There are various changes in the Landlord-Tenant laws in CA that became effective in 2024.

For the purposes of this article, I wanted to focus on Assembly Bill (AB) 12 and Senate Bill (SB) 567 only.

Governor Gavin Newsom recently signed AB 12 into law, a legislation that limits the amount landlords can charge for security deposits to just one month’s rent for unfurnished apartments. While the law aims to make housing more accessible, it raises several concerns for landlords and tenants alike. AB 12, was authored by Assemblyman Matt Haney, D-San Francisco; it passed both the Senate and the Assembly houses in September. The legislation introduces a notable shift from existing law, under which landlords can charge up to two months’ rent for an unfurnished unit and three months’ rent for a furnished one. This exception does not apply when the prospective tenant is a military service member, however.

The law won’t take effect until July 1, 2024, providing landlords time to make the necessary adjustments. CAA will provide compliance materials and updated forms prior to the effective date of AB 12.

The law does make an exception for some small landlords, as defined, if they own no more than two residential rental properties that collectively include no more than four dwelling units offered for rent. In addition to owning a limited number of units, the owner must hold the property as a natural person, a limited liability company (in which all members are natural persons), or as a family trust. Under these conditions, small landlords are permitted to collect up to two months’ rent as a security deposit.

The Intent Behind AB 12

The law is designed to alleviate the financial burden on tenants, especially those who are already struggling to make ends meet. By capping security deposits, the state government believes it can make housing more affordable and accessible. However, the law comes at a time when landlords are grappling with increasing operational costs, limited rent increases, and stalled evictions for tenants who owe back rent since March 2020.

The Impact on Landlords

For landlords, the new law adds another layer of financial risk. Security deposits serve as a safety net for property owners, providing some level of protection against potential damages or unpaid rent. With the new limitations, landlords lose a significant tool for mitigating risks associated with tenants who have poor rental history or low credit scores. Moreover, landlords are already navigating a complex landscape of city, county, and state-level regulations. The new law adds to this complexity and could deter individual landlords from investing in property maintenance or new development projects. This could lead to a significant portion of housing stock falling into disrepair or being acquired by large investment entities, further reducing local ownership and community engagement.

Unintended Consequences for Tenants

While AB 12 aims to help tenants, it could inadvertently make it harder for them to secure housing. Landlords may become more stringent in their tenant screening processes, knowing they have less financial cushion to fall back on. This could result in higher application fees or stricter income requirements, making it even more challenging for low-income or high-risk tenants to find housing.

For SB 567, Governor Newsom signed SB 567 on September 30, 2023, authored by State Sen. María Elena Durazo, (D-Los Angeles), called the Homelessness Prevention Act, that strengthens the 2019 Tenant Protection Act bill capping rent hikes at 10 percent and prevents landlords from evicting tenants with no legal reason. It directly impacts two sets of property owners – fix and flip investors planning to substantially remodel or rebuild a property for resale and property owners planning to move into an occupied property either themselves or by a family member.

Effective April 1, 2024, SB 567 will add a significant hurdle to any “no-fault just cause” eviction where the property owner (or the owner’s direct relative) desires to occupy the residential real property or an investor seeks to displace the tenant for a substantial remodel.

New Rules for Property Owners Planning to Move Into the Property

It is very common for prospective owners to buy rental property with the goal of moving in or for existing property owners to remove occupants to move their children or parents into the property. Historically, this was a fairly easy process with no restrictions or guidelines on when the owner must occupy the property or for how long. Effective April 1, 2024, SB 567 will require that the property owner or family member (spouse, domestic partner, parent, child, grandchild, grandparent) actually move into the property within 90 days AND continuously occupy the property as their primary residence for at least 12 months. In other words, property owners cannot just use the “move in” provision as an excuse to get rid of a tenant they do not like or to increase the rent.

In addition to the new requirements in SB 567, property owners should also pay close attention to City and County restrictions on asking tenants to move out so you or your family can move in. Many Cities and Counties have conflicting or more restrictive requirements. Before buying a property with the plan to remove the occupants and move in or before acting to move your family into one of your rental properties, we suggest contacting your attorney to understand all applicable laws.

What Happens if You Get it Wrong?

SB 567 gives wrongfully displaced tenants the right to sue property owners for violating either of the above provisions. In addition to recovering actual damages, this bill prescribes new enforcement mechanisms, including making an owner who attempts to recover possession of a rental unit in violation of the law liable to the tenant in a civil action for up to three times the actual damages, in addition to punitive damages, and attorneys’ fees and costs. On top of that, a property owner who wrongfully displaces a tenant to demo or substantially remodel the property, must also offer the property back to the displaced tenant at the same rent and lease terms along with reimbursement for reasonable moving expenses.

SB 567 merely changes the rules by which property owners may remove tenants. If done properly, investors and property owners can still take advantage of these “no fault” grounds to get possession. But, if not done properly, SB 567 creates significant financial exposure for these property owners and investors. To reduce that risk, we recommend consulting with your counsel prior to venturing down either path to remove occupants.