ROUND UP OF 2020 NEW REAL ESTATE LAWS
New Real Estate Laws for California in 2020
October 13th was the last day for Governor Newsom to sign bills into law and conclude this year’s legislative session. Here are some of the significant laws that were passed impacting brokers and agents:
Statewide Rent Control and Just Cause Eviction
A statewide rent control and just cause eviction bill, Assembly Bill 1482, was signed into law this week. Its major provisions include:
- Rent Cap. A cap on annual rent increases set at 5% plus inflation, up to a maximum of 10% per year. This cap applies retroactively to all rent increases since March 15, 2019. Any rent increases initiated on or after that date will count toward the rent cap, and if over the maximum, will have to be rolled back effective January 1, 2020.
- Just Cause. A prohibition on evictions without “just cause.” Landlords can no longer terminate month-to-month tenancies at will and may now only evict tenants for one of 15 specific reasons. The permissible reasons are divided into two categories: “at fault” and “no fault.”
- “At fault” termination is generally allowed when tenants have breached their lease and does not require the payment of relocation assistance. “At fault” reasons include non-payment of rent, nuisance, illegal use of the property, refusal to allow entry, and breach of a material term of the lease.
- “No fault” termination is allowed even when the tenant has not breached the lease and will require the landlord to pay one month’s rent in relocation assistance. “No fault” reasons include an owner or family member intending to occupy the property, withdrawal from the rental market, substantial remodeling and compliance with a government order to vacate the property,
- The law’s just cause eviction provisions only protect tenants who have been in possession for a year or more. Certain types of housing are exempt including:
- Single family homes and condos if:
- Tenants have received notice of the exemption and,
- The owner is not a REIT, corporation, or LLC owned wholly or in part by a corporation
- Homes built within the last 15 years
- Owner-occupied duplexes
- Owner-occupied single-family homes where two or fewer rooms are rented out (exempt from just cause but not rent cap)
- See at end of page exemptions from both rent cap and just cause**
Landlords Cannot Refuse Section 8 Tenants Outright
Mandatory Section 8: Under Senate Bill 329 landlords may no longer refuse to rent to a tenant solely on the basis of a tenant’s participation in a housing voucher program such as Section 8. Doing so would constitute illegal “source of income” discrimination.
However, landlords remain free to reject prospective tenants provided they do so on otherwise lawful grounds that are not based on a tenant’s receipt of a housing subsidy. Landlords also remain free to charge rents as allowed under law and are not required to reduce rents even if chosen rent levels would make a unit too expensive for a voucher holder to afford. Further, landlords can continue to apply appropriate financial and income standards in making rental decisions, such as verifying income levels or checking creditworthiness. However, landlords no longer have the option to forgo participation in housing subsidy programs when presented with a prospective tenant who is qualified to rent from them in all other respects.
Landlords discrimination on the basis of source of income
“Discrimination” on the basis of “source of income” has been expanded to include a refusal to rent to a tenant based on the tenant’s receipt of federal, state or local housing subsidies including “Section 8
This law expands the definition of “source of income” in regard to housing discrimination to mean “income” paid to a housing owner or landlord on behalf of a tenant, including federal , state, or local public assistance, and federal, state, or local housing subsidies, including but not limited to, federal housing assistance vouchers issued under Section 8 of the US Housing Act of 1937.
“Discrimination” includes:
- refusal to sell, rent, or lease housing accommodations;
- refusal to negotiate for the sale, rental, or lease of housing accommodations;
- representation that a housing accommodation is not available for inspection, sale, or rental when that housing accommodation is in fact so available and;
- any other denial or withholding of housing accommodations.
“Discrimination” also includes:
- provision of inferior terms, conditions, privileges, facilities, or services in connection with those housing accommodations;
- harassment in connection with those housing accommodations;
- the cancellation or termination of a sale or rental agreement; and
- the provision of segregated or separated housing accommodations.
Senate Bill 329 codified as Government Code §§12927 and 12955. Effective January 1, 2020.
Beginning 2021 New Disclosures re Fire Home Hardening and Defensible Spaces
Although not effective until 2021, Assembly Bill 38 mandates new disclosure obligations for residential 1 to 4 property sales located in a high or very high fire hazard severity zones. There are two parts to the new disclosure law:
First, for properties built before 2010, sellers will be required to disclose, based upon a seller’s actual knowledge, the absence of home hardening features that may make the home vulnerable to wildfire and flying embers including non-fire resistant eaves, untreated wood shingles or shakes on the roof, combustible landscaping within five feet of the home, single pane or non-tempered glass windows, loose or missing bird stopping, and rain gutters without metal gutter covers. A statutory notice is also required advising a buyer that the property is located in a fire hazard zone and that home hardening retro-fits can better protect the home.
Secondly, the seller will be obliged to present evidence of compliance with any local law that requires documentation regarding “defensible spaces.” These are laws that require an owner to maintain a space around their home which is cleared of fire hazards, like dead wood and brush. If there is no local law requiring such documentation, the seller and buyer “must agree” that the buyer will comply with state law requirements after closing, if the seller hasn’t already done so.
Rent Increases Above 10% Require 90-Day Notice
Assembly Bill 1110 extends the notice period for increasing rent by more than 10% in any 12-month period to 90 days. Previously, it was 60 days. In calculating if a proposed rent increase is greater than 10%, the owner must combine it with all other rent increases imposed within the 12 months prior to the effective date of the rent increase. The notice period for rent increases of 10% or less (combining all prior rent increases within 12-months before effective date of the increase) remains 30 days.
Keep in mind that with the passage of AB 1482 capping rents statewide, an increase of more than 10% within any 12-month period will only be permitted for housing that is exempt from the statewide rent cap law. But even if exempt, landlords should be cognizant of the anti-price gouging law based upon declared states of emergency which will restrict rent increases to no more than 10% for properties located in counties affected by declared states of emergency.
Lower Security Deposits for Active Military
Under Senate Bill 644 a landlord may only collect one month security for an unfurnished unit, or two months for furnished units, from a service member who resides on the property. A landlord may not refuse to enter into a rental agreement with a prospective tenant who is a service member on the basis that the landlord is demanding, but is prohibited from collecting, a greater amount of security.
Under this law “Service member” means a member of an active or reserve component of the Armed Forces who is ordered into active duty pursuant to federal law, or a member of the militia called or ordered into active state or federal service.
Budget Allocates $20 million for Eviction Defense
Signed into law in June, Assembly Bill 74, the “Budget Act of 2019,” allocates $20 million to qualified legal service projects and support centers to provide eviction defense or other tenant defense assistance in landlord-tenant rental disputes, including pre-eviction and eviction legal services, counseling, advice and consultation, mediation, training, renter education, and representation, and legal services for improving habitability, increasing affordable housing, ensuring receipt of eligible income or benefits to improve housing stability, and homelessness prevention.
IRS finalizes 20% qualified business income deduction: 250 hour a year safe harbor for rental real estate owners.
[This is a portion of a Copyright© 2019, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved. Written by Robert Bloom, Esq.]Individuals or entities who own rental real estate directly or through a disregarded entity may treat it as a “business” for purposes of the QBI deduction. “Management of the real estate” is considered a “rental activity.”
- Owners may claim a safe harbor if rental activities total at least 250 hours:
- Maintaining and repairing property;
- Collecting rent;
- Paying expenses;
- Verifying information in tenant applications;
- Purchase of materials;
- Advertising; Supervision of employees and independent contractors; and
- “Management of the real estate”
- Rental activities may be performed by owners or by employees, agents and/or independent contractors of owners
- Keep contemporaneous records, times reports, logs, etc…
- 1) Hours 2) Description 3) Dates of all services performed and 4) Who performed all services
- Separate books and records must be maintained for each “rental enterprise”
- Triple net property is not eligible for this safe harbor
- If an owner does not qualify for the 250 hour safe harbor it still may be possible to claim to be a “business”
- In all cases, owners should be advised to speak with their accountants – It’s complicated
- Effective Date: The revenue procedure applies to taxable years ending after December 31, 2017.
26 CFR 1.199A-1: Trade or Business; Rev. Proc. 2019-38 was finalized on September 24, 2019. Effective date January 1, 2018.
Mobilehome Park Sales: Application Process Must Be More Transparent, Fairer, and Faster
Park lease approval of a buyer is necessary to consummate the sale of a mobilehome that will remain in place in a mobilehome park; and dealing with the park management can sometimes prove frustrating. Assembly Bill 274 attempts to move the application process along in a transparent, fair, and timely manner.
Upon receipt of notice, park management must within 15 days provide a selling homeowner or prospective purchaser with the standards that management customarily utilizes to approve a tenancy application and a list of all documentation needed to determine if the prospective purchaser will qualify for tenancy in the park. Management is prohibited from withholding approval from a prospective purchaser of a mobilehome unless management reasonably determines that the purchaser will not comply with the rules and regulations of the park, the purchaser does not have the financial ability to pay the rent, estimated utilities, and other charges of the park, or the purchaser commits fraud, deceit, or concealment of material facts during the application process. If denied, the purchaser is entitled to provide, and park management is required to consider, evidence of additional financial assets.
Agent Independent Contractor Status Reaffirmed
Real Estate Licensees may remain classified as independent contractors, as they have been for the past half century. Assembly Bill 5 clarifies that existing law is not displaced by the Dynamex decision, a case that changed the way independent contractor status is analyzed in California. Although media coverage of AB 5 has focused attention on the sweeping changes to employment law generally, contained within AB 5 is a clear reconfirmation of the right of real estate agents to be treated as independent contractors.
The new law recognizes and reinforces Business and Professions Code § 10032 which allows real estate licensees to be independent contractors for “statutory purposes” as long as they meet the following three conditions:
1) They hold a real estate license;
2) Substantially all of their remuneration is directly related to sales or other output rather than to the number of hours worked; and
3) The parties have a written contract stating that the individual will not be treated as an employee with respect to those services for state tax purposes.
This three-part test conforms to the federal tax code as well.
AB 5 also indicates that if the classification in the B&P Code is not applicable, then question of independent contractor status would be governed by “the Borello test,” which is based on factors of control, instead of those established by Dynamex. However, even if the Borello test does apply, the duties of broker supervision and control under the real estate licensing law cannot be considered as factors.
This puts to rest some plaintiffs’ assertions that obeying the real estate law of broker supervision and the requirement that a salesperson must work under only one broker results in an employee status, which was never the case. In this regard, as part of C.A.R.’s real estate clean-up legislation, which was signed into law last year, all references to “employing broker” and “employee” were removed from the B&P Code.
Finally, AB 5 states definitively that the Dynamex decision does not apply to real estate licensees and adds that the law relating to real estate licensees applies retroactively to existing claims and actions to the maximum extent permitted by law.
**Exemptions from both rent cap and just cause:
1. Residential property alienable separate from the title to any other dwelling unit (which includes single family properties and condos) if:
- Notice of the exemption is provided to the tenants (and after July 1, 2020, is provided in the rental agreement) and;
- The owner is not a REIT, a corporation, or an LLC where an owner is a corporation
- New construction where certificate of occupancy was issued within the last 15 years
- Owner occupied duplexes where the owner occupied the property at the beginning of the tenancy and continues to do so
- Housing restricted by deed for persons and families of very low, low, or moderate income, as defined, or subject to an agreement that provides housing subsidies for affordable housing for persons and families of very low, low, or moderate income;
- Dormitories in connection with higher education for use and occupancy by students are exempt from rent cap; and dormitories owned and operated by an institution of higher education or a kindergarten and grades 1 to 12 inclusive are exempt from just cause;
- Housing subject to a local rent control law that restricts rental increase to less than this state law (exemption from rent cap alone)
Exemption from just cause but not rent cap:
- Owner occupied single-family properties renting no more than two bedrooms including Accessory Dwelling Units (“ADU”s) or junior accessory dwelling units;
- Housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner who maintains their principal residence at the residential real property;
- Vacation rentals of 30 days or fewer
Relocation Fee
Whenever a tenancy is terminated based on a no-fault reason, relocation assistance must be paid in the amount of one month’s rent as of the time the termination notice was issued.
The owner has two options for how this amount is to be paid.
- The relocation assistance amount may be provided as a direct payment to the tenant with 15 calendar days of serving the termination notice. In this case, the notice of termination must notify the tenant of the tenant’s right to relocation assistance. Or,
- The owner may notify the tenant in writing that the payment of rent for the final month of the tenancy is waived, prior to it becoming due. In this case, the notice of termination must state the amount of rent waived and that no rent is due for the final month.
If the requirements of paying the relocation fee is not strictly complied with then the notice of termination will be rendered void.
Just Cause Preemption
A local just cause eviction ordinance will preempt this state law as long as it was adopted on or before September 1, 2019. This is true even if the local law is less protective than AB 1482. However, a later amendment to the ordinance may mean that AB 1482 applies, unless the amendment is “more protective.”
In order for a local just cause eviction law to be more protective it must meet three criteria: 1. The local law must be “consistent” with AB 1482. 2. The local law must provide higher relocation assistance or provide additional protections. 3. The local government has made a binding finding that their local ordinance is “more protective.”
A property cannot be subject to both the state and a local just cause ordinance, and a just cause ordinance adopted or amended after September 1, 2019, that is “less protective” is unenforceable.
Three Lease Provisions:
AB 1482 has three separate lease provisions which are to be added to any rental agreement or noticed to the tenant depending on which one and when it is being given.
- General information. Tenants must be provided with a notice or lease provision in no less than 12-point type which provides the tenant with general information pertaining to their rights under AB 1482. This may be provided by notice prior to August 1, 2020 for any tenancy existing prior to July 1, 2020. For any tenancy commenced or renewed on or after July 1, 2020, as an addendum to the lease or rental agreement, or as a written notice signed by the tenant, with a copy provided to the tenant.
- Exemption for single-family property and condos. To obtain the exemption for property alienable separate from title to any other dwelling unit (single family or condos) the following notice explaining the exemption and that the owner is not a corporation, REIT, or LLC with a member who is a corporation. Until the notice is provided, the owner is not eligible for the exemption. This statement can be provided as a notice until July 1, 2020, but after that date must be provided “in the rental agreement.”
- Right of owner move-in. For an owner to have the right to evict based upon owner move-in or close relative of the owner, this right must be agreed to or as an addition of a provision in the rental agreement for all leases entered into after July 1, 2020.
Credit:
Portions and information used a Copyright© 2019, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved. Written by Robert Bloom, Esq.
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