The Los Angeles City Council in late January 2023 just passed an expansion of the Rent Stabilization Ordinance. This modification is applicable only to the rental properties in LA City not LA County.
LA County extended the County’s COVID-19 Tenant Protections Resolution (formerly the LA County Eviction Moratorium), which went into effect March 4, 2020, provided certain protections to residential tenants, commercial tenants and mobile home space renters affected by the COVID-19 pandemic in Los Angeles County through March 31, 2023.
Los Angeles City, instead of extending the temporary “Covid” tenant protections, expanded and enhanced in a permanent way the Los Angeles Rent Stabilization Ordinance (rent control). With the understanding the local population and politicians are concerned about the homeless on the street and tenants being squeezed by the cost of housing, there are unintended consequences to the ordinance expansion.
In a nutshell some of the changes:
The rent stabilization ordinance was previously covering properties constructed prior to 1978 and “not” single-family dwellings as a generality. Now, in relation to Just Cause and No-Fault evictions “ALL “ rentals in the city are included. That includes Single Family Dwellings, townhouses, and newly constructed Accessory Dwelling Units or apartments regardless of when they were built.
Essentially the term of a lease doesn’t matter. If the tenant has been in a unit for more than 6 months, they don’t have to leave, if they don’t want to, even if the lease expired, as long as they continue to meet the terms of the original lease and still pay the rent.
During the COVID moratorium, you couldn’t evict a tenant. As of Feb 1, you can evict, but there is a difference between evicting with Just Cause, or No-Fault. With No-Fault you can still evict but have to pay substantial “Relocation Assistance” fee.
The new tenant protections provide for at-fault evictions in which a landlord must have a legal reason to evict a tenant. No-fault evictions require the payment of relocation assistance such as owner occupancy, government order, demolition, or withdrawal of the rental property from the rental housing market.
At Fault:
1. The tenant has failed to pay the rent to which the landlord is entitled,
2. The tenant has violated a lawful obligation or covenant of the tenancy,
3. The tenant is committing or permitting to exist a nuisance in, or is causing damage to, the rental unit, or to the appurtenances thereof, or to the common areas of the complex containing the rental unit, or is creating an unreasonable interference with the comfort, safety, or enjoyment of any of the other residents of the same or adjacent buildings.
4. The tenant is using or permitting a rental unit to be used for any illegal purpose.
5. The tenant, who had a written lease or rental agreement that terminated on or after the effective date of LAMC Chapter XV (April 21, 1979), has refused, after written request or demand by the landlord to execute a written extension or renewal thereof for a further term of like duration with similar provisions and in such terms as are not inconsistent with or violative of any provision of this Chapter or any other provision of law.
6. The tenant has refused the landlord reasonable access to the unit for the purpose of making repairs or improvements, or for the purpose of inspection as permitted or required by the lease or by law, or for the purpose of showing the rental unit to any prospective purchaser or mortgagee.
7. The person in possession of the rental unit at the end of a lease term is a subtenant not approved by the landlord.
It used to be the eviction and possession for the residence of a unit for an owner, or family member like children, and parents to move in would be considered just cause, not now.
No-Fault Evictions
- Notice of “No-Fault” evictions for reasons such as owner occupancy, move-in of a resident manager, for compliance with a government order, or for demolition or permanent removal under the Ellis Act (go out of rental business) process, can resume for all rental units on February 1, 2023.
- Landlords are required to submit a Declaration of Intent to Evict with LAHD for all no-fault evictions for rental units subject to the City’s Rent Stabilization Ordinance (RSO). Landlords may begin filing these notifications with LAHD on or after February 1, 2023.
- Tenants who received a notice to terminate their tenancy based on an Ellis Act (The Ellis Act (California Government Code Chapter 12.75) is a 1985 California state law that allows landlords to evict residential tenants to “go out of the rental business” in spite of desires by local governments to compel them to continue providing rental housing) eviction prior to March 4, 2020, will receive an additional 60 days and cannot be evicted until April 1, 2023.
No-Fault Evictions Relocation Assistance amount depends on whether the tenant is an Eligible or Qualified tenant, the length of tenancy, and the tenant’s income.
- Qualified tenant – A qualified tenant is any tenant who on the date of service of the written notice of termination is 62 years of age or older; handicapped, as defined in Section 50072 of the California Health and Safety Code, or disabled, as defined in Title 42 of the United States Code, Section 423; or who has one or more minor dependent children (as determined for federal income tax purposes).
- Eligible tenant – Unless a tenant is a qualified tenant as explained above, the tenant is an eligible tenant and is entitled to receive a relocation assistance amount that depends on length of time in the unit and income.
- Low Income Tenant – A tenant whose income is 80% or less of the Area Median Income, as adjusted for household size, as defined by the U.S. Department of Housing and Urban Development,regardless of the length of tenancy. HUD Income levels are located on Page 3 of the Relocation Assistance Bulletin.
A lower amount of relocation assistance is required for evictions for owner occupancy for “Mom and Pop” properties. “Mom and Pop” landlords may own no more than four residential units and a single-family house in the City of Los Angeles (LAMC 151.30 E). These landlords may pay a lower amount in order to evict for occupancy by the landlord, or the landlord’s spouse, children, parents, grandparents, or grandchildren. Use of this provision is limited to once every three years.
Now the unintended Consequences:
You can be sympathetic for the tenants that have been tight financially to deal with housing costs. Housing Providers are also getting beat up by inflation, escalating maintenance, labor, taxation, and moratorium non-payments. The recent mentality of the population and representatives are thinking short term.
I have several clients that were in the process of building AUDs (Accessory Dwelling Units) thinking the rental income would be beneficial. Because of the recent ordinance limitations, are considering not building, even though they have substantial finances already allocated. They don’t want to lose control of their property, and be locked into a scenario they don’t want long term.
Since Rent Control elements are now applicable to new construction, all rental housing developers may have to analyze the pros and cons of developing in Los Angeles. It was already difficult to deal with the complexities of Los Angeles Planning, Building and Safety, and CEQA (California Environmental Quality Act). Can take many years to begin construction jumping through hoops.
I have existing property owners wanting to sell their properties, as the recent environment is not positive for the “rental property provider”.
You can now sell/purchase a property without the COVID moratorium limitations, but if it’s tenant occupied there may be complexities on owner occupying, or getting a previous tenant out without paying substantial fees. Also, a buyer that is purchasing a property for owner occupancy, getting a mortgage with a lower interest rate because of the owner occupancy, can have a problem with the loan terms if they can’t occupy the property within 30 days of closing the transaction.
This works against “generational wealth” by passing down real estate via “Mom and Pop” rental properties.
The rental income is taken into account when calculating the Capitalization Rate or market value of a property. A rental with sub-market level rent is worth less on paper, or to a buyer, than a property with market level rents.
Between the city, county, and state residential rental regulations conflicting and overriding each other and constantly changing, and having multiple government agencies to deal with, the complexities require a very good Property Manager or attorney (specific to local landlord/tenant law) for guidance.
The only way out of the high housing costs is by increasing the supply of housing relative to the quantity of population. Recent actions work against that. Unfortunately, tenant rights groups are louder than economists. Economic reports have historically conveyed price controls have never resulted in positive results.
This is only a part of the changes. There is also very complex repayment of any COVID Non-Payment of rent debt, dealing with “Unauthorized Pets and Occupants”, and rent increases.
I’m a native of the San Fernando Valley Los Angeles and have owned rental properties since 1974, and have been in real estate as a vocation for close to 40 years. I’m disappointed with where things have gone, and don’t think it’s been productive.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
Very interesting piece, Ron. Appreciate your work.
NOT good news for us.