2023Landlord - TenantSusanna F. Wiseman

Time to Revisit the Rules of Renting

The real estate market in Southern California has been on a relatively wild ride.  As uncertainty – and interest rates – grow, there is more attention turned toward alternatives to selling or purchasing a home.  All of this contributes toward more persons expressing interest in renting properties, particularly single-family homes.  That makes for a very timely reminder that renting a property is more technical and covered in more ‘red tape’ legal issues than at any time in recent memory.

In part due to the pressures of COVID, the California legislature passed ‘The Tenant Protection Act of 2019.’  That act provided both state-wide rent caps, and, far more impactfully, severe restrictions on evicting tenants[1].  Professional and large-scale landowners and lessors put up a serious fight against this legislation, but, from what I hear from clients, essentially no one understood that this was going to impact individuals renting a single detached property.

And that confusion is more than warranted.  The legislature itself analyzed the law[2] and alleged that the law would not impact individuals renting out a single detached home.

However, that story is enormously misleading.  These protections/restrictions do apply to individuals by default.  In order to escape the application of this statute, the landlord is required to include the following exculpatory language in the lease:

“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 (d)(5) and 1946.2 (e)(8) 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.”

Older leases were exempt from this requirement[3] – meaning that landlords are just now starting to hit problems and just starting to realize that they are simply not permitted to control or utilize their property in the manner of their choosing; they may own the property but in a very real sense they legally do not control it.

Significantly, the exculpatory language above is not default language in any essentially any ‘form’ lease.  Instead, the usual purveyor of forms, such as the California Association of Realtors, provide separate addendums for this purpose.

As discussed above, the laws in this area are in a constant state of change, as new restrictions are imposed and new policies and, frankly, experiments are entered into law.  If you are putting a property out for rent, or have any kind of issues with a tenant, you may be advised to seek legal advice and assistance in putting together the agreement or resolving any dispute that arises.

[1] And we might expect that the legislature is going to double-down on this approach, and greatly curtail what leeway was provided to landlord, with further pending legislation.  For example, the pending AB 2713.

[2] See e.g., AB 1482 – Assembly Floor Analysis, Comments, https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=201920200AB1482#

“This bill would do so by capping annual rent increases at 5% plus the change in the cost of living, as measured by the Consumer Price Index (CPI), and requiring that a landlord list a cause in their written notice to terminate a tenancy. These restrictions would not apply to units subject to existing rent control or just cause eviction protections, deed-restricted affordable housing, or dormitories. They would not apply to single-family homes, except those owned by the corporate landlords, or duplexes where owner lives in one of the units.”

[3] See e.g., Cal. Civ. Code § 1946.2(e)(B)(ii)(I), “Except as provided in subclause (II), for a tenancy existing before July 1, 2020, the notice required under clause (i) may, but is not required to, be provided in the rental agreement.”

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