State and Local Governments Continue Their Assaults on Investors

State and Local Governments Continue Their Assaults on Investors

The below article was written and up to date as of March 15, 2022.  In contains information regarding legal matters but does not constitute legal advice.  Please consult an attorney for any information that may be applicable to you.  

Make no mistake about it, investors are under assault by state and local governments and there is no sign of things letting up in California.  

In 2019, California legislators passed AB 1482 which imposes rent caps on some residential rental properties in California. It also imposes “just cause” eviction requirements that apply after residents have occupied the unit for a certain period of time.

The law exempts certain properties from the rent caps and just-cause requirements, including (1) most single-family homes and condominiums, and (2) housing built within the last 15 years. In cities that already have a rent control ordinance in place (under the Costa-Hawkins Rental Housing Act), AB 1482 extends rent caps to some additional housing that is otherwise not covered under the existing local ordinance.

Soon after the passing of the AB 1482, local governments including in the local communities of Goleta, Santa Barbara and Carpinteria passed similar owner restricting ordinances.  For example, the City of Santa Barbara has codified SBMC section 26.40.010 which with certain exceptions landlords must annually offer (in writing to tenants) leases with a minimum term of 12 months and further requires landlords to provide proof of any tenant rejections to the city.  Failure to do so may prevent landlords from evicting a tenant even if that tenant breaches the lease agreement (potentially including failure to pay rent).  See SMBC sections 26.40.010 - 26.40.030 for additional information and requirements.  

The attacks have kept coming...  Recently, AB 2527 was struck down.  AB 2527 would have prohibited property owners from asking about anything that would be included in a credit - tenant screening report, such as payment history or evictions.  Credit checks are the universally recognized objective view into the credit worthiness of future potential payment obligations.  Without such checks, how otherwise would landlords be able to objectively assess a tenant’s ability to pay?

In current active legislation, AB 2713 introduces several additional hurdles for landlords to clear before conducting certain types of tenancy terminations allowed under the Tenant Protection Act of 2019.  Amongst other provisions of the bill, investors would lose the ability to take only part of a property off the rental market. Owners who empty one unit at a property would have to empty them all. The bill also would add a 180-day notice period to tenants before the units are removed.

Most recently, AB 1771 would  require investors who purchase rental housing and sell it within seven years would pay a hefty new tax under anti-flipping legislation proposed in the California Assembly.  The bill in essence creates a 25% tax on the capital gain produced by selling a residential property within three years of buying it. The tax rate would then decline by 5 percentage points each year until reaching zero after seven years.

With new legislations introduced frequently, it is no longer sufficient to occasionally remain on top of federal, state and local legislation.  If you are an owner or manager in the Santa Barbara area, contact your local legal professional or Marstrand today.