California’s Coming Rent Control Law

California rent control bill

AB 1482 Explained

In early September, 2019, the California legislature passed AB 1482, which would enact a statewide rent-control law and other eviction protections for renters.  AB 1482 is part of the State’s efforts to reduce the cost of housing and protect California renters who have been adversely affected by rising rents and gentrification.  The law is expected to be signed by Governor Newsom before the end of October, and the law will go into effect on January 1, 2020 and expire in 2030, unless extended by lawmakers.

What does AB 1482 do?

As currently contemplated, AB 1482 will institute state-wide rent control where landlords will be restricted from raising rents by more than 5 percent per year plus the local rate of inflation, with 10 percent being the maximum amount of the increase.

In addition to the rent control provisions, AB 1482 will also require that landlords show “just cause,” such as a failure to pay rent or some other default under the lease, before evicting tenants from a unit that such tenant has resided in for over one year.  Moreover, landlords must provide the tenant an opportunity to “cure” the missed payment or default.  If a landlord wants to evict a tenant without the aforementioned “just cause,” such as to convert a rental property to condominiums or make other renovations, the landlord will have to pay the evicted tenant a relocation assistance of one month’s rent.

AB 1482 only applies to units that are (i) not already covered by a rent control ordinance, and (ii) greater than 15 years old, which will get adjusted with every passing year (eg: units built in 2006 would be covered in 2021, units built in 2007 would be covered in 2022, and so on).  For example, in a city like Los Angeles where the local rent control ordinance only applies to buildings constructed before 1978, as of January 1, 2020, rental units built from 1978 to 2005 would be covered by AB 1482.  Moreover, single family home rentals are exempt unless such rentals are owned by an institutional investor.

How will AB 1482 affect the housing market?

According to a study by UC Berkeley’s Terner Center for Housing Innovation, which studied 10 communities throughout the state – Chula Vista, Fresno, Long Beach, Los Angeles, Oakland, San Francisco, San Rafael, Stockton, Vallejo, and West Sacramento – found that a majority of the rent increases over the last several years would have been permitted under AB 1482.  However, the study did note several communities, such as Fruitvale/West Oakland, the Mission in San Francisco, and Boyle Heights in Los Angeles, that had exorbitant rent hikes over the period studied.  Existing tenants in those areas would have been substantially benefited by the law, with an estimated 32 percent of the units in such areas being covered by the law.

Economists generally view rent control laws as having a detrimental affect on the cost of housing over the long term.  While California suffers from an acute shortage of housing, there is little evidence that rent control laws actually increase the supply or affordability of housing.  In fact, the opposite may be true – rent control laws deter the supply of new housing as the construction for new homes becomes less profitable.  Moreover, landlords are often discouraged from investing in their existing properties as they see less return on their investment, and renters stay put as the disparity between their controlled rent and the market increases over time.  These factors create distortions in the housing market.

While economists point to the construction of new units as the primary solution to the shortage of  housing in California, such construction is unlikely to happen fast enough to address the current crisis in the State.  Accordingly, as recognized by the Berkeley Haas Institute for a Fair and Inclusive Society, rent control is the only way for government to enact immediate solutions to respond to the housing crisis.


Wesley King, Attorney at Law

By Wesley King
Associate at Frandzel Robins Bloom & Csato, L.C.

Part III: Blockchain Beyond Bitcoin

Bitcoin

As the third and final article in our series on blockchain technology, we will discuss how the burgeoning technology will affect the financial industry.

To review, blockchain in general can be described as a decentralized, shared, public ledger that is maintained by a network of computers that verify and record transactions into the same decentralized, shared, and public ledger. No single user controls the ledger – it is maintained by all of its participates, in the cloud, or by a network of designated computers that collectively keep the ledger up to date and verify its transactions. As such, blockchain creates irrefutable records of transactions, creating trust between counterparties and eliminating the need for clearing houses or middlemen in transaction.

As mentioned in our prior article, modern banks and other financial institutions face the biggest and most sweeping changes as blockchain is implemented across the industry. According to a 2018 report from the accounting firm KPMG, the implementation of blockchain in the financial industry will have numerous major benefits, such as increasing efficiency, reducing loss and fraud, improvement to client/customer experience, and will result in a higher availability of capital. Also as previously discussed, per a 2017 study conducted by Gartner, Inc., it is estimated that the business value-add of blockchain will likely exceed $3.1 trillion by 2030, most of which will accrue in the financial or financial-adjacent industries.

As a financial professional, banker, or even a consumer of financial services, you may be asking yourself, “what do these changes look like?” While “increasing efficiency” may sound esoteric, using a universal and automatically verified ledger for financial transactions within a given entity or marketplace will clearly streamline accounting and auditing systems. Moreover, a universal and irrefutable ledger provided by the implementation of blockchain in a given system has the potential to drastically reduce loss and fraud. However, as we will illustrate, the most exciting implementation of blockchain is coming in the form of new and innovative financial products.

Lawyers, computer programmers and financial professionals all over the world are in the process of developing “smart contracts” that imbed traditional financial products with blockchain technology. These “smart contracts” not only take advantage of the security features provided by blockchain, they provide an opportunity to connect and digitalize every aspect of financial services and transactions. Upon the full realization of blockchain technology, data will be shared across disparate services and technology, from bank accounts to mortgages to smart appliances to regulatory registries, which will all continuously record and cross-check into their own respective universal blockchain ledger. Imagine:

  • A mortgage that connects to the blockchain ledger at local the County Recorder’s Office that will automatically notify the lender if an impermissible lien is placed on the property.
  • A smart car that will drive itself to a repo lot as soon as there is a 30-day delinquency in the blockchain ledger that records the payments on the loan used to purchase the vehicle.
  • A bond that connects automatically to a company’s blockchain ledger and converts to equity upon certain financial performance metrics, which then in turn can automatically pay a dividend based on the number of widgets sold in a given quarter.
  • A contract for life insurance that will reduce your monthly payment when your smart watch records exercise activity (or increase your payment when it connects to your bank account and sees one too many fast-food stops).

The beauty of these financial products is that they involve no middlemen and no back-office support, as such transactions will be automatic and seamless. The possible innovations are only limited by the imaginations of creative and tech-savvy lawyers who can marry finance with the complicated technical and legal aspects of implementation.

Fortunately for the banking and financial industry, and the individuals who consume their services, these changes are not going to occur overnight. Given the recent implosion of what is now being referred to as the “Bitcoin bubble,” the notoriously conservative financial industry is likely taking a second look at some of its blockchain initiatives. Moreover, new blockchain dependent financial innovations will have to be proven safe, fair, and reliable to staid regulators.

However, like in all major industry shifts, there eventually will be winners and losers. Just as the internet took traditional retail by storm, slow-moving incumbents will likely suffer relative to their peers who benefited from early adoption of blockchain technology.


Wesley King, Attorney at Law

By Wesley King
Associate at Frandzel Robins Bloom & Csato, L.C.

Part II: Blockchain Beyond Bitcoin

Bitcoin

As part two of our three part series on blockchain technology, we will provide an overview of the many different applications of blockchain and how it will change a variety of industries.  As discussed in our first article, blockchain technology moves far beyond its implementation in Bitcoin digital currency and has the potential to remove middlemen, reduce transaction costs, and make the analysis of data more efficient across a wide variety of industries and applications.

Entertainment and Intellectual Property

Blockchain technology has the potential to revolutionize the way artists get paid and intellectual property is enforced in the entertainment industry.  The consumption of media, from television shows to video games and music, can be embedded with blockchain technology so content creators are paid, advertisers have accurate consumption information, and piracy is eliminated.  Entertainment executives, along with several artists, such as Imogen Heap, which recently released the first song with blockchain technology built-in, imagine a blockchain system where digital rights are centrally maintained, where creative works can be stored, and consumption tracked.  The building blocks for such a system already exists as more and more entertainment is consumed digitally, and artist societies such as ASCAP, SACEM, and PRS have recently begun blockchain initiatives to improve data accuracy for creative rightsholders.

Energy

Blockchain technology has the potential to further upend energy markets, as smaller, green energy projects, such as roof-mounted solar panels or small wind farms, aim to use blockchain sell energy to their neighbors without going through a middleman-power company.  Companies such as Electron in the United Kingdom and Power Ledger in Australia are working to implement peer-to-peer energy trading markets, underpinned with blockchain technology, where individuals can buy and sell centricity within “microgrids,” or specific geographic regions.  This development could be revolutionary as large, capital intensive electric utilities the world-over are already suffering from the democratization of energy generation through home solar installations.  Allowing the efficient tracking of consumption, and efficient transfer of energy on a peer-to-peer level could completely change the way electricity is generated and consumed.

Retail and Inventory Tracking

Walmart and other large retailers are working to deploy blockchain to manage their international procurement inventory operations.  Blockchain can be used to create a centralized digital ledger to track a product from the moment its manufactured overseas, to its shipping, warehousing, stocking on a store shelf, and ultimate sale.  Such a system has the potential to reduce costs for cross-border transactions, and could eliminate the use of letters of credit and other trade financing instruments.  Moreover, just-in-time manufacturing will only be made more efficient, as manufacturers will have access to troves of new data about the transfer of goods through supply channels.

Maintenance Schedules of Automobiles, Other Machinery

Blockchain technology may eventually be embedded in every automobile or other large piece of machinery that is ever manufactured to track maintenance schedules and performance.  For example, proponents of the technology envision an era where automobile maintenance is tracked in a centralized ledger, and each automobile automatically updates the blockchain upon every oil change, part replacement, or error code that is generated.  Automobile manufacturers will be able to track in real time the performance of their products, finance companies will be able to verify if their collateral is being appropriately maintained, and buyers of used automobiles will be able to know with 100% certainty the history of the vehicle they are buying.

Luxury Goods and Collectibles

As global counterfeiting runs rampant, luxury goods companies are beginning to explore using blockchain technology to reassure customers they are getting the real thing (while protecting companies’ valuable brand equity).  Purveyors of luxury goods are establishing centralized ledgers to track the manufacture, sale and ownership of luxury goods.  Companies are exploring different ways that blockchain could be embedded in items, such as a Gucci purse or a piece of fine art, that would allow someone to verify its authenticity.  Such transparency could invigorate secondary markets for such goods, as buyer will be able to trust the authenticity of otherwise questionable goods they are purchasing.

Finance and Lending

As you can see, there are an endless number of ways blockchain can be implemented across a vast number of industries.  Despite the potentially disruptive applications discussed above, the finance industry faces the biggest revolution as a result of the implementation of blockchain technology.  As we will discuss more in depth in our part three of this series of articles, the financial industry, from borrowing money to raising capital, and any legal documentation relating to the same, will be irreversibly impacted by blockchain technology.

Wesley King, Attorney at Law

By Wesley King
Associate at Frandzel Robins Bloom & Csato, L.C.

The Coming Blockchain Revolution

Bitcoin

While Bitcoin may be a bubble or passing fad, the technology behind it will revolutionize the way we do business in the near future

Part I:  What is Blockchain?

While Bitcoin became a household name in 2017, most people know little of the technology underpinning the digital currency.  This technology, known as “blockchain,” has far reaching implications beyond digital currency, and will likely revolutionize the way we do business in the near future.  In a 2017 study conducted by Gartner, Inc., it estimates that the business value-add of blockchain will grow to slightly more than $176 billion by 2025, and will likely exceed $3.1 trillion by 2030.  In fact, a World Economic Forum report from September 2015 predicts that by 2025, ten percent of global GDP will be stored on blockchain technology.

In a January, 2017 Harvard Business Review Article titled “The Truth About Blockchain,” professors Marco Iansiti and Karim R. Lakhani describe blockchain as a foundational technology that may not immediately overtake our traditional business models, but has the potential to create new economic and social systems and enormously change the way we transact over the coming decades.  Moreover, companies already see the writing on the wall – IBM, Microsoft and Intel are offering blockchain software tools to their business customers, Goldman Sachs, Nasdaq, Walmart, Visa and the State of Delaware all have started blockchain initiatives.

How could such a new and little known technology have such massive business implications?  In this series of articles, we will first provide a general overview of what blockchain technology is and how it works.  In our second piece, we will provide an overview of how blockchain will change a variety of industries.  Finally, in our third piece, we will provide a more in-depth look at how blockchain will impact the legal industry, contracts and financial institutions.

While Bitcoin uses a specific implementation of the blockchain, blockchain in general can be described as a decentralized, shared, public ledger that is maintained by a network of computers that verify and record transactions into the same decentralized, shared, and public ledger.  No single user controls the ledger – it is maintained by all of its participates, in the cloud, or by a network of designated computers that collectively keep the ledger up to date and verify its transactions.  Bitcoin, as the largest implementation of blockchain technology today, uses competitive “miners,” or individual users that solve ever more difficult math equations with monetary rewards if they are successful, to verify and record transactions.

When a transaction is verified and recorded, the blockchain system sends transaction data to all of the users of the blockchain ledger, thereby ensuring the validity and accuracy of the transaction and prevents one party to the transaction from lying about the details or failing to perform.  Each transaction, or “block,” is encrypted into its own original piece of information, which is called a “hash.”  Even the slightest modification of data will result in an entirely different hash.  For example, in applying SHA256, the encryption algorithm used by Bitcoin, to the number 1000 generates the following hash, “40510175845988F13F6162ED8526F0B09F73384467FA855E1E79B44A56562A58” while the hash for the number “1000.01” generates a wildly different result in “6B481FC35196FA215BB30D39ECB919CE7DE410488EC08D692356E22E5A67B2B9.”  Because each hash is unique, it becomes exceptionally difficult to tamper with the system as it is nearly impossible to generate an identical hash to fool the system.

Essentially, blockchain is a tool where trustworthy records of transactions can be kept, verified, and made publicly available.  Blockchain is revolutionary because it creates confidence between counterparties and negates the need for neutral third-parties or transactional facilitators, such as escrow companies, government authorities or clearing houses.  Transactions are “peer-to-peer,” or directly contracting party to contracting party.  If there’s a disagreement, there’s no need to call a lawyer because there is only one database.

The implications of blockchain will be enormous and will impact almost every industry.  2018 is likely to be a huge turning point for blockchain technology and the year we see the technology significantly implemented beyond Bitcoin.  As we will discuss in Part II of this article, there are a wide variety of businesses and industries that are currently experimenting with blockchain technology.