New California Laws for 2013 Affecting Landlords

Landlord Must Install and Maintain Carbon Monoxide Detection Devices in All Units: In the US, hundreds of people die from carbon monoxide poisoning in their own homes every year. These deaths can be prevented by taking simple measures. In 2010, the California legislature enacted the Carbon Monoxide Poisoning Prevention Act of 2010 to help prevent death and illness resulting from carbon monoxide poisoning. In conjunction with the Act, further legislation was added in Health and Safety Code Section 17926 which states that owners of all rental units with a fossil fuel burning heater or appliance, a fireplace, or an attached garage, must install and maintain carbon monoxide detection devices in the unit. This mandate is effective on July 1, 2011 for existing single-family dwelling units, and on January 1, 2013, for all other existing dwelling units. 

The new law further requires landlords to verify that the carbon monoxide detectors are operable when the tenant takes possession of the unit. Tenants are responsible for notifying the landlord of any problem with the detectors in their unit, and the landlord has the responsibility to correct any reported problems. Ca. Health and Safety Code §§ 13260 and §§ 17926

Landlord May Dispose Abandoned Personal Property Less Than $700: Commencing January 1, 2013, the total resale value of personal property left behind by a tenant after termination of a tenancy that the landlord must sell at a public auction (rather than dispose of or retain for his or her own use), has been increased from $300 to $700, if certain procedures are followed. This law, however, also prohibits a landlord from assessing any storage cost if the tenant reclaims personal property within 2 days of vacating the premises. The statutory notices of Right to Reclaim Abandoned Property have been revised to reflect these changes. Furthermore, a landlord’s notices of termination of tenancy and pre-move out inspection must contain specified language that former tenants may reclaim abandoned personal property left on the premises, subject to certain conditions. Assembly Bill 2303.

Landlord Must Disclose Notice of Default to Prospective Tenants: Starting January 1, 2013, every landlord who offers for rent a residential property containing one-to-four units must disclose in writing to any prospective tenant the receipt of a notice of default that has not been rescinded. This disclosure must be made before executing a lease agreement. If a landlord violates this law, the tenant can elect to void the lease and recover one month’s rent or twice the amount of actual damages, whichever is greater, plus all prepaid rent. If the lease is not voided and the foreclosure sale has not occurred, the tenant may deduct one month’s rent from future amounts owed. The written disclosure notice as provided by statute must be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. A property manager will not be held liable for failing to provide the written disclosure notice unless the landlord has given the property manager written instructions to deliver the written disclosure to the tenant. This law will expire on January 1, 2018. Senate Bill 1191.

Tenant Entitled to a 90-Day Notice to Terminate After Foreclosure: Effective January 1, 2013, a month-to-month tenant in possession of a rental housing unit at the time the property is foreclosed must be given a 90-day written notice to terminate under California law. For a fixed-term residential lease, the tenant can generally remain until the end of the lease term, and all rights and obligations under the lease shall survive foreclosure, including the tenant’s obligation to pay rent. However, the landlord can give a 90-day written notice to terminate a fixed-term lease after foreclosure under any of the following four circumstances: (1) the purchaser or successor-in-interest will occupy the property as a primary residence; (2) the tenant is the borrower or the borrower’s child, spouse, or parent; (3) the lease was not the result of an arms’ length transaction; or (4) the lease requires rent that is substantially below fair market rent (except if under rent control or government subsidy). The purchaser or successor-in-interest bears the burden of proving that one of the four exceptions has been met. This law does not apply if a borrower stays in the property as a tenant, subtenant, or occupant, or if the property is subject to just cause rent control. This law will expire on December 31, 2019. This new California law is similar, but not identical, to the 90-day termination notice requirement under the federal Protecting Tenants at Foreclosure Act (12 U.S.C. § 5201, et seq.) (as extended by the Dodd-Frank Wall Street Reform and Consumer Protection Act), which is set to expire on December 31, 2014. Assembly Bill 2610.

When is an owner required to have an on-site manager for residential income property in California?

Here is what the California Code of Regulations Title 25, Section 42 of the California State Housing Law says on the topic:

§ 42. Caretaker (25 CCR § 42)

A manager, janitor, housekeeper, or other responsible person shall reside upon the premises and shall have charge of every apartment house in which there are 16 or more apartments, and of every hotel in which there are 12 or more guest rooms, in the event that the owner of an apartment house or hotel does not reside upon said premises. Only one caretaker would be required for all structures under one ownership and on one contiguous parcel of land. If the owner does not reside upon the premises of any apartment house in which there are more than four but less than 16 apartments, a notice stating the owner's name and address, or the name and address of the owner's agent in charge of the apartment house, shall be posted in a conspicuous place on the premises.

Keep Rents at Market Level

Keeping rents at market level is critical to maintaining the value of your investment. The rent collected in a multi-residential income property largely determines the value of the property. When the time comes to sell your income property, prospective buyers are going to assess the purchase price against its income and operating expenses.

As a real estate agent, I can show prospective buyers data regarding the potential rental income, but nothing speaks louder than the actual rental income being collected. Having tenants that are paying market level rents are a valuable asset when selling a residential income property.

A landlord who allows his rent to slip substantially below market is allowing his property to deteriorate just as surely as one who lets the roof deteriorate or the floors rot.  This implies that raising the rent as needed to market levels is as important a part of maintenance as fixing roof leaks or unplugging toilets. 

I highly recommended that you renew leases, or at least rent rates, annually and adjust your rents accordingly to maintain tenants that are paying market level rents.  Advise new tenants that you review rents once a year and adjust according to market levels. This obviates huge increases due to years of neglect. While tenants hate rent increases, small increases that come on the yearly anniversary of their tenancy are more tolerable.

By tying rent increases to the anniversary of their tenancy you also tend avoid raising the rents to all your tenants at the same time, risking multiple vacancies or multiple upset tenants. You also avoid the perception that the rent increase is somehow linked to some maintenance or repairs that you are doing for the tenant or the overall property.  

If you have been neglecting your rents and need to make substantial increases, think about giving them in installments.  In other words, if you need to increase the rent $200 on a given unit, consider raising it $100 in February and another $100 in May.  Notify the tenant of the second rent increase at the same time as the first increase so the tenant can plan accordingly.

Under California Law there is currently no maximum limit for rent increases. However there are regulations that must be followed.

1. If the tenants have leases, the leases carry over to your new ownership. The rent cannot be increased during the terms of the lease unless the lease provides for rent increases
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3. If the rent increase or cumulative rent increases are greater than 10% of the lowest rent during the past 12 months, you must give a minimum of a 60 day notice.
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5. If the rent increase or cumulative rent increases are 10% or less than the lowest rent during the past 12 months, you must give a minimum of a 30 day notice.

For specific details on advance notice requirements please refer to the California Landlord Tenant Guide which can be found on the California Department of Consumer Affairs web site at www.dca.ca.gov.

Local rent control ordinances may also limit rent increases, or impose additional requirements on landlords. If your investment property is in an area with rent control, check with your local rent control board to find out what additional restrictions apply.