Before Buying Residential Real Estate in Los Angeles Read this First.

First time home buyers looking to step into a duplex or triplex in Los Angeles have a large learning curve. Many first time home buyers, or just first time buyers in Los Angeles, have no idea what laws they are subject to, more specifically what they CANNOT do with their property in many parts of Los Angeles. When looking to purchase residential real estate in Los Angeles for the first time here are some things you need to get educated on before deciding to submit an offer.

Limitations on Evictions

Let's start from the state level and go down to the local level. California does have a form of rent control known as the California Tenant Protection Act of 2019 aka AB 1482. AB 1482 governs some residential properties and gives tenants residing in a property subject to it two main protections: (1) a cap on rent increases and (2) "Just Cause" eviction protections, in other words, you can't just end a month-to-month lease.

At a local level the laws are more restrictive. Many of the cities in Los Angeles have their own rent control outside of AB 1482. Many of these cities restrict or even prohibit evictions for things that AB 1482 does allow. For example, not all cities within Los Angeles permit you to evict a tenant to do substantial remodeling. Those that do allow it usually make it unilateral, as in the tenant can opt for permanent relocation if the owner wants to remodel the unit, but the tenant does not have permanently relocate if they do not want to. The risk is that you just invested a lot of money in temporary relocation and the remodel and won't be able to recapture that back in the form of market rent or any reasonable rent increase amount. Further, more cities are even throwing in properties that are exempt from AB 1482 into their own "Just Cause" eviction restrictions, such as condos and houses.

Be aware of owner occupancies, because those too are not set in stone. Some jurisdictions prohibit a landlord from evicting a tenant to owner occupy the unit if that tenant has resided there for a certain period of time and/or is past a certain age, disabled, or terminally ill. There may also be a limit to the number of properties you can owner occupy. Owners usually have to occupy the property for a minimum of one or two years, fill out a lot of paperwork, and provide personal information about the owner or family member that will be occupying the unit.

The eviction restrictions and regulations make the process of getting a unit back and even owner occupying very cumbersome and expensive.

Not Every Part of Los Angeles is the Same

There is Los Angeles County which all the cities are within its boundaries, but not all the cities go by the County's laws. Los Angeles County- Unincorporated has it's own regulations. Los Angeles City, being the largest city within the county has it's own regulations. Then many other cities have their own. An address may go by Los Angeles but is actually within another city. For example, Culver City, part of it is Los Angeles and part of it is the City of Culver City. Sometimes people use Los Angeles, sometimes people use Culver City. Culver City and Los Angeles have two different rent controls.

When looking to buy real estate you need to know the exact jurisdiction that property is located in. Otherwise, you are making purchasing decisions based on potentially the wrong laws. Each city has their own way of doing things. These cities are adopting new regulations all the time or even establishing rent control boards they did not have before.

Illegal Units are not "Bonuses"

The illegal unit, especially one that is tenant occupied, may be listed as a "bonus" but in reality it is a nightmare. You want to make sure the certificate of occupancy matches what is in place. An illegal garage conversion, guest house, or addition can be very cumbersome to deal with if it has a tenant in place. The process to get the unit vacant is not very straight forward, incredibly expensive, and comes with a substantial amount of liability.

No, You Cannot Contract With Tenants Outside of the Law

So often buyers or landlords reach out to me asking if they can sign a contract with a tenant to raise rent beyond the rent increase limits and the answers is a resounding NO! You cannot raise rents or otherwise have a tenant agree to waive their rights outside of the law. Even if a tenant signs a whole new lease and agrees to the increased rent amount and agrees to waive any of the "Just Cause" eviction restrictions, that contract is illegal, potentially void on its face, but certainly voidable. These laws are not waivable or optional. Even if the tenant is month to month. That is the whole point of rent control- to control the landlords ability to raise rents and evict tenants.

The Ellis Act Is Not Always Your Best Bet

For those unfamiliar, in short, the Ellis Act is a law in California that allows landlords to go out of the residential real estate business. The Ellis Act carries with the property, even when it is sold, and recorded on title. The application of the Ellis Act can vary by local cities if they have their own additional rules. Under the Ellis Act, you CANNOT rent the units out at all. You also have to take ALL UNITS on the property off the market, not just particular units.

The Ellis Act to me is the last resort. You Ellis Act the property if you are unable to get units back legally through lawful eviction or tenant buyout. The Ellis Act come with lots of strings attached. Many of these restrictions include giving tenants the right of first refusal to rent the unit if it goes back on the market at potentially the same rent or their rent at the time of Ellis Act plus applicable rent increases, civil penalties and liability if you Ellis Act and then put the units back on the market before a certain time period.

While people may buy residential properties to owner occupy them, life changes. You may be in a position that you need to sell the building, but its value is drastically impacted by the Ellis Act because now the pool of potential buyers is smaller (owner occupiers only) rather than other landlords trying to increase their portfolio. This is especially true if you Ellis Act a property with three or more units because many buyers of those only need one unit to live in and would need the income from the other units to offset the mortgage, but cannot get it because the property is subject to the Ellis Act.

Conclusion

Some buyers are buying in Los Angeles for the first time, relocating from out of the state or country, and they have no idea what rent control is or the severity of it. Every real estate deal is different. There are certainly properties that one can buy and owner occupy. But the real purpose of this article is to stress the importance of getting educated and doing your due diligence to get thoroughly informed on each property you are potentially looking to buy. It may behoove a buyer to hire an attorney to discuss the particulars of a property and what risks they may have based on information available from the seller and public records.

The information in this post is for general information purposes only. Nothing on this post should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship.