The following blog post is a time-stamped, full transcript of Bob Preston’s interview of Tracey Merrell of Kimball, Tirey & St. John LLP. The episode was recorded June 11, 2020 and published on the Property Management Brainstorm Podcast. The audio version of this podcast can be found at this link of the North County Property Group website, as Episode 40- New Landlord/Tenant Laws for 2020: Property Management Brainstorm Show.
Bob Preston: 01:09 What's going on Brainstormers. Before we get started today, I'd like to offer you a copy of my new eBook called Best Practices For Renting Your Home. It's a quick read and offers all of my tips from being in the property management business for over 20 years, navigating the pitfalls and safety nets that come with being a landlord. The eBook has recently been published and is offered as a free download on the North County Property Group website. Find it with this web link and download for free at www.ncpropertygroup.com/ebook.
Bob Preston: 01:53 Welcome Brainstormers. This is Bob Preston, your host broadcasting, the Property Management Brainstorm show from our studio at North County Property Group in Del Mar, California. If you're new here, please subscribe. So you have ongoing access to all of our great episodes. And if you like what you hear, please pay it forward with a positive review in any state where you may be acting as a landlord or property manager. It is of course, always important to stay current on legislative changes that impact landlord tenant law. This is very true in the state of California, where there are many new laws from the 2019 legislative session. I have with me today as a guest on the show, Tracy Merrell, managing attorney of education at Kimball, Tyree and St. John, a full service real estate and business law firm with one of their areas of practice being residential landlord tenant law. Tracy was on the show a few weeks ago to talk about landlord tenant laws specific to the COVID-19 pandemic. Today's episode, kind of a part two will be specific to those legislative updates that were initiated for 2019 and 2020. Now, before I introduce Tracy, I want to make it clear to our listeners that the content of today's episode is within the context of the laws and the state of California. If you are listening to this episode outside of California, I think you will still find it interesting and useful, but you should study and clarify the laws specific to your own state and local jurisdiction. So, with that as the backdrop, Tracy, thank you for joining me on Property Management Brainstorm.
Tracey Merrell: 03:27 Thank you so much. I appreciate it.
Bob Preston: 03:29 A good place for you to start. Tracy would be telling us a little bit about yourself and your area of practice at KTS.
Tracey Merrell: 03:37 Uh, yes. Uh, I've been an attorney since, uh, 2009, so just over 10 years and I've only ever practiced landlord tenant law. I have represented, um, the banks and post foreclosure evictions, uh, transferred over to property management. Um, when those post foreclosure evictions were halting, and I was a trial attorney for a very long time going to court every single day. So, it's a really good, um, use of the um, practical versus, um, theoretical area of law. And now I do education for Kimball, Tirey & St. John because we practice preventative law, trying to teach people compliance rather than getting them punished at the end.
Bob Preston: 04:20 I know we're presenting a lot of material today. That's a little bit sensitive and you have a disclaimer, I believe you'd like to read, to get started.
Tracey Merrell: 04:26 Yes. Um, we uh, have a risk management disclaimer because we don't just protect you, we protect us too. And so I just want to say that the comments made in the broadcast are going to be general information only and is not going to be intended as legal advice, participation or um, listening to the podcast is not going to create an attorney client relationship with myself and the listener or with Kimball, Tirey and St. John and the listener advice on specific legal issues. Please do contact an attorney because they are going to be the person that's best representing your needs. We are going to be discussing new laws and legislative updates as well as all of these new laws related to COVID-19 and they're not exhaustive and are potentially fluid situations. They have not been interpreted yet by the courts. So, the laws are going to change, and we are giving you the information as we have it at this point in our best proposed interpretation.
Bob Preston: 05:20 Very good. Fair enough. And that's good information. So let's now focus on the topic for today, and that is the 2019 and 2020 legislative updates pertaining to tenant landlord law. There are so many to talk about, but it's probably best to focus on the most pertinent that a landlord might need to add to their lease agreement and explain to a tenant. So we've already kind of discussed which ones we're going to touch on here, but the new law that perhaps has received the most attention is the tenant protection act of 2019. And this pertains to what's known as rent caps and just cause. This is also known as AB 1482. So I know there's a lot just to this one item and might be well beyond the scope of the podcast, but if you can give us the best overview that you can, and I'll certainly provide a link in my episode notes for further reference as well.
Tracey Merrell: 06:10 Uh, yes. Um, AB 1482 was a presentation that I had given several times, um, prior to 2020, and then during 2020, it was the biggest thing prior to COVID-19 that I was, uh, teaching people about. And essentially what it is it is statewide rent control, and it is statewide eviction control. Um, you are going to be subject to this law unless you meet one of the expressed exemptions. If you do not meet an expressed exemption, then it covers you and your property. So you have to make sure that A. you're providing the correct rent increases and B. that if you decide to terminate a tenancy, you have a specific reason and you state one of the specific reasons under 1482, that's essentially what it is. Um, in general, um, we can, um, discuss the two topics different, um, separately, cause they are in fact, two separate topics of the law. There is rent caps, a rent caps are, um, you cannot raise your rent more than 5% plus your local regional CPI. Uh, and you're going to have to find out what that CPI is. It's one of the worst parts about the law as a landlord is figuring out what that is. And then, um, second, you have to know that even if your CPI let's say is 6%, 5 plus 6 is 11. There is a cap of 10% under 1482. So no matter what your CPI is, if it's more than 5%, then you are going to be still limited to 10%. Additionally, with these rent increases, you are limited to two increases a year. There used to be no cap on how many times you increase the rent. As long as you gave the proper notice. Now you are not allowed to raise your rent more than two times in a year, regardless of how much you do it. I would say on this one, and this comes from my experience in Los Angeles. Rent control is be very careful about your increases because let's say you increase the rent and it's a, that's a thousand dollar unit and you increase it 5%. That's 1,050. Um, and then you decide to do an additional 3.3, which let's say is your CPI, right? So your total is eight and a half 8.3%, which is $83 total for a year. If you do an initial increase of 5%, your rent at that point is 1050. But if you do it 3.3% increase of 1050, that's going to be more than that $83 in that year, right? So that is technically going to be an illegal rent increase, which people may not think about or realize it's only a couple of cents or maybe a dollar, but that dollar is going to matter when you go forward with an eviction because an overstatement of rent by even pennies could make your notice invalidated.
Bob Preston: 09:00 Okay. And there are some exceptions or some properties that are exempt. You mentioned which properties would those be.
Tracey Merrell: 09:06 Under the rent caps and you have to make sure that you keep this part separate as well because exemptions apply to rent caps and there are exemptions that apply to just cause. So you have to make sure you keep those separate, but for the rent caps is going to be affordable properties that are restricted by a deed or a regulatory agreement. This is a question right here on whether or not section eight vouchers count or not because there is some language in 1482 that suggests that section eight voucher holders might be exempt, but it doesn't out and out say it, but, and it doesn't say no. So you're going to look possibly to your housing authority or to when they start to decide whether or not. And they make judicial rulings in these cases on whether or not section eight vouchers apply. So a conservative landlord would consider it, um, included until the, until somebody takes up that sword and fights that fight to see whether or not there a section eight voucher holder isn't. Um, but that's one, another one is dormitories or affordable housing. Um, for those higher education, um, rent properties that are already in a more restrictive rent controlled area, new construction, less than 15 years old, single family residents count townhomes or condos, and then owner occupied duplexes. The one thing I want to say about the exemption for this single family homes is that in order to meet that exemption, you have to meet two prongs and two prongs have to both be met in order for you to have that exemption. One, your single family home cannot be owned as a REET. It cannot be owned as a corporation and it cannot be an LLC with a corporate member. So you can have an LLC, as long as every member of that, LLC is a, is not a corporate entity. So that's the first prong on qualification. The second prong is you have told the tenant that you are exempt because you're not a REET and you're not a corporation and you're not an LLC.
Bob Preston: 11:06 Right. And there's a time frame required for that, right?
Tracey Merrell: 11:08 Um, it does. Um, it does not specifically specify or time frame we are saying serve it as soon as possible because it is the only thing that doesn't say a timeline. But if I was a defense attorney, I would argue you're not exempt until you've met the second prong. The second prong is letting the tenant know. So before you exercise the right as an exempt unit, make sure you've served the notification.
Bob Preston: 11:33 Okay. So if I'm a typical, what we call accidental landlord, you've probably heard that term before Tracy, the person who owns a home, they get a new job in another state. They, they moved there for that job. And while they're away, they know they might come back in a few years. So they keep their house in California, rent it to a, to a tenant. Those are typical single family homes. It would be exempt, right? They're not corporations. They're not a REET. They're kind of not in this classification that you've described. Usually I would say correct.
Tracey Merrell: 11:58 That sounds like what they would typically be in. I feel like those people, they need to have lawyers because nobody who, um, who reads these or has fun reading them like we do, right? We have fun reading all these new ordinances. Please, please insert sarcasm here. But, um, these poor individual landlords and individual owners don't spend the time to read all these cockamamie rules that they keep putting on landlords. And unfortunately this person might be subject to 1482 when they could have been exempt from the beginning, but nobody told them about it. So they might spend a bunch of money, get hit with this technicality when they get to court and then have to start all over again, which is a lot of money that they probably don't have.
Bob Preston: 12:47 Gotcha. Okay. Let's talk about just, cause I think that was the other part of AB 1482.
Tracey Merrell: 12:51 Yeah. Essentially just cause is essentially just telling you that you can no longer serve that 30 day notice or that 60 day notice to a month to month tenant and you can't serve a non-renewal to somebody who's, who's got a tenancy, unless you have a legitimate business reason that they have already explained. They've provided about 11 reasons, um, uh, to evict under just cause you have to cite one of those 11 reasons. Um, some of them are tenant fault, which don't require relocation. And about four of them are what we call non tenant fault, but still gives you the power to take back possession. But because there are no fault tendencies, they trigger what we call relocation, which by itself has an entire another program that I won't get into. But obviously, um, there's that, but there is a few exceptions to that as well.
Bob Preston: 13:41 Okay. Um, let's talk about those exemptions and then I have a couple of questions. So what are the, what are the exemptions?
Tracey Merrell: 13:46 Um, there were more exemptions to just cause, because even though we don't, we want to restrict rents. There are certain circumstances where we realize we're going to have to let people evict people. And it's mostly based off, I think on, um, health and safety and being close. If you are physically next to somebody, they're going to let you out of it because the relationships can turn sour. But the first exemption is any tendency where the person has been in the unit for less than a year. If they've been in their unit for less than a year, then you could terminate their tenancy and you can issue them a non-renewal because they're going to give you a year essentially to find out if you like this tenant or not. So that is the first rule. This the part two of the first rule is if you have a tenant who has been in the unit for more than 24 consecutive months, they're going to be protected no matter what, this is the case where somebody has probably been able to for five years, but they replace a tenant. And all of a sudden they don't want that person who's been there for five years to lose their rights. So that's the first major exemption. The next ones are transient, or tourist, hotel occupancy assisted living, nonprofit, hospitals, and religious facilities. Dormitories. Again, that's the same as rent control that are owned and operated by the school owner, occupied homes. So if you're renting out, um, two units or less of your property that you live on, then they're going to give you the chance to get rid of somebody because you are literally on top of each other. And they're going to give you a chance to get rid of that person. Um, a duplex, again, as long as you're occupying the other side for the same amount as the tenant, that's the same one as rent caps, new construction under 15 years old. Um, that's another exemption. And then the last couple are the same single family owner exemption provided. You've given them the, uh, you meet the criteria and you've given them the notice of exemption affordable housing because affordable housing already has its own built in just cause requirements. So you don't use 1480 twos. You use your affordable programs just cause requirements. And then the last one is the interesting, tricky one. And that is if you have a local jurisdiction that already had a preexisting just cause ordinance, then it is going to control regardless of whether or not it is more protective or not, because it was first in time. However, if your ordinance changes or amends itself, or there's an ordinance that gets created after January 1st of this year, then they're going to look and see which one is more protective. And they're going to go with that. An interesting example of that is San Diego city, San Diego city had a less protective, um, ordinance than 1482 does, but it was first in time. However, if San Diego city ever decides to amend their ordinance, if it is not as protective at as 1482, still then 1482 will take over at that point.
Bob Preston: 16:44 Wow, you did a really nice job explaining what is a pretty complicated new law. Now, both of these aspects, right? Rent caps, and just cause has been added into the standard California Association of Realtors lease. And I think I took a look at it and just explain what you outlined in the lease. I think it's a couple pages, right? It's hard. I remember. And then there's a little box at the end. You know, this property is or is not exempt. It's just a, it's just amazing, you know, it takes up that much space to get through it.
Tracey Merrell: 17:13 Yeah. It's, it's a requirement. Um, uh, 1482, um, they have, um, disclosures that are required. Is your property subject to 1482 under the rent caps? Or is it under the 1482 just cause, or is it under both? There must be a disclosure for that reason, but there's also a disclosure. If you're trying to evict somebody based off of the owner, occupancy tenant, no fault eviction, then that must be reserved in the lease as well. And then also if you are, um, if there's any other disclosure that is necessary, all of those things need to be the lease by July 1st. So a lot of, um, organizations, the CAR lease our lease KTS has a lease as well. We've already updated them to include these 1482 requirements. Um, but they should be in your lease if you haven't already done. So by July 1st of this year, if you have tenants who are in possession of their units and they're in a term lease or they're month to month, so they don't have to sign a lease, you need to serve them these disclosures separately in another addendum. And you have until August 1st to do that.
Bob Preston: 18:18 Yeah, we've gone through that process of notifying existing tenants who were already on kind of our 2019 version of the lease. Right? It was interesting. I mean, most people understood it, but we had a few goals, Oh my God, does this mean, you know, you're going to raise my rent and you can kick us out at any time. And no, no, that's not what we're saying. We're just saying that these are new laws and this property is exempt and we're required through the state of California to notify you as such. So it kind of drew an interesting reaction.
Tracey Merrell: 18:42 It really does sometimes. And it, and it just highlights what's happening in laws because in general courts expect us as, as you know, lawyers and landlords to explain things to our tenants because they are not lawyers and they are not business people. So they have a lower, um, control over their ability to run a business. And so we have to tell them, and it's all about communication. No, we're not doing this your fine. I am required to give this to you and I'm required to give it to you every year. So hopefully you don't, you can understand that for the future to.
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Bob Preston: 20:06 Okay. So this next one, I'm interested to hear how it may or may not overlap with AB 1482 and that's AB 1110. And my understanding is that this is the notice period required for rent increases over 10%. So how does that one work?
Tracey Merrell: 20:21 Well, if your property is not subject to 1482, you beat one of those exemptions. Probably. Yeah, probably more or less. Maybe you're either a single family home or potentially you're one of those new construction. So a building under 15 years old can raise their rent as much as they want to, as much as the market can bear, but they still hit you with a law in 2019, 2020. If you're going to raise the rent more than percent. And the only way you can do that again is if you're exempt from 1482 is you need to give a 90-day notice. Now not a 60-day notice, a 90-day notice for any rent increase that will become effective. So there is, um, an exception to this. Um, you are only required to give a 30-day notice of a more than 10% increase if you have a property that's subject to recertification. Um, so if you're, let's say an affordable unit and the change in the income or the change of their rent is due to either a change of their, um, occupancy size or their household or a change in their household, recertification income only then can it be less than 90 days? But it's really interesting because you really have to change how you do property management, because a lot of companies do those lease renewal letters, 60 days prior to the lease expiring. Why? Because your notice of their options is going to serve as your notice of rent increase. Right? If you don't do this and you don't do this, then you're going to get this month to month premium. Um, well, yes, you need to serve that notice another month before you already planned on doing it because you need to make sure you have it more than 90 days in advance. Additionally, as just another caveat, if your property is subject to 1482, there is really no more such thing as a month to month premium because that income that includes any rent increase under 1480.
Bob Preston: 22:11 Yeah. You can't really go over 10% if you're under AB 1482.
Tracey Merrell: 22:15 Correct.
Bob Preston: 22:17 Okay. Uh, one of the really interesting legal updates that I thought was of interest. We have a pretty serious homeless issue in California, particularly in the metropolitan areas, in the downtown areas of our major cities. And there's a new law AB 1188. Can you explain this new law? And I guess the intent behind it, as it applies to perhaps helping solve or relieve the homeless issue?
Tracey Merrell: 22:42 Yeah. This was already an interesting law prior to COVID-19 and I'm sure that this is going to be even more interesting with COVID-19. But what it is it is going to allow a tenant to temporarily add somebody to the tenancy, um, for who was at risk of homelessness. So if you have a person who is at risk of being homeless, then the tenant would be permitted to temporarily add them to the lease, to let them get on their feet. So essentially the way I kind of look at it is maybe there was somebody who just fell on hard times and rather than drag their landlord through the process and potentially ruin their credit. They asked maybe their cousin or their friend for an opportunity to be in the unit for maybe a month or two while they get back on their feet, get their security deposit ready to go and move on into another unit. So, there is going to be possibly some leave, wait time. That's kind of how I see it. Obviously there's probably going to be some other different factual scenarios, but I think this might be one of the scenarios we're at AB 1188, gives the landlord the ability to give their permission for an action like this that says, Hey, yes, I understand you want to add somebody temporarily rather than lie to me and fake having somebody in here, this is the option we're going to take. I will temporarily allow you to have this person on the property. They are not a resident. They are not a tenant. They are what we call a lodger under the law, which means they don't have the legal tenancy rights, the same way that the tenant does in order for somebody to use this effectually. I would say first, contact a lawyer because you want to make sure that you've drafted this correctly because a lot of our metropolitan areas have rent control laws, and you don't want to unwittingly add somebody to a tenancy and add them to your rent controlled unit. If your intention was only for like a month or two. So you want to make sure you reach out that you have these documentation correctly. The law asks you to do two things. If you're going to use this. One, you're going to have an agreement with the tenant, you and the tenant. As a contract, you are going to say, we are using AB 1188. We are going to add somebody temporarily. Um, this is what we have defined temporary to mean because the ordinance itself does not define what temporary means. This is going to be something you guys can negotiate and contract on. I'm going to say two months, I'm going to save three months, whatever it might be. And because we're going to add somebody to the tenancy, we are going to add the rent to be this much for this additional person, which you're entitled to, um, that does not tell you how much you can and can't do for this. So again, that's going to be something that you guys negotiate. Um, I would probably say that you would be probably okay with something around 10% for the additional person. And that's only because there's already existing law, at least in Los Angeles, under rent control. When you add somebody, you can increase the rent 10%. So I would say that you will be within your rights around that. But again, we are going to find out how this is interpreted later on, but you're going to have that agreement with them. The second part that you were required to have is a relationship or an agreement between the person at risk of homelessness and the tenant. You're not involved in that contract. That is something between them. That's going to say you are going to be here temporarily. You're going to follow the terms of my lease because I am responsible for you. And if I tell you to leave, you will do. So. If there's a problem in this situation, you do not address anything to the person at risk of homelessness, because they are not your contractee. They have no privy of contract. So you tell the tenant. So, and so has committed a violation. And depending on how serious it is, you say you have three days to get rid of this person. And if you don't get rid of this person, then we might file an eviction against you. And at that point, the tenant, all they should have to do is call up the police and say, this person won't leave because as a lodger, you're not entitled to the eviction process.
Bob Preston: 26:50 That's a fascinating law. It's um, sounds a bit hazy, right? Um, it almost, it almost sounds like the state of California is asking us to be open to the idea, but we're, I mean, what I'm saying, I mean, it's not really, it's not really forcing us to do it as a landlord, but it sounds like they want us to be understanding and open because can we still say no?
Tracey Merrell: 27:09 Yeah, you absolutely can say no. There is. It's written in the law that says there is nothing in this law that is requiring a landlord to do this. We are not telling landlords we have to do this. But if you have the ability and you have a tenant who has never given you, cause for alarm and you are open to something like this, then they want to give you the option to do this with the protections that you have to keeping somebody as a lodger versus not. But I will agree with you. It is a completely hazy law. I don't, there's a hundred different questions as a landlord attorney that I would have asked. Um, and so do I recommend it right now? Probably not until I get some more additional information on other protections on how we screen people or do we screen them? Do we not screen them? I mean, what's going on. So none of that is addressed in the law. So at the hazy.
Bob Preston: 28:00 And I suppose there's a, there's a big difference between allowing your nephew to couch surf for, uh, you know, for a couple of weeks versus, you know, actually bringing someone into the home who potentially could be homeless.
Tracey Merrell: 28:11 Oh, I'm sorry. I will say one more thing. You are not allowed to do this if you're in affordable housing, if you're an affordable housing, it's not permitted.
Bob Preston: 28:19 Interesting. I mean, we have been pretty fortunate in terms of the tenants we have in North County Property Group and their ability to pay their rent. We have had a few tenants come to us and say, Hey, we're going to pay rent for May. And our lease is through some other period of time, maybe the end of June, maybe the end of July. And we would like May to be our last month because we've been damaged by COVID-19 and to recover from that, we're going to go live with our in-laws or we're going to go move in with my brother and his family. So families are definitely starting to come together around this. You know, when we're perhaps, you know, two families could come together for perhaps a more stable environment or stable financial situation.
Tracey Merrell: 28:56 Correct. And I think that would probably be the best situation for you is having the tenant skip. Cause then you're not spending the money for the eviction. You'd be saving that.
Bob Preston: 29:05 You know, so yeah. We've been trying to be very understanding. Yeah, we get it. Okay. Let, let me, we'll talk to the owners. And typically we've been letting them terminate the lease early. If that's the circumstance I would like to do. Okay. One of the things as a property manager, I never like to do is serve a three day notice to a tenant to pay or quit or cure covenant, whatever that notice might be. And I understand there's some, some new guidelines on that in terms of the timing or how you count the days. And I believe that's AB 2343.
Tracey Merrell: 29:31 That is correct. Um, AB 2343 became effective on September 1st of last year. And essentially what it said is if you have some sort of, uh, curable violation, um, that you can stay in possession for, then you are not going to count, um, Saturdays or Sundays or holidays in the timing of that. So essentially if your notice says or quit, do something or quit, then you are not going to count a Saturday, a Sunday or a judicial holiday or a holiday at all. It's really interesting right now with that information because we have a lot of court closures and sometimes that court closure is very specific and tells us whether or not it tolls those days or counts them as judicial holidays, according to, you know, rule 12A or rule 12, which talks about timelines and days that we count and some of them don't. Um, so the interpretation on how that's going to be applied is going to be determined either by, um, a judicial court or not, which means if you're serving a three day notice now, and you're in a jurisdiction that says, you know, our courts are closed. Um, and you know, it's a holiday for rule 12 and 12 a, then you're not going to be able to count any of the days that you've served at. You don't count obviously the day that you do serve it. So let's say I served a notice today, um, which today, um, when we're recording the podcast is a Thursday. We don't count today. So normally we would count a Friday. We wouldn't count Saturday or Sunday. We would count Monday and we count Tuesday. But right now, if we have a judicial holiday and it's ruled a judicial holiday, then we can't count Friday or Monday or Tuesday, as long as the courts are closed. So that's going to be something for us to deal with during this crisis as well.
Bob Preston: 31:19 So is that kind of a wait and see to, to determine how the courts will treat it either as a holiday or will you be able to come back immediately and pursue the, the notice?
Tracey Merrell: 31:28 I would say that if you're, if your court closure specifically says that it's a, it's a holiday for rule 12 and 12 A, then you're, you're going to have not be able to count it at all. If it is not specific, then we can try and see how the courts tend to interpret that. Or if they give us any authority on it, but it's only a three day notice and there's a lot of jurisdictions that tell us not to file anyway. So it's going to be a business decision on your part, if it does not specifically say no. And if your local moratoria does not specifically say don't file, it'll be a business decision on your part, but you would have to realize if you were aggressive and this would be slightly aggressive approach would be, you know, at least not the most conservative approach. Let's just say that then you might have filed your case prematurely if a court says, well, even though it doesn't specifically say that the court was physically closed, so we are going to rule that it was a holiday. And at that point you probably have prematurely filed your case because the courts were closed and you'd have to dismiss and refile.
Bob Preston: 32:33 Well, and I guess at that point, if, if we're under moratorium for that long, anyway, what's another three days, right? I mean, might as well be and might as well be conservative. Hey, so we've had only a couple of occasions of this next scenario happen, you know, my company history, but we do have a couple of tenants who run daycare centers. And when they've applied to rent a property, they've applied with the notion that, Hey, we would like to run our daycare center out of this home. And I remember the first time it happened was a few years back. And I thought, boy, this is kind of interesting. I mean, it opens up this whole other kind of realm of decision-making, first of all, how does the owner feel about it? Is that an appropriate house for, from a safety perspective to do this, but there's a new law SB 234, where it pretty much makes it a requirement. But if somebody applies, who runs a daycare as a landlord, I pretty much have to treat them just like any other tenant, right?
Tracey Merrell: 33:23 Yeah. It's actually, um, 234, all it really did is it allowed large daycare centers to be also considered a residential use prior to the 234 small daycare centers were already considered a residential use of the property. So this just added an additional protection for the large daycare centers. You cannot say no to them as a resident. So let's say they applied and told you they wanted to use it. You couldn't say no, because that was the use they wanted to use it for. And you really couldn't say no before. And anyway, um, it's best to when you have a daycare center to reach out for a little bit of assistance, because you have additional, um, few set of rights, but it's, it's kind of an area that you want to make sure you get assistance with only because it really goes right up to that familial status protection line of fair housing. If you use the wrong words or you have the wrong phrases, you could be subjecting yourself to liability because they are still required to maintain, you know, the, you know, quiet enjoyment of others, but there is also the requirement that children are meant to play. So you're going to have to kind of dance that line a little bit and help form an attorney who's knowledgeable in fair housing. And as well as the attorneys who are knowledgeable about the daycare requirements, cause you are entitled to certain other protections when you have one, but this law, all it did was it said that large daycare centers are a residential use, which means we have our leases. Our leases say this property is for residential use only, and you're not allowed to run a business. A daycare center is not considered a business under these, under these codes. And so even though it's running, uh, you know, they're doing something they're making money, it does not count as a nonresidential use that you can evict on. The other interesting and fun thing that it did is it told the people who choose to run a daycare, they tell them, Hey FYI, you're running a business. So you are subject to the Unruh civil rights act, which I thought was hilarious because they tell us as landlord and landlord attorneys that they're not running a business, but then they turn around and tell the tenants, well, essentially you're running a business. So if you discriminate based off of any protective ordinances, you'll be sued because you've chose to run a business.
Bob Preston: 35:40 Wow. That's, that's interesting. So I'm assuming to have a daycare center, you have to pass certain safety level certifications, I'm guessing. So who is responsible for making the home safe in the ideas of the regulators who govern family daycare's? Is that the owner of the property or is that the tenant?
Tracey Merrell: 35:59 Well, um, the, uh, department of social services is the agency that issues the licenses for them to run a daycare. So they do need to have a license, so they should have a license. And part of that is going to be dealing with all of these issues about, you know, um, licensing and bonding and having the right kind of protections. Um, but additionally, um, they are going to have to, um, check their, their, um, water for lead for lead contamination because another law AB 2370 has a requirement wherever you have a family daycare center, you need to check that water to make sure that there's no lead contamination because you're dealing with a lot of children. Um, I would say that the tenant is responsible for that. And if you are open and have a good communication with your resident, you guys can create an agreement and you can put that onto the tenant to make sure that you take as much liability off of yourself as possible. And I, that's why I say sometimes communication's best because you can get people to sign a contract when your communication line is open.
Bob Preston: 37:04 Good input on that one. I think most of us have seen when you walk into a restaurant or some sort of commercial facility, there are these signs that say, Hey, this building uses paints or toxins or chemicals. I can't remember the exact, you know, warning it gives, but that are known as toxins or could lead to cancer. And I believe that's surrounding the proposition 65 warnings. Now what's going on with proposition 65, as it pertains to residential being a residential landlord.
Tracey Merrell: 37:31 Well, the first thing on prop 65 warnings is they already kind of changed in general. Originally a few years back, the prop 65 warnings would say, this property had contains this chemical bloody blah, which was helpful to know what one, right? Because none of us are chemists. I'm not a chemist. I had no idea what that chemical would do.
Bob Preston: 37:50 Well, and I tend to ignore them anyway now, right? I mean, I see them everywhere. So every building has it. So you just tend to kind of walk on in anyway.
Tracey Merrell: 37:56 Exactly. But now what those, um, prop 65 warnings are supposed to do is they're supposed to tell you what it does. You know, like warning this area is known to cause reproductive harm. Or warning, this area may have chemicals that contain cancer issues. You know, they tell you what they do now rather than what it contains. That's the first change for property residential units. Um, they don't expect you to put up signs all over your property. What they want you to do now is give a prop 65 disclosure in your lease to any brand new tenant and the adult on the property. And then also annually thereafter giving them this. And if you do that, that's going to cover your basis for prop 65. But there are two different areas where you still need to have a sign on your multi-unit complex. And that is, if you have an enclosed garage space, that you are not going to be able to have those fumes dissipate in the air quite as easily as an open-air garage. So they're going to make you put up a sign that says this area, you know, contains this or has this. And they have very specific sign for the enclosed garage space. And then the second area that they have is any smoking area you have on your property. You need to also post a sign for that. And there are specific rules and regulations on that. We do have an article on our website, if you do have those areas and it tells you, um, what you need to do and what size and what requirements they have.
Bob Preston: 39:23 So San Diego, where I run my property management business, and a lot of cities in California actually are military towns. And so thankful to our armed services. And there has been a new bill that amends the way that members of our armed services can be charged security deposits. Maybe you can tell us about that specific bill.
Tracey Merrell: 39:40 Yeah. So there was a bill that was passed. There was a couple that relate to veterans and military. Um, this one was, uh, for the military. If you are active military and you're using this as your domicile, then you are going to have a reduced security deposit amount. You are only allowed to charge a military member one month security for an unfurnished unit, which is normally a two month required a two months security maximum. And then if it's a furnished unit, you're entitled to two months of security instead of the three max that is required by law. So they are essentially getting a month off of their security deposit as a maximum. Um, this is not going to apply though, in a roommate situation. So if you have one roommate who's in the military and they have a buddy or a friend, and that person is not in the military, not a domestic partner, not a spouse, not how an economic pendant on that military member. Then you are going to use your maximum security under the law, or you're allowed to, um, the other exemption is if that tenant, that military member has bad credit or a history of damaging the unit, then you're allowed to have the full security deposit. But there is a rule that says you're not allowed to say no to the military member simply because of this additional protection they have as a, as a military member.
Bob Preston: 41:02 Okay. That's super helpful. And that is SB 644, right? I'm going to reference this, correct? Yeah. I'm going to make reference to these in my episode notes for our listeners. So I'd like to put a name to them.
Tracey Merrell: 41:13 The other fun, the other interesting thing for those notes, just so you know, Is SB 644 is the one that specifically talks about the security member deposit, but there's actually a second one that deals with military members and that's SB 222. And that is the one that provides a protected class status for all military members. So that's additional one. It has nothing to do with the deposit, but it does create a protected class under fair housing laws for those military members.
Bob Preston: 41:39 Good to know there's been a lot made of section eight in California. And I don't know if it's called section eight in other States, but in California, that's basically housing subsidy payments that come from the government. So I think there have been some changes and how that's perceived or how you can attribute that as a source of income.
Tracey Merrell: 41:57 Yeah. I'm SB 329 past last year. Um, and also SB 222 protected VASH vouchers, which are those veterans affairs supporting housing vouchers. Um, but SB 329, um, essentially changed the definition of what a source of income is under fair housing laws. So prior to, um, this year, the definition for a source of income was any money paid to the tenant or the tenant's representative. And that was the reason why people could say no to the section eight program because we as landlords and landlord representatives did not count as a tenant representative. And since we were given paid the, uh, the source of income subsidy, then we were allowed to say, no. However, the definition changed with SB 329. It is now any tenant, any money paid to the tenant, the tenant's representative or the landlord/owner on behalf of a state, federal, or local subsidy or a state federal or local assistance, including, but not limited to the section eight program. So it specifically protected section eight and told everybody, you must take it. But essentially it said, if the money is coming from the government in any way in assistance or subsidies, you can't say no as a landlord. So all of us now in the entire state of California with no exceptions, if you rent housing for money, you must participate in the section eight program. So if somebody calls you and says, do you participate in Vash vouchers? Do you participate in section eight? You're going to say, yes, we accept all legal and verifiable sources of income. As long as again, they're legal and verifiable. That's the only thing you can say no to. And that might mean you have to engage in waiting for a section eight processing to happen. I'm not saying you must take every section eight tenant. They otherwise must qualify for your unit. So if they don't qualify.
Bob Preston: 43:53 I was just going to say, you, you don't have to say, yes, you get the unit because you would still put them through a normal course of, you know, rental application and qualification.
Tracey Merrell: 44:01 Correct. You just can't say no because of the source of income. So as long as they meet your other rental criteria, you know, then, um, you know, certain amount of, um, financial disclosures or things like that. And also they have to be first in time, because the best way for you to avoid fair housing lawsuits is having a first come first qualified first served. So if they are not first in time, then you don't have to give it to them just because they're section eight.
Bob Preston: 44:25 Wow, we've covered a lot of ground today. This has been amazing. I'd love to continue. We could probably talk for the rest of the day, but in the interest of time, I need to wrap up the episode, any last words or thoughts of advice for our audience today.
Tracey Merrell: 44:37 I would just say, try and educate yourself as much as possible. There, there are so many laws that even as attorneys have a hard time catching up. And so we try to make sure that we give you as much information as possible. Go to our website. KTSF www.kts-law.com. We do have an education session. We have articles up, we have information up, we have past webinars up. I know that maybe not everybody has learned about 1482 or the legislative update. We've only gone over a couple of things that they require landlords to do. And so we actually have a webinar on the legislative update that goes over even more laws that we, um, are asking you to do as well as an entire section on the consumer privacy protection act and the legislative update and 1482. Those are all broken down into one-hour increments and you'll get so much out of them. And they actually do not cost all that much. It's an attorney's time of an hour for only $29. And it teaches you everything that you possibly can get, reach out and go to our website. Also with respect to COVID-19. We have created a spreadsheet on court closures, as well as a spreadsheet on a lot of the local moratory, I've spent a great number of hours on researching and trying to find these ordinances. So go to that first, before you, you know, ask for spend money, because we try to educate you as much as possible for as little as possible, but we are always welcome to have your phone call to help you with your specific situation.
Bob Preston: 46:12 And if someone wanted to contact KTS, would they go to the website? Is there a phone number or an email? How would they do that?
Tracey Merrell: 46:19 We do have a couple of ways. Obviously we have the website, which might be your easiest method right now. Our physical offices are closed in compliance with the stay at home order and trying to flatten the curve. But we do have all of our attorneys up and working. They are all working remotely. You can call them, you can email them if you haven't emailed an attorney before at our office, email us at email@example.com and dash is also that hyphen in case you don't know which one I'm talking about, but email us at firstname.lastname@example.org. Tell us where your area is. Because again, we do cover the entire state of California and just tell us the address and what the property is, and we will be able to address it to the attorneys that can help you the best.
Bob Preston: 47:08 Thank you, Tracy. This has been good stuff. I so appreciate you joining our show today, especially during these difficult times around the COVID pandemic. As we wrap up today, I'd like to make another quick plug to our listeners to click on subscribe and give us a light. Also, please pay it forward with a positive review to help encourage more great guests like Tracy to come on to our show. And that concludes episode. Thank you for joining the property management brainstorm show. Until next time we will be in the field, working hard for our clients to maximize their property value and rental income and maintain top tenant relations. And we will catch you there.
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