Prop 21 - Rent Control on Residential Property - Questions

16 Replies

I've read through the voter information guide as well as the text of the proposition on ballotpedia.  Section 3f states "To exempt the owners of one or two residential dwellings from any local rental control law."  Neither provided any clear guidance.  I'm hoping the gurus here have more insight into this.

My questions are these:

1. If an out-of-state landlord only has one rental property in California and additional rentals in another state, is he/she exempt?

2. Similar to question 1: If a California landlord has one in-state rental and multiple out-of-state rentals, is he/she exempt?

3. Lastly, what happens if the rentals are put in an LLC and therefore not "owned" by a person anymore. Assuming that LLC only has the one rental. Is it exempt?

https://ballotpedia.org/Califo... at the actual text of the law changed and you will see added "and the owner is a natural person who owns no more than two residential dwelling or housing units"

I am pretty sure out of state rentals dont count but i am not sure where to prove that.

And.CA doesnt care if landlord is in-state or not

@Bruce Leong , thank you. I'm not sure how I missed that. Section 5 indicates that section 1954.52 of Chapter 2.7 of Title 5 of part 4 of Division 3 (jeesh!) includes 2(A): It is alienable separate from the title to any other dwelling unit or is a subdivided interest in a subdivision, as specified in subdivision (b), (d), or (f) of Section 11004.5 of the Business and Professions Code, and the owner is a natural person who owns no more than two residential dwelling or house units.

It'll be interesting to determine the answer to questions 1 and 2, specifically regarding whether the number of out-of-state rentals plays into this law.

Thanks again,

Ryan

Originally posted by @Ryan Wamsat :

@Bruce Leong , thank you. I'm not sure how I missed that. Section 5 indicates that section 1954.52 of Chapter 2.7 of Title 5 of part 4 of Division 3 (jeesh!) includes 2(A): It is alienable separate from the title to any other dwelling unit or is a subdivided interest in a subdivision, as specified in subdivision (b), (d), or (f) of Section 11004.5 of the Business and Professions Code, and the owner is a natural person who owns no more than two residential dwelling or house units.

It'll be interesting to determine the answer to questions 1 and 2, specifically regarding whether the number of out-of-state rentals plays into this law.

Thanks again,

Ryan


 I would also venture the guess that out-of-state homes won't be a problem if you're out-of-state. How will CA know about those homes? Your ownership of them isn't registered in any CA county, and you state tax filing isn't going to CA. Do you have a tax filing due to CA as an out-of-state owner of a CA home?

Thanks!

Jon

Originally posted by @Ryan Wamsat :

I've read through the voter information guide as well as the text of the proposition on ballotpedia.  Section 3f states "To exempt the owners of one or two residential dwellings from any local rental control law."  Neither provided any clear guidance.  I'm hoping the gurus here have more insight into this.

My questions are these:

1. If an out-of-state landlord only has one rental property in California and additional rentals in another state, is he/she exempt?

2. Similar to question 1: If a California landlord has one in-state rental and multiple out-of-state rentals, is he/she exempt?

3. Lastly, what happens if the rentals are put in an LLC and therefore not "owned" by a person anymore. Assuming that LLC only has the one rental. Is it exempt?


Also, one more important point about Prop 21 that isn't immeditely apparent in the language:

Prop 21 isn't going to put these measures into place. Rather, it gives local governments new limits on what ordinances they can put into place. Prop 21 would replace the limits put in place by the Costa-Hawkins law. So to summarize the three big changes:

1. Costa-Hawkins prevented city and county ordinances from including any single-family home in rent control. Prop 21 gives cities and counties the ability to include single-family homes in rent control except in cases where the owner is a natural person who owns two or fewer homes.

2. Costa-Hawkins excluded any buildings built after Feb 1 1995 from being including in local rent control. Prop 21 changes that exclusion to a 15-year rolling basis.

3. Costa-Hawkins forbid vacancy control, wherein rent is regulated when there's a vacancy. Prop 21 allows for vacancy control, but if any local government includes vacancy control in their ordinance, they must allow at least a 15% increase in rent from the outgoing tenant's rate.

Item #3 is what really FREAK ME OUT! Vacancy control is death to investors and cities alike. Spread the word: NO ON PROP 21!

Best,

Jon

@Jon Schwartz I think what might be confusing is that you’re saying that Prop 21 allows for “at least a 15% increase in rent from the outgoing tenant's rate.”

That, to me (and perhaps others), implies that 15% is the minimum increase and it could be greater. 

I think that’s why @Bruce Leong commented that Prop 21 says it’s actually no greater than a 15% increase. This, to me, implies that 15% is the maximum increase, which is correct. 

Here’s what’s actually written in the official state voter information guide for this proposition:

Allows rent increases in rent-controlled properties of up to 15 percent over three years at start of new tenancy...

(Note: In a few areas of the state, I believe there's a possibility that rent could be raised slightly higher than the 15% over the 3 years if "local rent control laws" also allowed for an increase. However, in the vast majority of the state without local rent control laws, 15% would be the max it could be raised.)

Overall, it's just a bad proposition (same as Prop 10 was two years ago).  That's why so many people and groups are opposed to it (More than 100 elected leaders oppose Prop 21).  Even Gov. Newsom is opposed to it.  In fact, there aren't too many supporters of it, so hopefully it gets defeated like Prop 10 did.  

Originally posted by @Kyle J. :

@Jon Schwartz I think what might be confusing is that you’re saying that Prop 21 allows for “at least a 15% increase in rent from the outgoing tenant's rate.”

That, to me (and perhaps others), implies that 15% is the minimum increase and it could be greater. 

I think that’s why @Bruce Leong commented that Prop 21 says it’s actually no greater than a 15% increase. This, to me, implies that 15% is the maximum increase, which is correct. 

Here’s what’s actually written in the official state voter information guide for this proposition:

Allows rent increases in rent-controlled properties of up to 15 percent over three years at start of new tenancy...

(Note: In a few areas of the state, I believe there's a possibility that rent could be raised slightly higher than the 15% over the 3 years if "local rent control laws" also allowed for an increase.  However, in the vast majority of the state without local rent control laws, 15% would be the max it could be raised.)

Overall, it's just a bad proposition (same as Prop 10 was two years ago).  That's why so many people and groups are opposed to it (More than 100 elected leaders oppose Prop 21).  Even Gov. Newsom is opposed to it.  In fact, there aren't too many supporters of it, so hopefully it gets defeated like Prop 10 did.  

Kyle, you're wrong. Let me break down the actual text of the proposition for you so that you understand.

You can access the full text of the proposition here: https://ballotpedia.org/Califo... relevant text is section 1954.53, which says:

(a) Notwithstanding any other provision of law, and except as provided in Section 1954.52 and in subdivision (b) of this section, a city, county, or city and county may by local charter provision, ordinance, or regulation control the initial and all subsequent rental rates for residential real property.

(b) In any jurisdiction that controls by charter provision, ordinance, or regulation the initial rental rate of a dwelling or unit, if the previous tenant has voluntarily vacated, abandoned, or been evicted pursuant to paragraph (2) of Section 1161 of Code of Civil Procedure, the owner of the dwelling or unit shall be permitted to establish the initial rental rate for the vacant or abandoned dwelling or unit provided that the initial rate established pursuant to this subdivision, in combination with any increases in the rental rate during the subsequent three year period, is no greater than 15 percent more than the rental rate in effect for the immediately preceding tenancy. Any increases in the initial rental rate permitted by and established pursuant to this subdivision may be in addition to any increases in rental rates otherwise authorized pursuant to local law.

This text is very confusing, so let me break it down for you.

Paragraph (a) says that cities and counties can set initial rent prices and rent increases in any way they want with the exceptions of Section 1954.52 and paragraph (b). Section 1954.52 deals with single family homes and the 15-year rolling exemption. Paragraph (b) deals with this 15% issue.

Paragraph (b) then says that, in any city or county that regulates rent increases at vacancy (ie, "vacancy control"), the landlord is entitled (the exact language is "shall be permitted") to raise rents up to 15% over the outgoing tenant's rent. This is what state law will guarantee. Regardless of how a city or county wants to regulate vacancy, this state law supersedes it and establishes that landlords have the right to raise rents up to 15% at vacancy. Paragraph (b)'s last sentence then says, "Any increases in the initial rental rate permitted by and established pursuant to this subdivision may be in addition to any increases in rental rates otherwise authorized pursuant to local law." This sentence means that cities and counties that decide to enact vacancy control can pass laws to allow rental increases at vacancy beyond 15%.

Does this make sense to you now? The 15% increase is a floor guaranteed by the state. If a city or county wants to enact vacancy control, they must abide by this state protection of landlords and have the option of allowing greater rent increases.

For example, in LA, there's no vacancy control. If Prop 21 passes, it doesn't immediately change anything in LA as regards vacancy control. If the LA City Council then decides to enact vacancy control, they have a few options. They can enact it without any adjustment to state protections, putting into place a 15% cap on increases at vacancy. Or they enact it with an increase over state law, allowing for more than a 15% rent increase at vacancy. Or they can do state law plus a CPI index to have a variable increase at vacancy. They can do whatever they want except break this landlord protection of a 15% increase. Makes sense now?

There's also confusing language about a "subsequent three year period" that makes it sounds like the 15% increase is cumulative over three years. Not so. I can get into the math if you like, but long story short, that language just prevents a landlord from enacting a 15% increase at vacancy more than once every three years. So, for example, if a landlord has a bunch of one-year tenants in a row, and enacts a 15% increase on the first new tenant, he can't enact 15% increases on subsequent tenants until three years have passed. And again, this is only in effect if the local jurisdiction enacts vacancy control.

This is one giant problem with CA propositions. We're not professional law-makers, and few people, even those who aim to speak with authority on online forums, don't dissect the actual text to understand what it says!

And FYI, I'm also against Prop 21.

Best,

Jon

@Jon Schwartz   Actually, I still don't at all agree with your interpretations of this proposition's text.  I guess we'll just have to agree to disagree.  At least we can both agree to vote NO on it.  :) 

Hopefully most of the voters agree with us on that, and this all becomes a moot point. 

All the best.

Originally posted by @Kyle J. :

@Jon Schwartz  Actually, I still don't at all agree with your interpretations of this proposition's text.  I guess we'll just have to agree to disagree.  At least we can both agree to vote NO on it.  :) 

Hopefully most of the voters agree with us on that, and this all becomes a moot point. 

All the best.


Sorry, Kyle, but this isn't an "agree to disagree" situation in my book. I'm happy to disagree over politics or sports, but it's really important that you and @Bruce Leong and everybody else who's voting in CA this year understand what these propositions mean. It's also really important that anybody who chimes in with an explanation actually knows what he's talking about.

So let me make two general points, and then I'll dissect the actual text better so that you understand.

My first point is that you're misunderstanding even the text of the voter guide, which says:

Allows rent increases in rent-controlled properties of up to 15 percent over three years at start of new tenancy (above any increase allowed by local ordinance).

You conveniently left off the parenthetical, but when you include it, it's pretty clear what the prop does: allows increases of up to 15% over local ordinance at vacancy.

Understand that, in a legal sense, "allows" means the same thing as "protects" when you're talking about state law, which is superior to local ordinance. So by "allowing" an increase up to 15% over local ordinance, this state law would actually protect an increase up to 15% over local ordinance.

For example, if a state law "allows" abortion through the twentieth week of pregnancy, the law would actually be protecting that duration from local ordinance. (Sorry to bring up a controversial issue, but it works perfectly as a similar example). Local ordinance might make rules about facility condition or administrative requirements, but local ordinance wouldn't be able to impinge on that 20-week period because it is allowed/protected by state law.

So Prop 21 would allow/protect a rent increase of up to 15% at vacancy in addition to whatever vacancy control ordinances are put into place by cities and counties.

(As I'm sure you know, currently no vacancy control ordinances exist because Costa-Hawkins outlaws them. So Prop 21 would apply to ordinances enacted in the future.)

Also, you missed some language that follows the bullet points. Look at the sentence that starts at the bottom of page 52 of the voter guide and continues onto page 53:

In addition, cities and counties can limit how much a landlord can increase rents when a new renter moves in. Communities that do so must allow a landlord to increase rents by up to 15 percent during the first three years after a new renter moves in.

That sentence is confusing, but there's no way it means that cities and counties must cap rent increases on a new renter at 15%. It clearly says that cities and counties that pass vacancy control laws must allow landlords to raise rents up to 15% before the local laws can start restricting the landlord.

My second point is that Prop 21 is literally a re-writing of Costa-Hawkins. If you look at the actual text of the prop at Ballotpedia, you'll see regular text, italicized text, and strike-through text. This is literally original Costa-Hawkins language, new language, and original language that's being struck.

So keep in mind what Costa-Hawkins is: it's a law that puts limits on cities' and counties' reach when enacting rent control. Costa-Hawkins says, "Cities and counties can enact rent control, but not on single-family homes, not on building built after 1995, and not when there's a vacancy."

Prop 21 is literally adjusting the language of these three exemptions. It's not in itself a rent-control law. It's actually a law that restricts rent control, and the third exemption is being changed to say, "Okay, now cities and counties can enact rent control when there's a vacancy, but if you do, landlords shall be allowed to raise rent by up 15% regardless of what ordinances you come up with."

Now let's go back to the text, and I'll try to break it down phrase-by-phrase so that you can comprehend it. I'm going to quote the text in italics, then rephrase it for you in quotes, and then explain the phrase when necessary:

(a) Notwithstanding any other provision of law, and except as provided in Section 1954.52 and in subdivision (b) of this section,

"Whatever we're about to proclaim has some exceptions, including subdivision (b)..."

a city, county, or city and county may by local charter provision, ordinance, or regulation control the initial and all subsequent rental rates for residential real property.

"... cities and counties can set rents and rent increases"

Okay, so far, we're giving all rent-control power to cities and counties, but with a few exceptions, including subdivision (b), which immediately follows. Keep in mind, now, that subdivision (b) is an *exemption* from the power just bestowed.

(b) In any jurisdiction that controls by charter provision, ordinance, or regulation the initial rental rate of a dwelling or unit, if the previous tenant has voluntarily vacated, abandoned, or been evicted pursuant to paragraph (2) of Section 1161 of Code of Civil Procedure,

"In any city or county that passes an ordinance to control rent at a vacancy..."

This phrase is necessary because, thanks to Costa-Hawkins, no city or county is currently allowed to regulate rents when there's a vacancy. This is called vacancy control. Costa-Hawkins outlaws vacancy control. Prop 21 allows cities and counties to enact vacancy control. So this phrase makes it clear that subdivision (b) applies to cities and counties that decide to pass some kind of vacancy control ordinance.

the owner of the dwelling or unit shall be permitted to establish the initial rental rate for the vacant or abandoned dwelling or unit provided that

"...the landlord is permitted to set whatever rate he wants for the vacancy if..."

Well this is good news! It looks like subdivision (b) is going to let landlords set their own rates at vacancy even if the city or county enact vacancy control. Yay! Oh, but there's an "if." Let's see what this "if" is...

the initial rate established pursuant to this subdivision,

"...the new rental rate..."

in combination with any increases in the rental rate during the subsequent three year period

"...plus whatever increases are allowed over the next three years..."

is no greater than 15 percent more than the rental rate in effect for the immediately preceding tenancy.

"...is no greater than 15% more than the rent of the outgoing tenant."

There you have it, Kyle. I'm going to string my re-phrasings together so it's very clear:

"In any city or county that passes an ordinance to control rent at a vacancy, the landlord is permitted to set whatever rate he wants for the vacancy if the new rental rate plus whatever increases are allowed over the next three years is no greater than 15% more than the rent of the outgoing tenant."

So by state law, which is superior to local ordinance, a landlord can set any rental rate he wants on a vacancy so long as the increase over the outgoing rental rate is 15% or less. I know this is confusing, but what it means is: the landlord is protected in setting any rate he wants up to 15%.

Any increases in the initial rental rate permitted by and established pursuant to this subdivision may be in addition to any increases in rental rates otherwise authorized pursuant to local law.

"The rental increase we're discussing in this paragraph is in additional to anything that local ordinance says."

This last sentence says that the landlord's protected rental increase of up to 15% exists on top of any local law.

Is this still unclear to you, Kyle? If so, rather than "agree to disagree," please let me know where I'm wrong.

And again, keep in mind that this law sneakily allows vacancy control. It strips Costa-Hawkins of its protection against vacancy control. And subdivision (b) only apply to cities and counties that decide to enact vacancy control.So if Prop 21 passes, how will that affect us as landlords when we wake up on Nov. 4? As regard vacancy control, there will be no immediate change. Cities and counties have to pass a vacancy control ordinance for subdivision (b) to apply to them. And if a city or county does pass such an ordinance, subdivision (b) is the mechanism by which a landlord can set his own new rate: so long as it's no greater than 15% above the previous rate, he can do it. I know, the language is confusing, but that's how legalistic language is.

Best,

Jon

@Jon Schwartz   I didn't read all that.  Way too long.  Plus you lost me with your condescending tone.  (You should try reading the book "How to win friends and influence people". It's a great book.) 

Thanks for the lecture though.  Moving on.

Useful interpretations so far.  

Another one that seems vague is .."person who owns no more than two residential dwelling or housing units"

Does that include our own primary residence? 

I would assume 'yes' unless there is clarification otherwise. 

Would that include unimproved land? 

I assume 'no' unless there is more clarification. 

And what of our property that had a home, well, septic, etc that burned last month, uninsured, to the ground for a total loss.  Included?  Likely not. 

And several have raised the question of enforcement.  Like code enforcement, I predict that a complaint is the trigger for investigation.  Perhaps by local housing authority, or small claims?  Not sure.  

Polls suggest it will get defeated in a few days. But I do wonder how such vague language can make it into a proposed bill, burdening home providers and courts with interpretation. 

-Jeff