The Legal Aspects of Property Management: Ensuring Compliance with California Laws

There are a number of reasons that we encourage real estate investors to partner with a professional property manager when they’re renting out a home in California. We can reduce vacancy times, improve tenant retention, increase rental income, and minimize expenses. We leverage our maintenance resources and relationships and we also invite owners to enjoy the benefits of our innovative technology and financial reporting.

The best reason to work with us, however, is that you’ll avoid expensive legal mistakes.

Self-management is fine in any number of markets across the country. In California, however, there are strict laws that govern everything from fair housing to security deposits to habitability to rental increases and evictions. You need the protection of a property manager who understands these laws. Otherwise, you’re inviting a lot of extra risk into your leasing and management process and taking on a lot of liability as a landlord.

We’re talking about the legal aspects of property management today and what you need to be aware of to comply fully with California rental laws.

Basic California Rental Laws: Habitability and Fair Housing

Let’s start with the easiest legal aspects. Two laws you hopefully already know are California’s implied warranty of habitability and the fair housing laws, as they’re administered at a state and federal level. 

• Implied Warranty of Habitability 

Perhaps the most basic property law of all is habitability. You know this, otherwise, you wouldn’t be renting out property.

A property in California has to be safe and habitable in order for you to rent it out to tenants. The law will require you to provide hot water, heat, electricity, and a roof that doesn’t leak. There has to be healthy and adequate ventilation, and there cannot be pest infestations. Gas leaks are a big no and sewage backups have to be taken care of right away.

We hope we don’t have to say this, but you don’t want to rent out a property unless it is clean, in good condition, and safe for residents. Residents should be able to live there without putting themselves at risk.

Recent laws have been passed that require local officials to investigate every habitability complaint that comes in. Previously, if a disgruntled tenant tried to make a complaint that seemed frivolous, there would not be a lot of time and resources spent investigating. Now, cities and counties are expected to check into every habitability complaint that’s made. These enforcement requirements can be burdensome, so make sure you’re not in a position where a tenant could potentially make a complaint against you and your rental property. 

• California Fair Housing Laws

California’s fair housing laws are stricter than the federal Fair Housing Act. There are more protected classes at the state level than at the federal level. While the federal fair housing law protects seven classes, California has nearly a dozen more. In California, you cannot discriminate in rental housing based on:

• Race
• Skin color
• Religion or creed
• National origin or ancestry.
• Sex
• Physical or mental disability
• Familial status
• Sexual orientation
• Age
• Gender identification
• Gender expression
• Veteran or military status
• Citizenship
• Primary language
• Marital status
• Source of income
• Genetic information

This is a list that is always evolving. Make sure you are keeping up with all fair housing laws at the state, local, and federal levels. Fair housing mistakes are expensive. Compliance is absolutely essential in order to protect your income and your reputation.

Complying with Rent Stabilization and Just Cause Eviction Laws

Even if your rental property is not covered by the statewide rent control laws that are now in place, you have to know what they are. Even exempt properties must reference rent control in lease agreements.

Generally, the rent control implemented after The Tenant Protection Act went into effect applies mostly to multi-family properties that are at least 15 years old. If you rent out a single-family home or a condo and you’re not a corporation, you’re likely exempt from rent control.

If your property is covered by rent control limits, however, you’ll need to know that you can only raise the rent by five percent plus the cost of living increase set by the Consumer Price Index.

We mentioned that your lease agreement needs to reflect whether your rental is included in or exempt from the statewide rent control law. The language has to be specific, so make sure you have an attorney-approved template or verbiage provided by a local property manager. If your property is exempt from rent control but you don’t have the lease language stating that, you will have to follow state rent control laws.

We can take a look at your lease and incorporate any required language that may be missing. This is part of the compliance that comes with a professional property management partnership.

In addition to rent control, there’s also an eviction law that needs your attention. California’s eviction laws are specific. You must have just cause (which means a good, legal reason) if you want to terminate a tenancy and not renew a lease agreement.

Some of the most common and obvious just causes include:

• Nonpayment of rent
• Property damage
• Lease violations
• Criminal activity

If you’re evicting for a reason that isn’t considered just cause, a tenant relocation payment will be required. This is often the equivalent of one month’s rent. No-fault eviction reasons include taking the property off the rental market, moving into the home yourself, or allowing a family member to move into the home.

California Security Deposit Laws

As property managers, we’ve been preparing our owners and investors for a change in security deposit laws, which went into effect in July of 2024.

AB 12 is the new law that limits the amount you can collect in a security deposit. Previously, you were able to collect the equivalent of two month’s rent for an unfurnished property and the equivalent of three months’ rent for a furnished property. Now, you are only permitted to collect the equivalent of one month’s rent – whether your property is furnished or unfurnished.

There is an exception. If you do not rent out more than two properties and a total of four rental units, you can request up to two month’s rent as a security deposit.

Security deposit law is more than the amount you can collect. You also need to know the legal timelines. After a tenant vacates your property, you have 21 days to return that security deposit. If you’re withholding all or some of the money from the deposit, you have 21 days to return whatever is left of the deposit as well as an itemized list of what was kept and why. Always include invoices and receipts so you can document your deduction.

And, what are the legal reasons to withhold the deposit? You can keep it for unpaid rent or utilities, for any tenant damage, and for any cleaning fees that have to be paid in order to return the property to the condition it was in when tenants took possession.

Don’t deduct for routine wear and tear. This is your responsibility as the owner.

Section 8 Tenants and Screening California Applications

Tenant screening is an easy place to make a legal mistake.

If you’re not aware of the fair housing laws, it’s possible you’ll trip over what can be asked and evaluated. If you don’t have a set of standard rental criteria in place, you may not screen consistently, which could lead to a claim of discrimination.

There are also Section 8 protections in place. You may have applications from tenants and renters who benefit from housing voucher programs. You cannot turn them away before they apply.  All applicants must be considered for your property and screened consistently, regardless of how they earn their income. Those housing vouchers used by Section 8 tenants can be legally considered a source of income.

This impacts how you market your rental property and screen your potential tenants. In the past, you could actively advertise that you did not accept Section 8 tenants for a property. There was some distinction about whether certain units were approved for Section 8. This is no longer legal.

Update and document your qualifying rental criteria. When it comes to being fair to Section 8 tenants, all of your screening criteria can remain the same. Those income standards can, however, be met when a housing voucher brings in enough money for the tenants to qualify to rent your home.

The laws around renting out California homes can be complex, and we know how difficult it can be to keep up. If you’d like some help from a knowledgeable property manager, please contact us at Key Realty Center. We make staying up to date with the laws a priority, and we can keep you compliant with our expertise and our attention to the ever-shifting legal landscape in California. This is a big part of the value our management services provide.