NEW CALIFORNIA RE LAWS FOR 2024
Today, we’ve got some very important updates that all real estate investors and agents, brokers, and business owners need to be aware of – new California and Federal Real Estate Laws for 2024.
- FLIPPER DISCLOSURES FOR PROPERTIES RESOLD WITHIN 18 MONTHS (AB 968)
First lets talk about a law that applies to Real estate Investors, specifically flippers or Rehabbers. AB 968, introduces flipper disclosures for properties resold within 18 months. Sellers accepting an offer within this timeframe must disclose repairs and renovations, including the contractor’s name and contact information, along with permit details.
Now, the good news is that this law aligns with the Seller Property Questionnaire (SPQ) requirements, reducing the impact on day-to-day practices, at least for licensed Real Estate Agents. It becomes effective on July 1, 2024, so be prepared!
2. ADUs AS CONDOS (AB 1033)
Now here is a new state law that proves beyond a doubt that California is leading the way in eliminating the single family residence. AB 1033 grants local agencies the authority to allow for the separate transfer of Accessory Dwelling Units (ADUs). ADUs, commonly referred to as granny flats or in-law units, are independent, smaller housing units located on the same lot as a single-family home. Until now, it would have been unthinkable to consider that one of these units could have a separate owner form the main house.
The catch? The ADU must be transferred as a “Condominium”, following the guidelines of California Condo Law, namely the Davis-Stirling Common Interest Development Act and the Subdivision Map Act. Lienholders must consent, with the right to demand lien payment or modification. If the property is within a Homeowners Association (HOA), their approval is also required. While this law opens the door for ADUs to be separately conveyed, it’s possible that practical challenges may limit widespread adoption. Having said that, think about it – you can convert your garage, and let’s say it is attached to the house or even underneath the second floor – and sell it. It’s going to be interesting to see how the legal descriptions will are drawn up, I believe that surveyors may be required. Appraisers and inspectors are not capable of this, so that leaves surveyors. Or maybe a new business niche will open up just for this task.
3. AB 1584
This bill, taking effect in 2024, aims to unlock the potential of Accessory Dwelling Units (ADUs) by declaring unenforceable any covenants, conditions, and restrictions (CC&Rs) that limit the construction of ADUs on single-family lots. There is nothing groundbreaking in this bill, but AB 1584 does continue the trend by the state government to pass new laws that encourage the construction of ADUs and make ADUs a common sight in every California neighborhood.
4. SMALL CLAIMS COURT LIMITS INCREASED (SB 71)
Let’s talk about SB 71, which increases small claims court limits. For natural persons, as of 1/1/2024 the limit is now $12,500, and for non-natural persons, it’s $6,250. This is significant for real estate, especially when disputes can’t be settled and end up in small claims court.
Remember, the mediation and arbitration clauses in the C.A.R. Agreements carve out an exception for small claims court. Many real estate disputes find their way into small claims court, and this increase in limits might be a game-changer for those with damages in the $10k to $20K range. .
5. ONLINE NOTARIZATION BY CALIFORNIA NOTARIES (SB 696)
Shifting gears to SB 696, this one’s a game-changer. Starting January 1, 2024, online notarizations by out-of-state notaries are officially recognized, provided they comply with their jurisdiction’s laws. That’s not such a big deal, but this part is: Pending Secretary of State certification, or by 2030 at the latest, California notaries will be authorized to conduct ONLINE notarizations. The technology will feature robust security measures and two forms of identity proofing.
Now that we can have our Deeds recorded online in virtually all counties, this will make property purchases and sales a lot easier. It’s probably going to disrupt the Notary Business, as Notary Publics will no doubt have to develop online websites and delivery systems to stay busy.
6. NEW EVICTION RULES FOR CALIFORNIA 1-4 UNIT RESIDENTIAL RENTAL PROPERTIES (SB 567)
SB 567 is a game-changer in the landlord/tenant landscape. Let’s face, the new 2024 laws just make it more obvious that California is the most tenant-friendly state in the union. This bill, SB 567 by Sen. Maria Elena Durazo, D-Los Angeles, will alter the requirements for performing two specific types of “no fault” tenancy terminations that are regulated under the existing state law, beginning on April 1, 2024, situations where (1) the owner or his family will move into the unit, and (2) the owner will “substantially” remodel the unit.
SB 567 does not change the existing portion of California’s Tenant Protection Act of 2019 (“the TPA”) that applies the just-cause provisions only to tenants who have occupied the property for at least 12 months. And like the existing law, this occupancy period extends to 24 months if additional adult tenants are added to the lease before the existing tenant has occupied the residential real property for 24 months.
(a) New regulations for substantial remodel of a rental unit
Since its inception, the TPA has allowed for an owner to recover possession of a rental unit to substantially remodel it. SB 567 doesn’t take away that right, but does require owners to include specific language in the termination notice regarding the work to be performed and the tenant’s right to reoccupy the property if the work isn’t commenced or completed. The new changes also require copies of any required permits for the work to be provided with the notice to the tenant as well. Finally, the legislation requires the notice to inform the tenant that if they are interested in reoccupying the unit following the substantial remodel, the tenant must tell the owner and provide contact information to the owner.
(b) Changes to owner move-in rules
SB 567 also amends the provision in the TPA that permits an owner or their family member, as defined, to move into a unit. The new law narrows the definition of who qualifies as an “owner” for the purposes of an owner move-in and sets new residency requirements. Owners who hold their properties as individuals (with family members), in family trusts, and in some cases, through a partnership or LLC, can still qualify under the legislation to exercise the “owner move-in” option.
The legislation also sets timeframes for how quickly the owner or their family member must move in and how long they must reside in the unit. The intended occupant must reside in the unit for at least 12 months and must move in within 90 days after the tenant leaves.
(c) Stronger Penalties for Violation of the TPA
Finally, SB 567 adds penalties against rental property owners who violate the law, giving displaced tenants the right to sue property owners for violating either of the above provisions. In addition to recovering actual damages, the wrongfully displaced tenant can recover punitive damages, treble damages (i.e., triple actual 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. And, if that’s not enough, the Attorney General could also sue you for the same violations!
Here’s the rundown. Starting April 1, 2024, an owner who improperly terminates a tenancy or raises the rent beyond the maximum amount under the TPA will now face severe consequences.
These consequences include:
- Actual damages, which we’ll discuss in detail in a moment;
- Reasonable attorney’s fees and costs (at the discretion of the judge);
- Up to three times actual damages for willful violations;
- Punitive damages; and
- The Attorney General et al. is authorized to seek injunctive relief.
(d) Actual Damages For Wrongful Termination under SB 567
The financial consequences specified by SB 567 for landlords who violate the Tenant Protection Act (TPA). The law introduces the concept of “actual damages” for wrongful termination or charging rent beyond the maximum allowable.
It might sound a bit daunting, and honestly, it is. SB 567 outlines that, in a “material” violation of the TPA, landlords could be liable for actual damages. Attorney fees may be assessed at the judge’s discretion. And if the violation is deemed “willful,” the damage award could be tripled, with an additional penalty on top.
Now, let’s talk numbers. “Actual damages” is a somewhat flexible concept in the law, dependent on expert testimony and jury decisions. In a worst-case scenario from the landlord’s perspective, a wrongfully terminated tenant could claim the difference between actual rent and market rent, multiplied by the intended length of occupancy.
Consider this example – if the rent difference is $500, and the tenant planned to stay for ten years, the damage award could potentially be a staggering $500 x 12 (months) x 10 (years) x 3 (for willful acts) – resulting in $180,000.
The bottom line here is crystal clear. If a landlord is contemplating eviction, consulting with their own attorney is absolutely essential. These potential financial implications highlight the complexity of navigating the eviction process.
(f) Void Termination Notice Under SB 567
SB 567 law introduces another powerful penalty against landlords. It states that “an owner’s failure to comply with any provision of this section shall render the written termination notice void.” Thus any violation of the TPA voids the termination notice, and “void” means that it never happened. The landlord would need to start all over again. This is a game-changer in the eviction process. If a landlord fails to adhere to any provision outlined in the TPA, their termination notice becomes legally ineffective.
And don’t forget, when using any of the “no-fault just cause” grounds for removal, the tenants are entitled to relocation costs equal to one month’s rent. And, many Cities and Counties require more substantial relocation costs. This new law will not only affect existing landlords, but will have an impact on buyers of 1-4 Unit residential real estate, as it will be more preferred to purchase properties with no existing tenants.
7.TENANTS WITH CRIMINAL RECORDS (AB 1418 )
This prohibits cities and counties from enacting “crime-free” housing programs and nuisance ordinances that require landlords to evict or refuse to rent to those with prior criminal convictions.
8. ACCOMODATIONS FOR DISABLED TENANTS (AB 1620 )
This allows local jurisdictions to require landlords whose units don’t have elevators to allow physically disabled tenants to move into similar units on a ground floor and keep the same rent rate and lease terms.
9. INCREASED HEIGHT LIMITS FOR ADUs (SB 897)
California’s housing landscape is evolving, and Accessory Dwelling Units (ADUs) are increasingly important in the government’s quest for more affordable housing. SB 897 will probably significantly impact ADU construction, establishing new height limits and allowing two-story units.
The updated ADU height limits require a minimum of 16 feet for all detached units, ensuring ample space. Additionally, detached ADUs can reach up to 18 feet, ideal for space-constrained areas under specific conditions. Eligibility for two-story ADUs depends on location, with units near public transit or existing multi-story multi-family dwellings allowing a height of up to 20 feet, enhancing design flexibility and space utilization.
10. SECURITY DEPOSITS LIMITED (AB 12)
Now, let’s talk about AB 12, which puts a limit on security deposits for landlords and tenants. Starting July 1, 2024, landlords can only collect one month’s rent as a security deposit, in addition to the first month’s rent, and unlike current law, this also applies to furnished units. However, there’s an exception for “small landlords.”
A small landlord, defined as a “natural person” owning no more than two residential rental properties with no more than four units combined, can still collect two months’ rent as a security deposit. This includes family trusts and LLCs with natural persons as members. But even for small landlords, if the tenant is a service member, the security is limited to one month’s rent.
And here’s an important note: landlords with existing security deposits exceeding one month’s rent before July 1, 2024, can continue to retain them.
11. “ABILITY TO PAY” SCREENING FOR SECTION 8 TENANTS (SB 267)
This law focuses on Section 8 tenants and those receiving government rent subsidies, aiming to shift the screening process from credit history to the “ability to pay.”
Here’s the deal – under SB 267, landlords are now prohibited from using a person’s credit history in the application process without first offering the option for the applicant to provide alternative evidence of their reasonable ability to pay. It’s a significant shift towards a more inclusive and fair screening process.
What does this alternative evidence include? Well, government benefit payments, pay records, and bank statements are just a few examples. The tenant applicant only needs to show a reasonable ability to pay their portion of the rent.
Once the applicant chooses this option, (1) the landlord is obligated to provide them with a reasonable amount of time to respond with the alternative evidence. (2) landlord must reasonably consider this alternative evidence instead of the person’s credit history when deciding to offer the rental accommodation.
It’s important to note that while credit history is off the table for Section 8 tenants and those with rent subsidies, landlords can still request information or documentation to verify employment, inquire about landlord references, or verify the identity of the person.
12. FinCen’s “Beneficial Ownership Rule”
Finally, this new federal law applies not only to real estate investors, but just about any entrepreneur and small business owner. If you own 25% or more of a limited liability company, partnership, or other small entity that owns real estate or runs a small business (any of these, a “company”) or are the president, CEO, general counsel, or COO of a company or perform a similar role, or have “substantial control” over any company, then listen up!
If you check any of those boxes, then starting in 2024 you will need to register, or be registered, in a new federal database designed to identify and ferret out criminals, money launderers, and other bad actors who use companies to conceal their identities and evil deeds. That registration requirement will apply for every company for which you answered “yes” to any question in the previous paragraph, and maybe more.
Each registration will need to include your name, date of birth, residential street address (a business address won’t do), a driver’s license or other ID number, and a photograph of the document substantiating that number. This information will mostly be collected online.
Any company that already exists as of January 1, 2024 will need to register by the end of that year. Companies newly created on or after January 1, 2024 will need to register within 30 days after creation. Special registration requirements apply for anyone who files the paperwork necessary to create companies. It remains to be seen whether those requirements will lead law firms to stop handling that work.
So there you have, a selection of what I consider the new 2024 laws that impact real estate. Stay tuned for more updates as we navigate the ever-evolving landscape of real real estate finance. Remember, Rock Real estate is all about maximizing your most important asset – your real estate!
Recent Comments