A year after Prop 10 fails, California enacts new rent-control legislation
Last November, California residents rejected Proposition 10, a ballot initiative that sought to give cities and counties greater latitude to enact rent-control policies. Eleven months later, in an attempt to address the escalating affordable housing shortage in California, Governor Gavin Newsom signed into law the Tenant Protection Act of 2019 (TPA). The TPA takes effect January 1, 2020, and sunsets ten years later. The TPA establishes statewide rules concerning just-cause procedures for termination of certain tenancies, limits on rent increases and notice requirements to tenants. The TPA may have a significant impact on investment in new residential construction, especially for properties in cities and counties that do not currently have rent control laws. Owners and developers of residential real property must familiarize themselves with the TPA's provisions and adjust their leasing practices to assure compliance. Investors and lenders must also consider the TPA's impact on their underwriting criteria. Rent control has the potential to reduce an investor's return on investment and discourage investment in the construction of new residential rental properties. It remains unclear how the Act interfaces with California's original rent-control legislation, known as Costa-Hawkins.
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