Use it now- rules surrounding no-fault ‘substantial remodel’ evictions will soon change and become more scrutinized. 

By Daniel Bornstein, Esq.

Currently, owners subject to statewide rent and eviction controls endeavoring to recover possession of the premises by substantially remodeling the property do not have to have their plans drawn up and permits issued before work begins. Not so beginning April 1, 2024. 

We had the opportunity to speak with a rental property owner in Walnut Creek and, after many years, wants to get out of the landlording business, sell her property, and move east to be closer to her adult children. But there are a few hurdles to overcome to accomplish the goal.

So how can she sell her duplex as vacant when both units are occupied by responsible tenants?  The tenants are making timely rent payments and are otherwise exemplary, so we cannot find any theories to evict them for anything they did wrong. No “at-fault” just causes can be identified.

The owner does not want to take the units off the market through the Ellis Act and doesn’t want to move in herself or a close relative. Nor does she want to “bomb it and start over” by demolishing the building.

Since the building is not subject to more onerous local tenant protections, we turn to the Tenant Protection Act of 2019 (AB-1482). We determined that the only convenient and legal means to transition her tenants out is through a substantial remodel that would not only enable the owner to sell the property as vacant but also provide upside potential. By renovating the kitchen or bathroom (or both) in each unit, it will sell for more.

Keep in mind that under current law, the work to be performed must indeed be substantial. Rest assured, that would not be applying a fresh coat of paint, resanding a hardwood floor, or making other cosmetic improvements.

The work must create so much upheaval that the tenant cannot live there while the work is being performed. That is, the unit would be rendered uninhabitable. Another requirement is that the work is such a herculean task, that it’s not practical to safely complete the remodel within 30 days. Specifically, the statute defines substantial remodeling as,

“substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or the abatement of hazardous materials, including lead-based paint, mold, or asbestos, in accordance with applicable federal, state, and local laws, that cannot be reasonably accomplished in a safe manner with the tenant in place and that requires the tenant to vacate the residential real property for at least 30 days. Cosmetic improvements alone, including painting, decorating, and minor repairs, or other work that can be performed safely without having the residential real property vacated, do not qualify as substantial rehabilitation.”

California Civil Code § 1946.2(b)(2)(D)(ii).

What the new law doesn’t change

The fundamental right of the owner to recover possession of the unit through a substantial remodel remains intact. If a contemplated remodel will displace the tenant, the owner still must give a 60-day notice.

Under existing state law, just cause protections only apply to tenants who have occupied the property for at least 12 months and this occupancy period extends to 24 months if adult tenants are added to the lease before the existing tenant has occupied the property for 24 months. This remains unchanged under SB-567.

 What changes the new law will usher in

When SB-567 goes into effect, specific verbiage must be included in the termination notice stating the work to be performed and acknowledging the tenant’s right to reoccupy the property if the work isn’t started or fails to be completed. Owners must provide to the tenant copies of any requisite permits at the same time the termination notice is served.

Finally, the tenant must be informed that if he or she wishes to reoccupy the unit after the remodel is completed, they must tell the landlord and provide updated contact information.

SB-567 adds hefty penalties if owners fail to comply with the law. The fear is that some unscrupulous owners will fraudulently displace tenants by claiming the property is going to become a construction zone, only to not make good on that promise.

Admittedly, there are a few bad apples who uproot the tenants and do not follow through with the work or just do a paint job and in turn, re-rent the property to new tenants willing to pay a higher rent.

This distrust of owners who do fulfill their statutory obligations in so-called “reno-victions” is nothing new. 

When tenants are notified that the owner intends to remodel the property substantially, it’s not uncommon for them to reach out to free legal counsel.

Informed advocates will send out a scathing letter reminding the owner of the substantial remodel requirements and demand details of the remodeling work contemplated, including drawings, permits, contractor work plans or bids, invoices, and other evidence that the owner is acting in good faith.

If this documentation is not produced, it casts doubt on the true intention of the landlord.

This letter goes on to threaten a lawsuit if the tenant is fraudulently evicted when the work is not up to par.

Under SB-567, documentation is not optional

Up until now, it was only stern reminders and veiled threats, but beginning in April, the owner looking to substantially remodel the property must back up their intentions with proof that the work will be carried out.

 Ideally, the tenant moves out in 60 days, but what if they remain? 

If the tenant was given proper notice, accompanied with permits and a clear explanation of the “scope of work,” they will have to vacate within 60 days. If they do so, the matter is done and work can be commenced.

Should the tenant decide to stay, whether it is because of defiance or they cannot find alternative housing, an unlawful detainer (eviction) action can be filed.

We would expect that aside from the traditional defenses we are used to seeing when facing an eviction action, tenants or their attorneys will pick apart the documentation used to initiate the no-fault eviction and argue that the substantial remodel will not come to fruition.

So that owners do not get bogged down in convincing a judge or jury that the remodel is set to happen, we urge that landlords make sure that all of the I’s are dotted and the T’s are crossed.

Plan ahead, pull permits early, and be able to articulate, specifically, what work will be done and how it is not feasible to have the tenant live in the unit when the work is underway.

Unlike local rent and eviction controls, there is no statewide rent board to air out grievances. If the property is subject only to AB-1482, disputes will be hashed out when eviction actions are filed.

As a sidebar, the protections afforded under this state law only apply when the tenant has been in occupancy for at least 12 months. Unlike some rent-controlled jurisdictions – assuming they don’t apply – there is nothing prohibiting landlords from inking a shorter-term lease, say 6 or 10 months.

By having a lease term of less than 12 months, landlords can have a trial period to evaluate the desirability of the tenant before they are exposed to the regulatory regime of AB-1482.

Keep in mind that most single-family homes, condominiums, and new buildings are exempt from statewide rent and eviction controls – contact our office to see where your property fits into the equation.

Parting thoughts

Back in 2020, our law firm thought we would invest a lot of time in educating rental property owners on statewide rent and eviction controls, but this agenda was shelved as COVID roared in and we had to hopscotch from one eviction moratorium and government edict to the next. Now that we are over the hump and eviction bans have passed, state law has become back in focus.

AB-1482 was a reasonable piece of legislation brokered by both tenant and landlord camps, but the protections are not enough for some, so we have seen several attempts to water them down. As originally written, SB-567 would do a lot more damage to rental property owners but cooler minds prevailed.

The final product was a bill that had some tweaks to evictions based on substantial remodels and owner move-in and relative move-in evictions. OMIs/RMIs is a topic we’ll reserve for a future article.

Make no mistake, owners have a target on their backs, and in a complicated regulatory regime, our community needs to be careful. Bornstein Law is your ally in making smart business decisions, cauterizing risk, and resolving disputes as efficiently and cost-effectively as possible, taking into account time, risk, and attorneys’ fees.