Should I Sell or Rent Out My East Bay Home?
Part 2: Rent Control Considerations
By Jan Feagley
If you are at the point in your life where you’re considering whether to rent or sell your primary residence in the East Bay, we are here to help you make your decision.
In addition to being real estate agents since 1966, Feagley Realtors also runs a residential property management division. We know how to properly screen tenants, collect rents and help landlords with evictions when required. This experience gives our agents a deep understanding of both sales and rentals in Richmond, Berkeley, Albany, El Cerrito, Pinole and in the wider East Bay.
In last month’s property management blog we discussed some of the personal finance considerations you may make when deciding whether and where to relocate. For instance, you’ll want to consider issues such as capital gains tax costs and eligibility to transfer your Prop 13 tax basis to a new residence. In this article we’ll discuss how rent control laws can impact your decision on whether or not to rent or sell your home.
If you are not currently a landlord, but you own your home and are thinking about the possibility of relocating and renting it out, then this article is for you. Renting out your home can be a great way to earn income during your retirement years and we’ve helped many of our customers do just that.
We’ll discuss some of the potential pitfalls along with some possible solutions.
Does Rent Control Apply to Your East Bay Property?
The first consideration you’ll want to think about is whether rent control and/or just cause eviction protection laws apply to your property.
In the East Bay communities that Feagley Realtors serves, rent control is currently the law in Richmond, Berkeley and Oakland. In El Cerrito, a just cause ordinance was passed and then suspended due to a referendum. Albany and Pinole don’t yet have rent control or just cause, but do have some rental-related ordinances.
Keep in mind that real estate laws are constantly evolving and nuanced, so we recommend that you call us for an update or consult a real estate attorney for specific questions about your property.
Richmond’s rent control laws were passed by the voters as Measure L in 2016 and became law in January of 2017.
The Richmond ordinance prohibits landlords of certain properties from increasing rent annually by a higher percentage than the Consumer Price Index and only allows tenants to be evicted for cause. In Richmond, as elsewhere in California, the Costa Hawkins law limits the properties that are covered by rent control. Multi-unit properties in Richmond built before Feb 1st, 1995 are fully covered by rent control and the just cause eviction protection regulations.
Newer multi-units, such as one I manage in Point Richmond, are not rent-controlled.
Single family homes and condos are only partially covered by the just cause provisions and not the rent control price caps. If you decide to rent out your single-family home or condo in Richmond, you should be aware that the new just cause laws can affect you down the road when your plans change and you decide to rent or sell.
For instance, let’s say that in your retirement years you decide to rent out your primary residence – perhaps to move closer to your kids. You plan to rent in a less expensive area yourself while earning rental income from your Richmond residence.
Several years later when the real estate market is good, you decide that you’d like to sell your Richmond residence. The just cause provisions of Richmond’s law kicks in and considers your exit of the rental market to be an Ellis Act eviction.
In these cases, a landlord is normally required to pay the tenant a substantial relocation fee or work out a private “buy out” arrangement. The relocation fees range from $7,345 for a studio to $15,279 for a 2+ bedroom home. The amounts are higher if there is a qualified tenant such as a senior, disabled person, or a dependent child.
Richmond real estate attorney, Daniel Butt, says that the relocation payments are due even if the tenant is on a month-to-month lease. He also says that, following an Ellis Act eviction, there are additional restrictions placed upon the deed. For that reason, he says the Ellis Act eviction is rarely used.
Instead, Mr. Butt says that an owner of a single family residence or condo can simply raise the rent to encourage the tenant to vacate. Since single-family homes and condos are not covered by rent control, there is no prohibition on rent increases so long as they are within reason.
He also says that buy out agreements in Richmond can be a good way for landlords to end a tenancy for a property that is covered by rent control. These private agreements are negotiated on a case by case basis, and can average twice the relocation fee. The upside is that private buy out agreements end the tenancy with no strings attached.
If you use Feagley Realtors’ property management services, we’ll be sure to advise you regarding your best options when it comes time to sell.
Short Term Rentals
If you are considering the possibility of relocating for less than a year with the intention of returning to your residence, there is an exception in Richmond’s law that allows you to form a temporary tenancy. According to Richmond’s law, temporary tenancies apply only to single-family homes and condominiums for a maximum period of up to twelve (12) months. The Landlord and Tenant must agree to this temporary tenancy at the start of the lease, and this agreement may not be renewed.
Richmond homeowners can also rent out their home as a vacation rental so long as the rental is for less than 14 days. Richmond requires that the owner have a business license and pay a 10% transient occupancy tax. https://www.ci.richmond.ca.us/3219/Short-Term-Rentals
Rentals of a Room in a Shared House
Another exception exists if you are thinking about renting out a room in your house and the tenant would share the kitchen and/or bath. In these cases, your property is considered to be fully exempt from both rent control and just cause for eviction regulations.
Berkeley’s Rent Stabilization and Eviction for Good Cause Ordinance applies to buildings constructed in or before 1980. In general, landlords may not increase rent in these buildings by more than 65% of the regional CPI annually or evict tenants without “good cause.”
Here’s a summary of how the laws apply to single-family homes:
- Single family homes and condos first rented after January 1, 1996 have eviction protection only, but not rent increase limitations.
- Single family homes and condos where the original tenant has occupied since before January 1, 1996 have both eviction protection and rent increase limitations.
As in Richmond, if an owner wants to terminate a tenancy in order to move in or wants to stop being a landlord, the owner is required to make a relocation assistance payment to the tenant.
According to Berkeley’s regulations: “The landlord must provide a $15,585 relocation assistance payment to any tenant household that has resided in the unit for at least one year. This $15,585 must be deposited with the rent board within 10 days of service of the notice upon the tenant. The landlord may be required to pay an additional $5,195 in relocation assistance to tenant households that qualify as low-income or include disabled or elderly tenants, minor children or tenancies that began prior to January 1, 1999.”
Rentals of a Room in a Shared House
As in Richmond, Rental units do not have eviction protection or rent increase limitations where the tenant shares the kitchen or bath facilities with an owner of record who holds at least a 50% interest and maintains his or her principal residence in the building.
Short Term Rentals
In Berkeley, the rent control ordinance applies to tenancies of 14 days or more. Homeowners can therefore consider short term rental options such as Airbnb. However, keep in mind that there are occupancy requirements such as the fact the house rented must be your primary residence. There is also a required transient occupancy tax of 12%.
Albany currently does not have a rent control regulation; however, Albany does have a rent review program which was established in June, 2018. This ordinance regulates most residential rental units in Albany and provides a mediation process for qualifying rent increases. Landlord participation in the rent review process is mandatory, but all recommendations are non-binding.
El Cerrito Properties
The City of El Cerrito does not currently have rent control or just cause laws; however, they are in the works.
In May of 2019, the El Cerrito City Council adopted the Just Cause for Eviction and Prohibition on Harassment of Tenants Ordinance. It was scheduled to become effective in June, but a referendum petition suspended its implementation.
Should it become law, it would apply only to multi-family properties with five or more units that received a Certificate of Occupancy issued before January 1, 2015 and not to single family residences or condos.
Rental registration requirements are in place in El Cerrito and we’ve registered the properties that we manage there.
Pinole does not have a rent control regulation, but it does have an inspection ordinance and requires that landlords purchase a business license.
According to section 8.30.060 of Pinole’s City Regulations, “Owners of Units, including Rental Units, subject to this chapter must file a written application with the Building Official and obtain a valid Certificate of Compliance for each Rental Unit prior to applying for a business license…”
Plenty of excellent opportunities for investment properties exist throughout the East Bay. Knowledge is power, so please make sure you are well informed of your obligations as a landlord.
Feagley Realtors has decades of experience in the East Bay real estate market, and I am happy to help answer any questions you may have!