AB 1482: Understanding California's Tenant Protection Act & its Impact on Investment Real Estate Owners – Asset Protection Council

In an attempt to tackle the housing crisis gripping California, the state introduced Assembly Bill 1482, also known as the Tenant Protection Act of 2019. This legislation aims to provide stability and security for renters by imposing rent control and eviction protections. However, one significant aspect that often garners attention is how AB 1482 affects investment real estate.

At its core, AB 1482 imposes rent caps and eviction regulations on most rental properties throughout California, spanning single-family homes, condominiums, and apartments. The law limits annual rent increases to 5% plus inflation, capped at 10%, and mandates landlords to provide just cause for eviction after a tenant has resided in the unit for at least 12 months.

For investors in California's real estate market, whether they own properties individually or through an LLC, the implications of AB 1482 are substantial. Here's how:

LLC Ownership: Holding investment properties within an LLC offers liability protection and potential tax advantages. However, AB 1482's regulations apply irrespective of ownership structure. Whether the property is owned individually or through an LLC, compliance with the law is mandatory if the property falls within its scope.
Rent Control Impact: The introduction of statewide rent control directly affects the potential profitability of investment properties. With annual rent increases now capped, investors need to consider how this limitation impacts their rental income projections and overall return on investment.
Eviction Protections: AB 1482's eviction protections add another layer of consideration for investment property owners. Landlords must navigate stricter guidelines when considering tenant eviction, ensuring compliance with just cause requirements. This may influence investment decisions, particularly concerning property management strategies and risk assessment.

There are some properties that are exempt or excluded from the Act. Properties not covered by the Act include the following:

The Act does not apply Single-family homes unless the home is (1) owned by a real estate investment trust as defined in Section 856 of the Internal Revenue Code, (2) a corporation, (3) or an LLC in which one member is a corporation. It is also required that the renter be notified that the home is exempt from the Act. The notice should include the following language:

“This property is not subject to the rent limits imposed by Section 1947.12

of the Civil Code and is not subject to the just cause requirements of Section

1946.2 of the Civil Code. This property meets the requirements of Sections

91— 9 — Ch. 597 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any

of the following: (1) a real estate investment trust, as defined by Section

856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability

company in which at least one member is a corporation.”

Units covered by a local rent control ordinance that is more protective than the Tenant Protection Act. This means that if your city has stricter rent control ordinances, you are required to oblige by the city ordinances instead of the Act.
Units issued a certificate of occupancy within the past 15 years (this is a rolling timeline, so tenants will gain protection once their building turns 15).
Mobile homes, unless the mobile home is owned and offered for rent by the owner or manager of a mobile home park.
Duplexes where the owner is living in one of the units at the time the tenant moves into the other unit, but only as long as the owner continues to live there.
Housing that is restricted as affordable housing by deed, government agency agreement, or other recorded document, or that is subject to an agreement that provides housing subsidies for affordable housing.
Dorms.

In conclusion, while AB 1482 aims to provide more protections for tenants in California's rental market which have direct implications on investment real estate owners, whether their properties are held within an LLC or not.

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