Renting Out Your House in California: Rules and Regulations to Follow

Between the years 2000 and 2015, Up for Growth.org reports that California underproduced housing by about 3.4 million units, the equivalent of about 15 percent of the state's total housing stock. This is a key factor in ongoing housing shortages and average rents that, in 2018, exceeded $2,000 per month. While these factors are uniformly bad news for renters and the West Coast's ever escalating homelessness crisis, it goes without saying that they create a lucrative proposition for homeowners looking to rent out their properties. However, these same issues encourage California's legislature to impose on California landlords plenty of rules and regulations in an effort to offer essential protections to tenants. It's this cocktail of state, local and federal laws that budding landlords need to familiarize themselves with before opening their doors to renters.

Before putting their homes on the rental property market, fledgling real estate moguls need to know whether it's even legal to offer them to renters in the first place. As homes fall under the jurisdiction of city, state, federal and even neighborhood homeowner's association laws and bylaws, there's no universal set of guidelines.

Whether the property owner resides in California, Colorado or Connecticut, she will be legally obligated to report any and all rental income when filing taxes with the Internal Revenue Service. The California Franchise Tax Board defines rental income as money received from the occupancy of real estate and the use of personal property, including monthly rent payments, fees for lease cancellations and any other profit from renting property. California residents are taxed on all rental income regardless of where the property is located.

Once the landlord is certain that the property is legally rentable and kicks off his tenant search with ads, open houses and a real estate agent in tow, California governs the tenant screening process with progressive civil rights protections, which stack up with the Federal Fair Housing Act of 1968.

When screening tenants, property owners may require applicants to provide information about their ability to pay rent, such as details on monthly income, employers and past or present landlords. What California landlords cannot do, though, is ask about, or discriminate against, any applicant's ethnicity, religion, gender, sexual orientation, nationality, disability, source of income or familial status.

Read More: Tenant Screening: A Legal Guide for California Landlords

After the tenants are properly screened and a renter is finally selected, California landlords are legally required to provide various disclosures to the new occupants. For homes constructed by 1978, owners must be transparent about any potential for lead-based paint and provide a copy of the federal government's "Protect Your Family from Lead in Your Home" document. All tenants are also entitled to written information about Megan's Law, which requires landlords to disclose offending neighbors on the California Sex and Arson Registry.

But these are only the tip of the tenant-disclosure iceberg. California landlords are required to disclose knowledge and information about pesticides, asbestos and other cancer-causing materials, bedbugs and other pests, the presence of mold, carbon monoxide and smoke detector compliance. They even must provide information about previous tenants who have died on the property. Additionally, landlords need to disclose if any utilities will be shared with other tenants.

Spread throughout the California Civil Code –— primarily in Sections 1940 through 1954 dealing with the hiring of real property — are many rules and regulations about rent, fees and related rental documents. Some basic regulations cover:

• Security deposits: Security deposits are always refundable in California and are capped at two months' rent for unfurnished units or three months' for furnished units. Deposits must be returned to the renter within 21 days of moving out, and portions can only be withheld for unpaid rent or to cover the costs of cleaning and repair beyond normal wear and tear.
  
  
• Monthly rent: Rent increases are subject to local rent control laws and caps. Landlords must accept payments other than cash or electronic funds transfer and must provide at least 30 days' notice for rent increases of less than 10 percent or 60 days for those of more than 10 percent where rent increases are legal. Late fees are only allowed if reasonable and compliant with rent control laws and are only enforceable if specified in the lease.
  
  
• Other fees and documents: Application fees may not exceed $30, as of 2020. On the first occurrence, landlords may collect a returned check fee of $25 or $35 for each check thereafter. The landlord must provide a copy of the rental contract to the tenant within 15 days of its signing. 

Read More: Holding Deposits: What California Tenants Should Know

When renting out a home, landlords are subject to what California law calls an "implied warranty of habitability." This essentially means that they are legally responsible for maintaining the rental property so it is fit for human habitation, including making timely repairs of any issues that significantly affect the unit's habitability; ensuring that the property provides essential utility services; and keeping the unit current with local building codes, such as those found in the state's Health and Safety Code.

Should the landlord fail to provide these basics of habitability, it is within the tenant's right to withhold rent until essential services like water, heating and electricity are provided, or to make necessary repairs themselves or hire a professional and deduct those repair costs from the monthly rent. Per Section 1941.1 of the state's Civil Code, core habitability requirements in California include:

• Adequate weatherproofing and waterproofing, including effective windows and doors.
  
• Working plumbing systems, including hot and cold running water and sewage disposal. 
  
• Safe and working gas, electrical and heating systems, including safe wiring and lighting.
• Safe and well-maintained stairways, railings, roofs, floors and walls.
  
• Trash receptacles and mailboxes in good repair.
  
• Clean and sanitary buildings and common grounds free of debris, garbage, waste, pests and vermin.
  

California tenants have the legal right to what the Civil Code calls "quiet enjoyment" of the space they rent, so they are entitled to 24 hours of notice and a time-of-day heads up before entry into their rental unit, or 48 hours of notice in the case of move-out inspections.

If a tenant has lived at a rental property for more than a year, the landlord must provide a minimum of 60 days' notice before terminating the lease. In the case of eviction for nonpayment of rent or other lease violations, tenants must receive three days' notice, during which period they have the opportunity to pay up or remedy the lease violation before the landlord can file for eviction. As part of California's numerous eviction protections, lockouts and utility shut-offs are illegal. Similarly, retaliatory methods such as rent increases, evictions or limiting services are illegal as a response to tenants who have exercised their legal rights against their landlords, such as demanding habitability repairs or participating in a local tenants' rights organization.

Read More: Termination of Tenancy in California: Types of Eviction Notices

Throughout California, short-term rentals, such as those facilitated on home-sharing platforms like Airbnb, HomeAway or VRBO, are a whole other can of worms compared to renting out a home as a primary residence. Rules for accessory use of a residence, like offering short-term rentals that are not the unit's primary use, but instead an incidental use, vary widely depending on local laws.

Some cities, like Los Angeles and San Francisco, require those offering their homes as short-term rentals to register with the city's planning department. Accessory use is often capped to a certain amount of days per year (usually under 180), and often requires buildings to adhere to safety code standards or even possess liability insurance, as in the case of San Francisco. Short-term rental income is virtually always taxed by the city and is typically limited to primary residences. As of 2020, second homes and vacation rentals cannot be used as short-term rentals in some California cities, like L.A. and San Francisco.

Read More: Short-Term Rental Laws in California: Regulations, Airbnb & More