California’s New Housing Laws and Cannabis in Residential Leasing

23 Oct California’s New Housing Laws and Cannabis in Residential Leasing

Recently, Governor Newsom signed 18 bills aimed to combat the housing crisis in California, including the Tenant Protection Act of 2019.

When I spoke at the California Association of Realtor’s Legal Affairs conference a couple of weeks ago, I was asked whether cannabis activity could be considered grounds for “just cause” eviction under the new Tenant Protection Act.  While there is nothing specific to cannabis in the Tenant Protection Act, and there is not yet any case law interpreting the new statute, landlords fearful of having their properties overrun by pot-smoking hippies can put their minds at ease. Hippies are one thing, but cultivation and processing operations on private residential property are quite another. Read on for more.

The Tenant Protection Act of 2019 Implements Statewide Rent Control and Requires Just Cause to Terminate a Tenancy

Rent Control

Subject to a number of exceptions, new Civil Code section 1947.12 prohibits an owner of residential real property from increasing the rental rate by more than 5% plus the percentage change in the cost of living, or 10%, whichever is lower, over the course of a 12-month period.

Just Cause Termination

To avoid a surge in lease terminations due to the new cap on rent increases, subject to some exceptions, the State now requires “just cause” to terminate a residential lease after a tenant has continuously occupied a residential property for 12 months. (Civil Code 1946.2).

“Just cause” may be either “at-fault” or “no-fault.” At-fault just cause includes:

1. Default in payment of rent.
2. A breach of a material term of the lease, including a violation of a provision of the lease after being issued a written notice to correct the violation.
3. Maintaining, committing, or permitting the maintenance or commission of a nuisance.
4. Committing waste.
5. The tenant had a written lease that terminated on or after January 1, 2020, and after a written request or demand from the owner, the tenant has refused to execute a written extension or renewal of the lease for an additional term of similar duration with similar provisions, provided that those terms do not violate this section or any other provision of law.
6. Criminal activity by the tenant on the residential real property, or any criminal activity or criminal threat on or off the property that is directed at any owner or agent of the owner of the residential real property.
7. Assigning or subletting the premises in violation of the tenant’s lease.
8. The tenant’s refusal to allow the owner to enter the residential real property.
9. Using the premises for an unlawful purpose.
10. The employee, agent, or licensee’s failure to vacate after their termination as an employee, agent, or a licensee.
11. When the tenant fails to deliver possession of the residential real property after providing the owner written notice as provided in Section 1946 of the tenant’s intention to terminate the hiring of the real property, or makes a written offer to surrender that is accepted in writing by the landlord, but fails to deliver possession at the time specified in that written notice.

No-fault just cause includes:

1. Intent to occupy the property by the owner or their spouse, domestic partner, children, grandchildren, parents, or grandparents. For leases entered into on or after July 1, 2020, this applies only if the tenant agrees in writing to the termination, or if a provision of the lease allows the owner to terminate the lease if the owner, or their spouse, domestic partner, children, grandchildren, parents, or grandparents, unilaterally decides to occupy the residential real property.
2. Withdrawal of the residential real property from the rental market.
3. The owner complying with any of the following:
   • An order issued by a government agency or court relating to habitability that necessitates vacating the residential real property.
   • An order issued by a government agency or court to vacate the residential real property.
   • A local ordinance that necessitates vacating the residential real property.
4. Intent to demolish or to substantially remodel the residential real property.

Landlords wishing to exercise a “no-fault” termination must either waive payment of the last month’s rent or pay for tenant relocation.

There is a long list of exceptions to above requirements. Further, if a local ordinance requiring “just cause” termination exists in the jurisdiction where the property is located, then the local ordinance controls.

Owners of single family residences that are “alienable separate from the title to any other dwelling unit” (AKA a single home on a lot) are exempt from the new requirements so long as (1) the owner is not a REIT, a corporation, or an LLC in which at least one member is a corporation, AND (2) the tenants have been given written notice that the property is exempt from the just cause and rental cap requirements.

Cannabis and Just Cause

Non-exempt landlords want to know if cannabis activity constitutes “just cause” for termination under the Tenant Protection Act.

Health & Saf. Code, § 11362.1(a) provides that

“it shall be lawful under state and local law, and shall not be a violation of state or local law, for persons 21 years of age or older to:
(1) Possess, process, transport, purchase, obtain, or give away to persons 21 years of age or older without any compensation whatsoever, not more than 28.5 grams of cannabis not in the form of concentrated cannabis;
(2) Possess, process, transport, purchase, obtain, or give away to persons 21 years of age or older without any compensation whatsoever, not more than eight grams of cannabis in the form of concentrated cannabis, including as contained in cannabis products;
(3) Possess, plant, cultivate, harvest, dry, or process not more than six living cannabis plants and possess the cannabis produced by the plants;
(4) Smoke or ingest cannabis or cannabis products; and
(5) Possess, transport, purchase, obtain, use, manufacture, or give away cannabis accessories to persons 21 years of age or older without any compensation whatsoever.”

However,

“Section 11362.1 does not amend, repeal, affect, restrict, or preempt the ability of an individual or private entity to prohibit or restrict any of the actions or conduct otherwise permitted under Section 11362.1 on the individual’s or entity’s privately owned property.” Health & Saf. Code, § 11362.45(h).

Accordingly, while the cannabis activities described in Health & Safety Code section 11362.1 are not considered “criminal activity” under California law, property owners are well within their rights to prohibit tenants from engaging in any cannabis activity (including smoking, cultivating, and processing) on privately owned property.  Therefore, landlords concerned about cannabis activity should prohibit such activity in their leases, and provide written notice to correct any violation. Landlords should then look to Civil Code section 1946.2(b)(1)(B) (breach of material term) and/or 1946.2(b)(1)(C) (nuisance – if the appropriate elements are present) to justify termination for cannabis-related activity.