the governor, authorized properties that didn’t have rent control to go ahead and initiate rent control through the end of September.

Bruce Menke:
So my expectation is that the city of Long Beach may not be so aggressive that they extend it through September, but the expectation would be that they will be extending it. Interesting challenge is going to be the fact that it’s going to expire at the end of July right now.

Juan Huizar:
Correct.

Bruce Menke:
The city council had an emergency item on their agenda just last night. I don’t know what happened with that, frankly. And the challenge is that they put it on as an emergency edition, because for the remaining city council meetings for the balance of the month, they’re not going to have a quorum because of scheduled vacations or otherwise by city council members. So we may find ourself in a very interesting situation that we may not get an extension of that July 31 date until into the month of August. So it’s going to be interesting to see how it plays out.

Juan Huizar:
Just one question. Should it expire at the end of July? Apartment owners are wondering how much of a backlog do you expect? People are asking us well, geez, if we did get the right to get possession back or start the unlawful detainer, how long do we expect that to take? Should we have the right to start that again?

Bruce Menke:
I’m going to answer that question in a moment. The other issue that’s important to remember is that the one thing that the city has also not yet resolved is what the repayment period is going to be for the rent that was deferred during the moratorium, which applies to both commercial, by the way, and to residential properties. The landlords are promoting a 12-month, equal payments over a 12-month period. Those on the tenants’ side that are pushing for total rent forgiveness.

Bruce Menke:
I don’t think that Long Beach is going to go there. My best guess on that is I think they may go for a 12-month time period. But unlike the announced expectations or announced intentions, as far as the existing statute or ordinance, is that the obligation to stay current commences upon the termination and then the repayment period also starts at the same time. My expectation would be that they may very well defer the commencement date for the repayment of the back rent a month or two. Hopefully not the 12 months that city of Los Angeles and some other people are proposing, but I do expect them to go, in fact, defer the commencement date for the repayment. It’s kind of a concession to the other side.

Juan Huizar:
Okay. And then in terms of a backlog or what we expect?

Bruce Menke:
That is anybody’s guess, because the backlog associated with … right now, we can file eviction cases right now. But we’re not going to get a summons issued unless there’s a judicial finding of a necessity for that eviction and because of public health or safety. Nonpayment of rent doesn’t fall into that category. And frankly, even those cases, which multiple attorneys, our office included, perceive to be a good shot at a public health or safety issue, I’m only aware of one such application of maybe 10 or 12 attorneys that I know that has been approved.

Bruce Menke:
But the bigger issue is what the judicial council has done when it comes to dealing with the process. Right now we have judicial council rules, which have significant limitations, which are not going to terminate until, under existing rules, until 90 days after the termination of the declaration of emergency from our governor. There’s no end in sight. There’s no express termination date. There’s no end in sight for that. And the expectation is, because of the associated ability to get federal funds for the state, that may not expire for a good long time.

Bruce Menke:
The judicial council can in fact go ahead and change the rules, and I think that they should and hope that they will, as they see that the courts are getting back up to the speed, and they’re starting to do so. Orange County is currently doing video trials. Long Beach and as well as other LA County cities are doing video law and motion hearings, but have not yet resumed trials. So it’s going to be a long time, frankly. It wouldn’t be unrealistic to think that unlawful detainer cases are not going to be back on track as to what we’re accustomed to for another three, four, five, maybe months or longer.

Juan Huizar:
Okay. So there you have it. That wraps up the last of our questions. Clearly it’s not an easy subject. There’s lots and lots of interpretations. It’s important that when you have these questions, that you reach out to Bruce Menke’s office, excellent, excellent local firm. They’re up to date on everything that’s going on. And so we want to thank you for joining us today.

Bruce Menke:
Pleasure to be here.

Juan Huizar:
Thank you for tuning in. I’m sure you’re still going to have questions. This is not an easy subject. Laws keep changing. City council keeps meeting. And so please let me be your resource, let me be that light, and we will do the best we can to help you.

If you have any further questions or would like to speak to Bruce and his team about this topic, please reach out to Menke Law Firm, APC at:
• 562-496-4300
• [email protected]