This article is part II of a two-part series covering California’s Tenant Protection Act of 2019. This second part goes over the new rent cap laws. To learn about the Act’s just cause eviction rules, see Part I.

This past fall, Assembly Bill (AB) 1482 enacted California’s Tenant Protection Act (TPA) of 2019. The law made several significant changes pertaining to landlords and tenants, which will impact landlord practice in a big way going forward.

These changes will be effective until they are repealed on January 1, 2030. [Calif. Civil Code §1946.2(j)]

Who the TPA impacts

The applicability of the TPA is comprehensive, covering most multiple unit residential real estate housing in California and those single family residential (SFR) units owned by a REIT, a corporation or an LLC with a corporate member. However, there are numerous exemptions for multiple family units and conditions for SFRs to be excluded.

Properties exempt from the TPA

Multi-unit residential real estate exempt from TPA rent caps include:

  • residential units that have been issued a certificate of occupancy within the previous 15 years;
  • a duplex of which the owner occupied one of the units as their principal residence at the beginning of the tenancy and remains in occupancy;
  • units restricted as affordable housing for households of very low, low, or moderate income, or subject to an agreement that provides subsidies for affordable housing for households of very low, low, or moderate income;
  • dormitories constructed and maintained in connection with any higher education institution in California;
  • units subject to rent control that restricts annual increases in the rental rate to an amount less than that set by the TPA;
  • multi-unit transient occupancy housing like hotels and motels;
  • accommodations in which the tenant shares kitchen or bathroom facilities with an SFR owner-occupant;
  • SFR real estate that can be sold and conveyed separate from the title to any other dwelling unit, like in a SFR subdivision or condominium project, provided:
    • the owner is not one of the following:
      • a real estate investment trust (REIT);
      • a corporation; or
      • a limited liability company (LLC) in which at least one member is a corporation; and
    • the tenant has been given written notice stating the rental property is exempt from the rent increase caps under the TPA. [CC §1947.12(d); CC §1946.2(e); See RPI Form 550551 and 550-3]

To notify the tenant of the property’s exempt status from the TPA, the landlord uses a checkbox in the rental or lease agreement to indicate whether the property is subject to rent limits and just cause eviction requirements. [See RPI Form 550 §10.1 and Form 551 §9.1]

For tenancies entered into prior to July 1, 2020 which do not include the notice, the landlord will provide the notice and, if applicable, indicate their exempt status using the separate Just Cause and Rent Cap Addendum, doing so no later than August 1, 2020. [See RPI 550-3]

When a residential property or tenancy does not meet any of the criteria for exemption, the landlord is to abide by the TPA limiting their ability to increase rent.

Landlords exempt from the TPA requirements may continue to use all existing RPI forms, as these are unchanged by the TPA.

What the TPA does

Broadly, the Tenant Protection Act of 2019:

  • caps annual rent increases at 5% plus the rate of inflation for much of California multi-unit residential properties; and
  • requires “just cause” to evict tenants in place for 12 months or more. [See Part I]

In response this change in tenant notice procedure, RPI (Realty Publications, Inc.) has drafted a new library of landlord-tenant forms to be used by landlords of properties subject to TPA limitations and procedures.

The new forms include the:

  • Just Cause and Rent Cap Addendum [See RPI Form 550-3];
  • 60-Day Notice to Vacate Under a No-Fault Eviction – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 569-2];
  • 30-Day Notice of Change in Rental Terms – For Properties Subject to Rent Cap Requirements [See RPI Form 570-1];
  • Three-Day Notice to Quit – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 577-1];
  • Three-Day Notice to Pay Rent – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 575-3];
  • Three-Day Notice to Pay Rent with Related Fees – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 575-4]; and
  • Three-Day Notice to Perform – For Properties Subject to Just Cause Eviction Requirements [See RPI Form 576-1]

Further, both the residential lease and month-to-month rental agreement have been revised to be compliant for both exempt and non-exempt properties.  [See RPI Form 550 and 551]

All new and revised forms are available for free download on the RPI Forms Download page.

Rent caps enacted by the TPA

The TPA enacts a limitation on rent increases for non-exempt residential rental properties.

For rent increases occurring on or after March 15, 2019, an owner of residential real property may not, over the course of any 12-month period, increase the gross rental rate for a unit more than the lesser of:

  • 5% plus the percentage change in the applicable Consumer Price Index (CPI); or
  • 10% of the lowest gross rental rate charged for that dwelling or unit at any time during the 12 months prior to the effective date of the increase. [CC §1947.12(a)(1); CC §1947.12(h)(1)]

How does a landlord go about properly raising rents under the TPA?

The landlord provides the tenant of a month-to-month rental agreement with a 30-day Notice of Change in Rental Terms – For Properties Subject to Rent Cap Requirements. Notice of the limitations on rental increases is included in this variation of the 30-Day Notice of Change. [CC §1947.12(e); See RPI Form 570-1]

Calculating rent increases

When calculating rent increases, rent discounts or credits are not included. [CC §1947.12(a)(1)]

The cost of living adjustment is considered to be from April 1st of the previous year to April 1st of the current year in the regional CPI for the region where the rental property is located. This information is published by the Bureau of Labor Statistics.

When a regional index is not available — as is the case for rentals located in smaller metros and rural areas — the index used is the California Consumer Price Index for All Urban Consumers for all items, published by the Department of Industrial Relations. These numbers can be found on the California Department of Industrial Relations’ website, here.

If a landlord has already increased the rent by more than is allowed under the TPA between March 15, 2019 and January 1, 2020, the landlord needs to revert the rent amount as of January 1, 2020 to the rent amount charged as of March 15, 2019, plus the maximum permissible increases.

Further, the landlord is not held responsible for any corresponding overpayment in rent. [CC §1947.12(h)(2)]

Further, for tenancies beginning or renewed on or after July 1, 2020, any written notice informing tenants their rental is exempt from the rent increase caps needs to be included in their lease or rental agreement. [CC §1947.12(b)(5)(B)(ii); See RPI Form 550 §10.1 and 551 §9.1]

For new tenancies — when no tenant remains from the prior tenancy — the landlord may establish the initial rental rate as they choose, limited only by current market factors and sound economic reason. However, subsequent increases throughout the duration of the tenancy are subject to the rent increase caps. [CC §1947.12(b)]