Rent control. It’s a hot topic these days. If you’re a tenant in a rent-controlled apartment, you’re probably grateful that your rent can only increase by a limited amount each year. If you’re a landlord, it’s likely you see things somewhat differently.
Los Angeles County is the largest county in the United States. It is also home to a massive residential rental market. 54% of all residents are renters. In the city of Los Angeles, more than 64% of all households rent. This is one of the highest renter ratios in the country.
Los Angeles County is also home to a variety of complex rent regulation laws. If you’re investing in residential real estate here, it is vital to have a firm grasp on how all of this works.
Our firm’s multifamily investments are focused in Los Angeles County. Therefore, virtually all of our properties are subject to some sort of rent regulation. As a result, we’re intimately familiar with how these laws function.
State of California Rent Regulations
In late 2019, Governor Gavin Newsom signed statewide rent regulations into law. This law (known as Assembly Bill 1482 or AB 1482) extended rent control throughout California. The law applied rent regulations to all properties with 2 or more units, which were built in 2005 or earlier. The law expands rent control on a rolling basis (more on that below).
2 unit properties, where one unit was occupied by the owner, were exempted from the law. AB 1482 does not apply to single family homes or condominium units, unless such units are owned by a corporation or real estate investment trust. Thus, single family and condo units, when not owned by professional investors, are exempt from rent control.
For properties which do fall under AB 1482 rules, you cannot increase rents by more than 5% plus inflation, each year. Inflation typically ranges from 1% to 3% each year. So, this means that in most years, you are limited to rent increases of 6% to 8%.
There is also a cap on rent increases, in the event that inflation spikes beyond 5%. If that happens, you cannot continue adding the rate of inflation to the 5% allowable rent increases. Instead, a cap is placed, and you cannot increase rents by more than 10%.
AB 1482 also imposes restrictions on evictions. Specifically, you cannot evict tenants who have been in a unit for at least 12 months, without demonstrating just cause. What is just cause?
Basically, the tenant must be in violation of the lease, in some important way. Perhaps they’re not paying rent. Maybe they have occupants who are not listed on the lease, living in the apartment. Perhaps they’re causing a nuisance in some way, and disturbing the peace of other tenants.
If you can prove any of these violations, you must typically offer the tenants a chance to cure (that is, resolve) the issues. Typically, the tenants have 3 days. If they fail to do so, you can typically proceed with eviction.
If there is no just cause, then you typically can’t evict the tenant, or refuse to renew their lease. Of course, you can raise rents, by the amounts legally allowed.
However, if a tenant is willing to pay these increased rents, you cannot simply refuse to renew their lease. This is an important change from the pre-AB 1482 days.
It’s also important to understand how AB 1482’s provisions cover more and more buildings, over time. AB 1482 was passed in 2019, and took effect in 2020.
The law expands rent control on a rolling basis. It adds newer buildings, as they approach 15 years since construction. So, on March 30, 2021, a building completed on March 30, 2006 would be covered. However, a building constructed on March 30, 2007 would not be covered (until March 2022).
Lastly, you need to understand how AB 1482 interacts with existing rent control laws. AB 1482 does not override any existing rent control laws. Thus, some of the local rent control ordinances we’ll be reviewing are not voided by AB 1482
Rent Regulations In The City of Los Angeles
Los Angeles is not only the largest city in Los Angeles County, but the second largest city in the nation. It probably won’t surprise you that the city also has relatively complex rent regulations.
Under the Los Angeles Rent Stabilization Ordinance (LARSO) all city rental units which were eligible for occupancy before October 1, 1978 are subject to rent control. This doesn’t just apply to large apartment complexes. It also covers duplexes where the owner occupies one unit, and the tenant resides in the other.
LARSO allows you to increase rents by a limited amount each year. The permissible amount of LARSO rent increases is typically based on the rate of inflation, and ranges from 3% to 8%. In 2020, due to the COVID-19 pandemic, Mayor Eric Garcetti ordered a freeze on rent increases on LARO-covered units.
Like most rent regulation laws, LARSO does contain some grounds under which you might evict a tenant. There are 14 reasons for an eviction. These 14 reasons can be classified into two broad categories: At-fault and no-fault evictions.
At-fault evictions are those where the tenant’s conduct is the reason for the eviction. The most common at-fault reasons include a tenant’s failure to pay rent, violations of the rental agreement, using the unit for an illegal purpose, or interfering with the enjoyment of other tenants. There are other, less common grounds for eviction, such as refusing the landlord access to the unit for repairs, or failing to renew a lease or rental agreement on similar terms.
In a not at-fault eviction, a tenant’s behavior is not the reason for the eviction. Rather, the property owner has another reason that they wish to vacate the unit. Perhaps you want to occupy a unit for yourself (or rent it to a family member).
Or,maybe you want to remove the property as a whole from the rental market. This is common with property owners who wish to convert apartment units to condominiums. We’ve discussed that process later in this piece.
In an at-fault eviction, you don’t owe the tenant any relocation fees. However, in a no-fault eviction, you typically will have to pay these fees. Relocation fees vary.
Tenants who are over the age of 62, disabled, or have minor children, are typically entitled to higher fees. Tenants whose income falls below the area median income, also are entitled to some fees. If you’re a smaller landlord, you may be allowed to pay less in relocation fees
Tenants who had been in the property for less than 3 years, will recieve less fees than those who have been there for longer. Relocation fees are designed to support tenants who might have a harder time finding a place to live.
Evictions (whether at-fault or no-fault) are not the only way to vacate a rental unit. You can also negotiate a buyout agreement with your tenant.
In a tenant buyout, you reach an agreement with your tenant, to end their LARSO lease, and move out. In exchange, you pay the tenant some amount of money. While plenty of tenants say no to buyouts, many choose to accept them. This is particularly true of tenants with lower incomes, and those who live in less desirable areas.
In recent years, Los Angeles implemented a series of changes to LARSO tenant buyouts. Now, landlords must provide a disclosure notice to tenants, which informs them of their rights in the buyout process. The disclosure form must be signed by the tenant, before they accept a buyout offer.
After all, a tenant has the right to reject the buyout offer, and not move. Tenants are under no obligation to accept buyouts. They may also negotiate for more money (i.e. not accept the first offer). Agreements and notices must typically be provided in the tenant’s native language, so that they
A tenant has 30 days after signing a buyout agreement, to cancel, with no penalty. Of course, if any money were paid to the tenant, as part of the agreement, they must return those funds. All buyout agreements (and applicable disclosures) must be provided to the Housing + Community Investment Department.
Los Angeles County (Unincorporated Areas) Rent Regulations
Los Angeles County is home to 88 cities and more than 120 unincorporated areas. These unincorporated regions comprise 65% of the County’s land mass, and are home to more than 1 million people.
Los Angeles County has a Board of Supervisors with five members. Each member represents specific geographic regions within the county. They are elected by not only those who live in unincorporated areas, but also by residents of cities within that part of the county.
So, for example, Supervisor Janice Hahn currently represents the 4th District, which includes many unincorporated areas, as well as major cities like Torrance and Diamond Bar. There are many agencies which serve all residents of the county, whether they live in a particular city, or unincorporated area.
For those who live in unincorporated areas, their county supervisor might be thought of as a sort of city council member. The supervisor represents them in matters relating to the county (which effectively acts as their city government).
Unincorporated areas of Los Angeles County have their own rent rules. These regulations apply to properties built before February 1, 1995. For these units, rents can be increased by no more than 3% per year. This is until June 2021.
The grounds under which a tenant might be evicted, are quite similar to LARSO. For example, failure to pay rent, creating a nuisance, or breaching other relevant lease conditions, are all grounds for eviction.
There are also a number of no-fault reasons for eviction, such as moving in a relative, or removing a property from the rental market, under the Ellis Act. In each of these cases, a landlord must go through the legal process, which can take time and cost money.
Santa Monica Rent Control
Santa Monica has one of the most expansive rent control laws in the entire nation. The city’s law covers not just multifamily units, but also condominiums and single family homes. The law applies to buildings constructed before April 10, 1979 (and some which were built after).
Permitted annual rent increases are decided by the city’s Rent Control Board, which also sets other regulations around city housing policy. This ordinance sets forward very specific circumstances under which tenants can be evicted. As with the city of Los Angeles, most grounds for eviction involves tenants who don’t pay rent, or otherwise behave disruptively.
One of the more onerous aspects of Santa Monica’s rent regulations is the yearly registration fee. This fee of $198 per year, per unit, is used to administer the city’s rent laws.
West Hollywood Rent Regulations
West Hollywood passed a rent regulation law in 1985, which covers all units which became occupied before July 1, 1979. For condos and single family homes, if the tenant moved in before January 1, 1996, rent regulations apply.
The city’s Rent Stabilization Division sets the allowed rents for rent-regulated units in West Hollywood. The Maximum Allowable Rent (MAR) depends on when a tenant moved in. Tenants who moved in after the end of 1998, between 1996 and 1998, and before 1996, each fall into different MAR categories.
Rent increases are based on the Consumer Price Index (CPI). The CPI measures increases in consumer prices, and thus is an index for changes in the cost of living.
When a unit is vacated, the unit is temporarily de-controlled, which means that rent regulations will be temporarily removed. When the unit is re-leased, the applicable rent regulation (depending on when the tenant moved in) will be implemented.
Thus, a landlord can “reset” rents when an existing tenant moves out. However, the landlord is limited in how much he or she can increase rents on the tenant each year.
Inglewood Rent Control Laws
In recent years, few places in Los Angeles County have seen more development and real estate activity than Inglewood. The city is home to the $5 billion SoFi Stadium, and the massive accompanying entertainment complex.
Hotel, apartment and condominium developers have quickly followed. Also, numerous existing apartment properties traded hands, and new owners have sought to raise rents.
In 2019, Inglewood passed a rent control ordinance, restricting rent increases to 5%, plus CPI increases. This ordinance applies to most properties built before 1995.
It also requires just cause for all evictions. It also provides for relocation fees, if a tenant who has lived in a unit for at least 2 years is evicted. Of course, this only applies to those evictions where the tenant was not at fault. Remember, no-fault evictions include situations like an owner of a property, or one of their relatives, moving into a rental unit.
Culver City Rent Control
Culver City is the last (and most recent) city in Los Angeles County, to pass some sort of rent regulations. Culver City’s law is amongst the strictest in the region.
The city’s law mandates that rent increases are limited to increases in the CPI, and nothing more. Landlords must register rental units with the city, and evictions are only for just cause. Landlords are limited in passing on the costs of property improvements to tenants. Like many other city’s rent rules, Culver City requires relocation fees in no-fault evictions.
Legal Strategies For Dealing With Rent Regulation
If you’re a landlord, or are considering purchasing rent-regulated properties, the patchwork of rent regulations in LA County pose some interesting challenges. First, you have to figure out which laws apply to your property.
For example, in some parts LA County, properties just a few blocks apart are covered by different laws. In South Los Angeles, the city and county lines are so close together, that you can walk a few blocks, and the rent regulations are different.
If a property is located in a city like West Hollywood, Santa Monica, Culver City or Inglewood, it’s pretty easy to know whether rent control applies. Simply check the year your property was built, and the applicable rent control statute, and you’ll know whether you’re covered. You can, of course, always contact the city’s building department with further questions.
If you’re in the city of Los Angeles, you can check whether a property is regulated under LARSO, by using a website called ZIMAS. For properties located in unincorporated areas of LA County, you might verify through the county’s precinct maps system.
Once you have confirmed that your property is rent-regulated, you’ll need to decide what you want to do. Are you looking to increase rents in the near future? Or, are you OK with the property’s tenants moving out over time, and increasing rent as they do?
If you want to take a more active approach, you have several options. You might examine whether tenants are violating any clauses of the lease, such as having unauthorized occupants living in the unit, or illegally subletting the unit. If you suspect any violations of the lease, you’ll want to speak with a landlord-tenant attorney, and find out what your options are.
You could also look into gaining possession of the property on a no-fault basis. Perhaps you want to move into a unit, or have a relative who does. Again, we suggest consulting with an attorney.
Or, perhaps you want to exit the rental business entirely? Maybe you want to turn your property from rental units into condominiums? In such a situation, you should consider use of the Ellis Act. The Ellis Act is a state law (passed in 1985), which allows residential landlords to “exit” the rental property business. An Ellis Act eviction is an extensive legal process, which involves the filing of various notices, and in some cases, paying relocation fees to tenants.
Tenant Buyouts
Keep in mind that you can reach voluntary agreements with tenants to vacate a rent-regulated unit, in exchange for compensation. These agreements are known as tenant buyouts.
In recent years, tenant buyouts have become more popular with landlords, as rents in Los Angeles (and elsewhere) have increased. Tenant buyouts are typically negotiated by landlords themselves, or in collaboration with property managers, attorneys, or tenant negotiation specialists.
Tenant buyouts involve achieving a deep understanding of a tenant’s needs. Some tenants will take a smaller buyout amount, in exchange for more time to relocate. Others wish to purchase a home (often out of state), and might need assistance with that process.
Some tenants simply don’t want to move, even if they’re offered a generous amount of money. In such situations, it’s important to remember that unless you have grounds for an eviction (whether at-fault or no-fault), you can’t force a tenant to move out. A tenant’s refusal to move doesn’t waive your legal and ethical obligations as a landlord.
In both the city and county of Los Angeles, there are requirements around how buyout agreements are structured. Amongst other provisions, these agreements must be in writing, offer a cancellation period, and inform a tenant of their right to refuse the offer. These agreements must be in the primary language of the tenant, and must typically be filed with the applicable city or county office.
You can find the requirements for Los Angeles County here, and for the city of Los Angeles here. As with all legal matters involving tenants, we suggest you consult with an attorney, before you begin offering buyouts to tenants. It’s important that you have your buyout agreement, and your overall buyout process, reviewed by an attorney.
Some Final Thoughts
If you’re looking to own and operate residential investment properties, Los Angeles County is a highly complex market. The regulations we’ve discussed above might appear overwhelming.
Yet, for those who are able to navigate these rules in a legal, ethical manner, the sky is the limit. As Albert Einstein noted “In the middle of difficulty lies opportunity.” Los Angeles County is also a very profitable market for real estate ownership. Long-term ownership of Los Angeles multifamily real estate is as sure a path to wealth as you’ll find.
We suggest you familiarize yourself with the rent regulations of the specific area(s) you’re looking to invest, and consult with a skilled landlord attorney. It’s important that you have effective legal counsel.
If you want to capture the upside of investing in LA real estate, without the headaches, you might be interested in our apartment syndications. We invest our money alongside our partners, to purchase, upgrade and refinance undervalue apartment buildings. Please enter your contact information here, and we’ll be happy to chat.
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