Whenever a tenant is moving out, they’re always expecting to get back their security deposit. But they may not get back all of it, as landlords are looking to deduct part of the security deposit to recoup as much as possible. While there are not very many laws regarding security deposit deductions, there are a few, and there are several guidelines.
Legally, a landlord has 21 days to mail the Security Deposit Refund letter to the tenant’s forwarding address, counting from the day the tenant returns the keys. If repairs won’t be complete within 21 days, the landlord still needs to provide estimated costs, and must provide the actual costs within 14 days of completion of the repairs. In nine cities in California, landlords must pay interest on security deposits, to be paid each year and at the end of tenancy. The rates vary each year and the payment deadline varies by city, so if you are a landlord, be sure to check with your local rent control board or city government if you live in one of these nine cities — Berkeley, East Palo Alto, Hayward, Los Angeles, San Francisco, Santa Cruz, Santa Monica, Watsonville, and West Hollywood.
The types of expenses that can be deducted are unpaid rent, cleaning, repairs, and restoring or replacing items specifically mentioned in the lease. Before and after pictures are important in determining whether the landlord can charge for cleaning. As for repairs, normal wear and tear cannot be deducted, but major damages can. If something needs to be replaced, replacement costs are usually calculated based on the item’s expected remaining life expectancy, not the full value.
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The protections for tenants and homeowners under AB 3088 were set to expire a few days ago, on January 31, 2021. However, SB 91 extends these through June 30, 2021, giving tenants more time without fear of eviction as long as their application is proper and they pay at least 25% of their rent. SB 91 is not merely an extension of AB 3088, though. It also creates new tenant protections and establishes a rent relief program.
The rental assistance program is available regardless of citizenship status, but only for those with an income below 80% of area median income (AMI). The program prioritizes households below 50% AMI or who have been unemployed the full 90 days prior to applying. Assistance is given for rental arrears first, before new rent and utility arrears.
The new tenant protections mostly prevent landlords from attempting to squeeze money out of tenants in ways separate from the normal rent payments. Landlords won’t be able to apply the security deposit to debt, charge late fees, or factor in debt when determining rent prices. Landlords also can’t assign or sell debt until June 30, 2021, or at all if the tenant qualifies for the new rental assistance program. Landlords may not take legal action to recover debt until July 1, 2021, at which point they still need to provide documentation of good faith efforts to cooperate with qualifying tenants. Courts are allowed to limit attorney’s fees for rental debt cases, and if the landlord refuses to participate in the rental assistance program, the court can also reduce the amount of damages.
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On Jan. 19th, the Long Beach City Council voted unanimously for preliminary approval of two ordinances designed to increase affordable housing. The policy is still subject to objections prior to final approval, but if it continues as written, 11% of rental developments and 10% of housing developments will need to be set aside for affordable housing, else be subject to a fee. This would apply only to developments of 9 or more units in certain areas of Long Beach.
The City doesn’t want this to be a temporary solution, so ideally the policy will be the best it can be. However, it’s already been the focus of some criticism, ironically that some aspects end after a certain number of years and the policy therefore looks a lot like a temporary solution. There were also objections to the long phase-in schedule and the rather lenient option of developers replacing nearby properties with affordable housing if they don’t want to include them in the development itself.
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If a property is available to rent for a period of 30 days or less, this is called a short term rental. One common example is Airbnb. Various jurisdictions within California have laws limiting short term rentals and requiring permits. You may be wondering why short term rentals are treated differently from standard rentals. There is actually a good reason for this.
In many respects, a short term rental is actually more like a hotel stay than a rental. Even though the definition allows for stays up to 30 days, both short term rentals and hotel stays tend to be significantly less than a month. In both situations, the rooms change hands frequently. Being quite similar to a hotel in this respect, it makes sense that short term rentals would be regulated as a business rather than a real estate transaction. And in fact, hotels may actually be less of a problem for the real estate market — they were never designed to be stayed in for long periods, while short term rentals detract from available housing supply. With reduced supply, this also increases rent prices and forces out some longer term renters. That’s why large cities with high rent prices like Los Angeles and San Francisco require owners of short term rentals to restrict the number of days per year that the property is rented out, or to reside in the property themselves a certain length of the year.
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There’ve been plenty of articles written about the ever-changing details of the eviction and foreclosure moratoriums. Less has been said about other forms of pandemic relief, such as federal rent relief stimulus. While the stimulus was passed already in December, there are still some things you may not know about it.
The federal pandemic relief bill includes $25 billion in rent relief, approximately $2.6 billion of which is going to California. We haven’t yet heard the details on how to apply for rent relief, except that there is an option to give your consent to your landlord to allow them to apply on your behalf, but there is information about who qualifies. One need not be a citizen of the US or have documents to qualify, though it’s possible that individual states and jurisdictions could limit this. The main qualification is that the pandemic have caused you risk of homelessness or housing instability. Qualifying households must make 80% of the area’s median income or less, and there must be at least one person in the household who qualifies for unemployment or has experienced financial hardship as a result of the pandemic.
A qualifying household can get a maximum of 15 months worth of relief, as determined by their need, usable for unpaid and future rent and utility payments. It’s possible that some of the money could be used for other purposes, however, because the money is intended to be primarily for rent and utilities, it will be paid to the landlords and utility companies. Only if the landlord refuses it will the tenant be paid directly.
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Proposition 19 has now passed in California, and with it brought changes to how property tax is reassessed for some purchases, effective April 1, 2021. The new law replaces Prop 60 and Prop 90, affecting replacement property by homeowners who are over 55, severely disabled, or whose home has been substantially damaged by wildfires or natural disaster. It allows the homeowners to transfer their original home’s taxable value to a replacement property. It’s unclear as of yet how properties sold prior to April 1 will be treated if the replacement purchase occurs after this date. Regardless, the replacement purchase must occur within two years of the original property’s sale.
Under prior law, this type of reassessment could only be applied if the purchase was made in the same county as the prior residence or in specific counties. Under new law, it applies throughout California. Additionally, prior law required the replacement home to have equal or lesser value than the original home. Prop 19 has provisions for an adjusted rate in a circumstance where the value is greater. The adjusted rate is calculated as the original home’s taxable value plus the difference between the replacement home’s purchase price and the original home’s sale price. This reassessment can be applied up to three times, or indefinitely any time that it is applied under the provisions for substantial property damage.
With Prop 19 also came a change to intergenerational transfers. Previously, a child or grandchild could inherit a property with no change to the property tax amount. Effective February 16, 2021, that exemption from reassessment applies only while the heir is using the property as their primary residence, and only if the heir claims a homeowner’s or disabled veteran’s exemption within one year of the transfer. The new law also requires that the property continue to be used as the child or grandchild’s primary residence. Once the property is no longer their primary residence, the property will be reassessed.
If the value of the inherited property is more than one million dollars greater than the original purchase value, there will be a partial reassessment. Essentially, the heir is allowed to use the original purchase value, plus one million dollars as the baseline property value. Above that, normal property taxes are applied.
In addition, family farms are now also included in properties that can retain their taxable value when transferred. Farms are not subject to the primary residence test, however all other qualifications and exemptions apply.
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A moratorium is currently protecting many renters from evictions, but it’s going to end eventually, and many renters will still owe a backlog of payments. What’s more, the legal process for acquiring protection can be difficult to grasp for some renters. The bottom line is that renters are going to need help understanding their rights — as well as fighting for them in court. I’m sure most everyone is aware of their guaranteed legal right to an attorney if they cannot afford one, but not everyone realizes that only applies in criminal cases. People struggling with evictions don’t have that same guarantee.
Fortunately, the federal COVID-19 relief package has taken that into account. In addition to $25 billion in rental assistance and an extension of the eviction moratorium through January, the most recent package also includes $20 million in legal assistance for renters. The vast majority of landlords can already afford an attorney, so aid to renters is aimed at levelling the playing field. The prediction is that it will do more than that, though. An estimated 92% of renters in Baltimore, Maryland, would win their cases if they had legal counsel, yet only 1% do, compared to 96% of landlords.
This brings us to the next step in helping renters get back on their feet: extending the guarantee of legal counsel to renters facing eviction, which is what the aforementioned city of Baltimore has just decided to do. The city has been given four years to complete implementation of this new requirement. It’s even expected to save the city and state money in the long run by reducing costs elsewhere, such as homeless shelters and foster care. Baltimore was only the most recent city to try this, though. It was first accomplished by New York City in 2017, and similar laws exist in San Francisco, Philadelphia, and Newark, New Jersey.
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Many attempts have been made, and are still being made, to help lower income people to acquire affordable housing. We haven’t been worried about higher-income housing; those who can even consider affording it don’t particularly need the help. But there’s a group we’ve mostly been forgetting about: the dwindling middle class. The income gap has increased dramatically, but there are still those few who earn too much to get subsidies, yet too little to afford higher priced housing.
To this end, California lawmakers have passed AB 725, which modifies California zoning laws to allow for more moderate-density housing in metropolitan and suburban areas. 25% of the Regional Housing Needs Allocation must be for moderate income housing zoned for 4 or more units. Interestingly, a further 25% must be for above-moderate income housing, also zoned for 4 or more units. This is potentially because there could be significant backlash from a major drop in home values in areas that are already primarily high income neighborhoods.
AB 725 definitely has its flaws, though. Of course, it does little to nothing to further affordable housing, only increasing the density of housing, but that wasn’t the objective. The more pressing issue is that there are no provisions to improve infrastructure for higher densities, fund new constructions, or guarantee that new constructions will qualify for the required income range. Essentially, California lawmakers are saying “You better do this,” without providing any assistance in making it feasible.
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SB 1079, also known as “Homes for Homeowners, Not Corporations” has now been signed into law, and becomes effective January 1, 2021. The law seeks to balance out the advantages that corporations and Wall Street have in bulk purchasing foreclosed homes. We saw the devastating effects of this type of corporate greed during the Great Recession, and California lawmakers don’t want a repeat of that.
To this end, the new law does a couple things. Firstly, bulk purchasing is much more difficult, as bundle auctions will no longer be allowed except as permitted by security instruments. Second, eligible bidders and tenant buyers will have 45 days after the trustee sale to beat out the highest bid. Importantly, not listed among eligible bidders are for-profit corporations. Also of note, an eligible tenant buyer need only match, not exceed, the highest bid, and if they do so before the trustee sale ends, the sale is final. Though it doesn’t affect chances of homeownership, SB 1079 also increases fines for owners failing to maintain vacant properties.
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By now you all should have received your ballots for the upcoming election. You may even have already voted, but if you haven’t and are struggling with understanding Prop 15, here’s an explanation.
Prop 15 aims to close a loophole created by Prop 13 that reduces property taxes for investors and businesses. Under Prop 13, property taxes are based on their purchase price rather than current market value, and caps increases at 2% per year. In California, property values increase at a rate higher than 2% per year, which means removing this limit and switching to assessments based on current market value would certainly increase property taxes. But if you’re struggling to pay property taxes on your home, have no fear — Prop 15 won’t remove the cap for everyone, only commercial and industrial properties. The measure also excludes properties zoned for commercial agriculture and small businesses whose properties are worth $3 million or less.
If Prop 15 passes, the changes will begin to be phased in in 2022, over three to four years. Reassessment for commercial and industrial properties would be required at least every three years. 40% of the estimated $6.5-11.5 billion in additional property tax revenue would go to schools and community colleges, with the remaining 60% going to cities, counties, and special districts.
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