Sacramento Report AAOC Helps Kill AB 889 in Committee

AAOC Helps Kill AB 889 in Committee

By ron Kingston

On July 12, 2021, the Senate Judiciary Committee, on a lop-sided vote, refused passage of AB 889 (Gipson). AAOC was a key witness in opposition to the bill. AB 889 would have set in motion a requirement that was incredibly invasive in the operation of rental housing businesses. The bill would have required landlords who are incorporated or who own rental property in a limited liability company to report everyone who has an ownership share in the property to the California Secretary of State.

Just a few weeks before the bill was heard in the Judiciary Committee, the bill proposed to require grocery stores— yes grocery stores—to as soon as possible, but no later than 60-to-180 days, depending on the size of the store, to provide written notice to the California Department of Social Services (CDSS), the city and county in which the store is located, and the local workforce development board of a planned closure. It also proposed to require the notice include specific information about the closure plan. Sound like a landlord and tenant bill to you? Of course not!

The author, with the urging of the sponsors, California YIMBY (Yes In My Back Yard) and the California Reinvestment Coalition, gutted the “grocery store” bill and decided to instead target the rental industry.

Did they reach out to us? Did they truly justify the massive change? Did they argue the bill was necessary to increase transparency…decrease fraudulent conduct…clamp down on slumlords…slow—if not stop—bank mergers …expose rental property owners who “hide” behind current law…that beneficial ownership is only discovered during litigation? The answer is…of course they did!

Now, let’s look at existing law.

Current law requires owners of rental property to: • Be transparent to government, applicants for tenancy and tenants.

Owners/agents must disclose the name, telephone number and street address at which personal service may be affected of each person that manages the premises and each person who is an owner of the premises or a person who is authorized to act for and on behalf of the owner for the purpose of service of process and for the purpose of receiving and receipting for all notices and demands. The disclosure must also include the name, telephone number and address of the person to whom rent shall be made.

• LLC’s corporations or other similar entities are to register information about their beneficial owners with the Financial Crimes Enforcement

Network of the Department of the

Treasury starting in 2023. The beneficial owner includes: the person exercising substantial control, the person who owns 25 percent or more of the equity interest of a qualified entity, and the person who receives substantial economic benefit from the assets of the qualified entity.

AB 889, as amended would have required corporations or LLCs that own residential rental property to report the beneficial owner to the California Secretary of State. Only minor children, a person acting as an intermediary or custodian of another, a person acting solely as an employee of a qualified entity, a person whose only interest in a qualified entity is through the right of inheritance and a creditor would have been exempt. Every other person or entity would have been required to report to the state.

The bill is modeled after several unsuccessful attempts to achieve the same purpose by Assembly Member Buffy Wicks. Earlier this year, Ms. Wicks proposed to have the state compile a dossier on rental property owners. She even amended her bill to have the appearance of not being so demanding

about the owners of rental property owners. The Assembly turned down her efforts.

We still don’t understand why California YIMBY supported the bill. In fact, we argued before the committee that the bill would have made it far more difficult to own, convey and manage rental property. For that matter, it would have done nothing to promote interest in rental property…particularly affordable housing!

Representing the California Reinvestment Coalition was a professor from Georgetown University Law Center. Among other things, the professor argued the state would only require a “small change to” the state’s registration forms. The Secretary of State and the committee argued quite the contrary. The Secretary of State concluded that “AB 889 is inconsistent with the current Secretary of State (SOS) operational and fiscal procedures and presents multiple implementation challenges.”

Our key issue was there is no immediate need for the bill…the bill is intrusive…and the sponsors are wrongly arguing that institutional investors are stockpiling cash in an apparent attempt to buy up another large swath of rental property in our state. In fact, investors would not be prevented from buying up rental property.

With the Senate Judiciary Committee’s rejection of AB 889, this bill is now dead for the year. Unfortunately, dead legislation is often revived, dusted off, and reintroduced as a new bill. Will this be the case for AB 889? Only time will tell.

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Ron Kingston is President of California Strategic Advisors and Legislative Advocate for the Apartment Association of Orange County. For questions regarding this article, please call AAOC at (714) 245-9500. Beyond the Box — delivery, installation and service contracts available

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