California has, for the first time, created a statutory path for owners of 100% LIHTC properties to decline to renew the lease of a substantially over-income household. Assembly Bill 2689 (Ávila Farías), signed by Governor Newsom on September 30, 2026, as Chapter 958 of the Statutes of 2026, adds Section 50199.28 to the California Health and Safety Code.

The new law does three things:

1. Defines a new category of good cause for lease nonrenewal: household income above 140% of the area median income (AMI) for at least two consecutive years, and 30% of the household's monthly income exceeding the greater of HUD's county Fair Market Rent or Small Area Fair Market Rent for an equivalent-sized unit.
2. Imposes a new mandatory notice whenever an income certification shows a household above 140% of AMI — whether or not the owner intends to pursue nonrenewal.
3. Requires a 90-day notice of nonrenewal with specific content if the owner elects to act.

The statute is permissive, not mandatory. Nothing in it requires an owner to remove an over-income household. However, the notice obligation in subdivision (b) applies to every covered property, and owners and managers should incorporate it into their certification procedures now. Note also that, contrary to some early reports, the law does not take effect until January 1, 2027 (discussed below).

The Federal Backdrop: Why This Was Needed

IRC §42(h)(6)(E)(ii)(I) requires every extended low-income housing commitment to prohibit the eviction or termination of an existing tenant's tenancy in a low-income unit "other than for good cause" throughout the extended use period. That protection covers nonrenewal at the end of a lease term, not just mid-lease eviction. Section 42 itself does not define good cause, and California has never treated rising income as good cause.

Meanwhile, an over-income household does not disqualify a unit. Under the 140% rule in IRC §42(g)(2)(D), a qualified household whose income exceeds 140% of the current applicable income limit remains treated as low-income, subject to the Next Available Unit Rule. In a mixed-income building, the owner cures the imbalance by renting the next comparable market-rate vacancy to a qualified household. In a 100% low-income building, there is no market-rate unit to rent — so the over-income household simply stays, at a restricted rent, indefinitely.

The Senate Judiciary Committee analysis identified a second, California-specific pressure: under Revenue and Taxation Code §214, a unit ceases to count as a lower-income unit for the property tax welfare exemption once its occupants' income exceeds 140% of AMI. Nonprofit owners of 100% properties can therefore lose exemption value on units occupied by households that would never qualify today. The Southern California Association of Non-Profit Housing supported the bill (Senate Judiciary analysis).

What Section 50199.28 Requires

Which properties are covered

The statute applies to any qualified low-income building where 100% of the units, excluding any manager's unit, are restricted to "lower income households" under an enforceable regulatory agreement with a government entity (H&S Code §50199.28(a)). "Lower income household" carries its Health and Safety Code §50093 meaning — generally at or below 80% of AMI — so properties using the average income test, with units designated up to 80%, can qualify. Mixed-income buildings with any market-rate units fall outside the statute and continue to rely on the Next Available Unit Rule.

The two-part good cause test

Good cause for nonrenewal exists only when both conditions are met (§50199.28(a)(1)-(2)):

1. Income prong. Household income has exceeded 140% of AMI for at least two consecutive years.
2. Affordability prong. 30% of the household's monthly income exceeds the greater of (A) HUD's Fair Market Rent for an equivalent-sized unit in the county, or (B) HUD's Small Area Fair Market Rent for an equivalent-sized unit in the property's ZIP Code, each updated annually.

Two points deserve emphasis. First, the income prong uses 140% of AMI — not 140% of the applicable income limit under the federal rule. For a 60% unit, the federal over-income trigger is 84% of AMI, whereas the AB 2689 trigger is 140% of AMI. This is a far higher bar. Second, the affordability prong is the "greater of" two FMR figures. In high-cost ZIP Codes, the SAFMR will control and raise the threshold. Some early summaries cite only the county FMR; that is incomplete.

The affordability prong reduces to simple arithmetic: it is met when annual household income exceeds 40 times the controlling monthly FMR.

If 140% of AMI for that household size were, say, $154,000, the household would need income above $154,000 at two consecutive certifications. Once the income prong is met, the affordability prong will almost always be met as well — but owners must still document both.

Notice at certification — mandatory for every covered property

If any income certification shows the household's income above 140% of AMI, the owner shall give the household written notice within 30 days of the certification (§50199.28(b)). The notice must state that the household's income exceeds 140% of AMI and that, if it does so for two consecutive years and 30% of monthly income exceeds the applicable FMR, the owner may have good cause for nonrenewal under this section. This obligation is not tied to any intent to act. An owner who never plans to use the statute must still send the notice.

Notice of nonrenewal — 90 days

An owner who elects not to renew must issue a notice of nonrenewal at least 90 days before the lease term expires (§50199.28(c)). The notice must cite Section 50199.28 as the basis for nonrenewal and state that the nonrenewal is for good cause because the household's income has exceeded 140% of AMI for two consecutive years and because 30% of monthly income exceeds the applicable FMR.

Effective Date: January 1, 2027

Several industry summaries have reported that AB 2689 took effect upon signature on September 30, 2026. That is incorrect. Under Article IV, Section 8(c) of the California Constitution, a statute enacted at a regular session takes effect on January 1 of the following year, after a 90-day period from enactment, unless it is an urgency measure. AB 2689 contains no urgency clause, and the Senate Judiciary Committee analysis lists it as "Urgency: No." Section 50199.28 is therefore operative.

January 1, 2027.

The practical consequence: subdivision (b)'s 30-day notice requirement applies to income certifications completed on or after January 1, 2027. Owners should not issue notices of nonrenewal citing Section 50199.28 before that date.

Practical Compliance Considerations

Layered funding may foreclose this option. AB 2689 defines good cause for state-law purposes. It cannot override a federal program's tenant protections. The HOME rule at 24 CFR §92.253(c) expressly provides that good cause does not include an increase in the tenant's income, so HOME-assisted units cannot rely on this statute. Units with Section 8 project-based assistance, Section 202/811, or USDA Rural Development Section 515 financing are governed by their own termination standards (e.g., 24 CFR Part 247; 7 CFR §3560.159). Before acting, confirm that every regulatory agreement, loan document, and HAP contract on the property permits nonrenewal on this basis.

Review the CTCAC regulatory agreement and lease rider. The statute applies "for purposes of implementing" §42(h)(6). Owners should confirm that the recorded regulatory agreement, any CTCAC-required good-cause lease provisions, and any local or HCD regulatory agreement do not impose a narrower definition of good cause.

You need annual certifications to prove two consecutive years. Many 100% LIHTC properties have stopped full annual income recertifications, relying on IRC §42(g)(8)(B) to the extent permitted by CTCAC and other funding sources. Without annual third-party-verified certifications, an owner cannot document that income exceeded 140% of AMI for two consecutive years — and arguably triggers no subdivision (b) notice either. Owners who want this option must recertify.

Open interpretive questions. The statute leaves several points unaddressed, and we expect CTCAC guidance or litigation to resolve them.

• Whether "two consecutive years" means two consecutive annual certifications or 24 months measured another way.
• Do certifications completed before January 1, 2027, count toward the two-year period? The conservative view is that the period begins with the first post-effective-date certification accompanied by a subdivision (b) notice.
• Which AMI figure applies, and whether it is adjusted for household size? The statute says only, "area median income." Using the household-size-adjusted 100% figure underlying the HUD Multifamily Tax Subsidy Project limits is the most defensible approach until guidance is issued.
• Whether income must be re-verified close to the nonrenewal date if circumstances have changed.

Local just-cause ordinances still matter. The statewide Tenant Protection Act (Civ. Code §1946.2) exempts certain deed-restricted affordable housing, but many California cities have their own just-cause or rent stabilization ordinances. Counsel should confirm that a local ordinance does not independently prohibit nonrenewal on this ground.

Apply it consistently, or not at all. An owner that elects to use the statute should adopt a written policy in its Tenant Selection Plan or management plan and apply it uniformly across the portfolio. Selective use invites fair housing claims. Reasonable accommodation requests, VAWA protections, and the unlawful detainer procedure continue to apply.

The Bottom Line

AB 2689 gives owners of 100% LIHTC properties in California a narrow, well-defined tool to turn over units occupied by households earning well above the income levels the properties were built to serve. The thresholds are high, the process is notice-intensive, and layered federal funding will exclude many properties from scope. But the subdivision (b) notice is mandatory for every covered property starting January 1, 2027.

Before year-end, owners and management companies should:

• Identify which California properties are 100% restricted and which have HOME, Section 8, RD, or other layered restrictions.
• Decide, as a matter of written policy, whether the owner will use Section 50199.28 at eligible properties.
• Add a 140%-of-AMI check to every income certification and adopt a template subdivision (b) notice issued within 30 days.
• Revisit any reliance on the §42(g)(8)(B) recertification exemption if the owner wants this option preserved.
• Prepare a §50199.28(c) template notice of nonrenewal and have California landlord-tenant counsel review it.
• Train site staff on both notices and the 90-day timing rule.

Critical to Remember

This law applies ONLY IN CALIFORNIA. Unless a state passes such a law, owners of LIHTC properties should be very careful about non-renewing residents due to income increases. Unless specifically identified in state law as "good cause," an increase in income alone may not constitute "good cause" for lease termination.

A.J. Johnson Consulting Services, Inc. assists owners, management companies and syndicators with policy development, certification procedures and staff training on California and federal LIHTC requirements. Contact us at ajjcs.net.

This article is general information, not legal advice. Owners should consult California counsel before issuing any notice of nonrenewal.

Sources

• AB 2689, Chapter 958, Statutes of 2026 (enrolled text)
• Senate Judiciary Committee analysis of AB 2689, hearing June 30, 2026