California rent increase laws for Landlords

California Rent Increase Laws 2024: What Landlords Need to KnowDisclaimer: This article is strictly informational and is not legal advice. Please consult an attorney for advice on how to interpret this information, its accuracy, and how the law applies to your individual circumstances. 

California rent increase laws

As a landlord or property manager, part of your job is to maximize revenue on your rental properties by aligning rental rates with current demand. However, this needs to be balanced with local and state requirements governing appropriate rent increase rates. Learn about how much can rent increase in California and how California rent increase laws determine how much you can charge for your rental property so that you can balance market forces with rules and regulations.

Disclaimer: This article is strictly informational and is not legal advice. Please consult an attorney for advice on how to interpret this information, its accuracy, and how the law applies to your individual circumstances.

With inflation on the rise and living expenses showing no signs of abating, landlords may be reevaluating the return on investment on their rental properties. In the face of mounting costs, it’s only natural for you to be tempted to increase rent rates. However, if your rental properties are located in California, there are specific guidelines you’re required to follow, including how often you’re allowed to raise rent and by how much.

Staying informed about the latest changes in law and regulation can help you navigate these challenges and ensure you remain in compliance. Here’s what you need to know about the laws impacting rent increases in California for 2024. Please note that in addition to state-wide rent control laws individual cities may also have their own rent control laws.

How much can you increase rent in California?

California’s Tenant Protection Act (AB 1482) restricts how much landlords can raise rent for their rental properties.

The law imposes a statewide rent cap, limiting annual rent increases to 5% of the current rent plus the local rate of inflation, or 10% of the current rent, whichever is lower.

Calculating the rent increase (CPI)

To calculate the cost of living increase applicable to your market, use the Consumer Price Index (CPI), a measure of inflation, published by the Bureau of Labor Statistics. This method helps landlords adjust rent in alignment with economic changes while adhering to state regulations. The process involves taking the percentage change in the CPI and applying it to the current rent.

Let's say you own a residential property with a current monthly rent of $2,000 and the applicable CPI for the relevant period has increased by 3%. To calculate the allowable rent increase, you would multiply the current rent by the CPI increase percentage:

$2,000 * 3% = $60

In this example, you could legally increase the rent by up to $60, bringing the new monthly rent to $2,060.

Note: To calculate the allowable rent increase, the Tenant Protection Act requires all landlords to use the CPI from the previous April for their specific market area.

Overview of percent increases nationwide

Rent increase regulations can vary widely across different states, counties, cities and municipalities. But, how much can a landlord raise rent in California? While California has specific regulations governing rent increases and tenant protections, other states may have different laws or even lack statewide rent control measures.

Some states, like Texas, grant more flexibility to landlords in determining rent changes, while others may have local ordinances that provide additional tenant protections. It's crucial for both landlords and tenants to be aware of the specific regulations in their respective states to ensure compliance with the law.

Who is exempt from AB 1482?

Certain types of residential properties and housing arrangements are exempt from AB 1482 including:

New construction: Properties that have received a certificate of occupancy within the last 15 years are generally exempt from AB 1482's rent control provisions.

Single-family homes and condos: Properties that are not owned by a real estate investment trust (REIT), corporation, or LLC, and are not a duplex where the owner occupies one of the units, are exempt.

Certain affordable housing: Affordable housing units that are subject to specific affordability restrictions and regulations are exempt.

Student housing: Housing provided by a public or private nonprofit university or college, or by a nonprofit organization affiliated with the university or college, for students is exempt.

Short-term rentals: Properties that are offered for short-term rental through a platform like Airbnb or VRBO for 14 days or less in a calendar year are exempt.

Government-subsidized housing: Properties with restrictions imposed by a government agency that limits rent increases are exempt.

Employee housing: Housing provided by an employer to an employee as a condition of employment is exempt.

Landlords whose properties are exempt from AB 1482 are required to provide their tenants a notice of exemption. If you suspect that your property falls under an exemption category, you can:

• Check with your real estate attorney to draft a notice of exemption

• Consult with a professional organization like California Apartment Association or California Association of Realtors for up-to-date forms and information

What to know

Security deposits

Recently, California Governor Gavin Newsom signed Assembly Bill 12 into law, limiting security deposits for renters to one month's rent. The bill, introduced by Assemblymember Matt Haney, aims to address the practice of some landlords charging two or three times the monthly rent as a security deposit.

Haney emphasized that excessive security deposits create barriers to housing affordability and accessibility. Effective July 1, 2024, the law makes California the twelfth state to cap security deposits at one month's rent. Small landlords with no more than two properties and four units are exempt from the legislation. For California residents, the move is a step toward improving housing affordability.

Screening fee receipts

Thanks to AB 1764, landlords and applicants can agree to receive tenant screening fee receipts by email. This makes the rental application process quicker and easier by cutting down on paperwork. While landlords can still provide receipts in person or by mail, the option for electronic delivery adds convenience and keeps things simple. Plus, the law ensures that screening fees stay fair and only cover the landlord's actual costs.

Rent increase laws may also vary by city

As noted, it’s common for rent increase laws to vary from city to city. Here’s a look at just three cities:

Los Angeles

July 1, 2024, through June 30, 2025, annual rent increases for rental units covered under the City of Los Angeles Rent Stabilization Ordinance (RSO) are set at 4%. If a landlord provides gas and electric services to the tenant, an additional 1% increase is allowed. Per state law, landlords must give tenants a written 30-day notice for rent increases of less than 10%.

San Francisco

March 1, 2024, to February 28, 2025, the permitted rent increase percentage decreases to 1.7%. These percentages are determined by calculating 60% of the increase in the Consumer Price Index for All Urban Consumers in the Bay Area.

San Diego

Effective August 2024, the rent increase cap for the San Diego region was 8.6%, down from last year’s limit of 10%. This adjustment reflects a slower cost-of-living increase, as determined by the U.S. Bureau of Labor Statistics. The 8.6% cap will stay in place until the next update in August 2025.

Providing your tenants with a rent increase notice

No renter ever wants to hear that you’re raising their rent. But if you plan to do so, you’re obligated to provide them with a rent increase notice.

Why you need to provide notice

Transparency and legal compliance: Providing tenants with a rent increase notice ensures transparency and fulfills legal obligations in many jurisdictions.

Respect for tenants' rights: Issuing a rent increase notice demonstrates that you respect tenants' rights and allows them to be informed participants in decisions affecting their housing costs.

Budget planning: When you give tenants advance notice that you’ll be raising the rent, it gives them the opportunity to plan for adjustments in their budget, making it easier for them to manage their financial commitments.

Informed decision-making: Open communication through rent increase notices enables tenants to make informed decisions about their housing situation, leading to more positive landlord-tenant relationships.

Trust building: Timely and clear communication about rent increases helps build trust between you and your tenants, reducing the likelihood of disputes and promoting a harmonious living environment.

Minimizing conflicts through: Delivering the notice well in advance—ideally adhering to or exceeding the legally required timeframe—shows consideration for your tenants' circumstances. Proactive communication allows them to plan effectively and reduces frustration, which helps maintain a more positive landlord-tenant relationship.

What to include in a rent increase notice

Check with your attorney to see what specific information you should include based on your market and to determine the timelines for notification. When preparing a rent increase notice, be sure to include the following key components:

Effective date: Clearly state the date when the rent increase will take effect. This allows tenants to plan for the adjustment in advance.

Current and new rent amount: Provide the current rent amount and the new rent amount after the increase so tenants understand the specific change.

Reason for increase (if required): Some jurisdictions may require landlords to provide a reason for the rent increase. If applicable, include a brief and clear explanation.

Payment details: Specify how the tenant should make future rent payments, including any changes in payment methods or where payments should be sent.

‍ Contact information: Include updated contact information, ensuring tenants can reach out with any questions or concerns.

Notice period: Indicate the notice period, which is the amount of time before the rent increase takes effect. This allows tenants sufficient time to adjust their budget or consider other options.

Method of delivery: Clearly communicate how the notice is being delivered, whether in person, via mail, or electronically, and ensure it aligns with local regulations.

Legal compliance: Ensure that the rent increase notice complies with local laws and regulations to avoid potential legal issues.

H2: Practical Scenarios for Landlords

Landlords often face unique situations when it comes to raising rent, particularly in high-demand areas or with long-term tenants. Below are some practical scenarios that illustrate how state and local laws apply in real-world situations and how to balance compliance with profitability.

Scenario 1: Calculating Rent for a 5% Increase Plus CPI in a High-Demand Area

Background: You manage a rental property in a high-demand area where rent control laws apply. You’re considering a rent increase for a tenant who has been with you for two years. The lease allows for an annual increase based on a percentage of the current rent plus the Consumer Price Index (CPI). This year, the maximum allowable increase is 5% of the current rent plus an additional 2% due to a rise in CPI.

1. Calculate the Base Rent Increase: Let’s say the tenant’s current rent is $1,500/month. A 5% increase on this amount would be $75 ($1,500 * 5%).
2. Calculate the CPI Increase: In this case, the CPI increase is 2%, or $30 ($1,500 * 2%).
3. Total Rent Increase: The total rent increase would be $105 ($75 + $30), bringing the new rent to $1,605 per month.
4. Legal Compliance: Make sure that the combined rent increase does not exceed the legal limit set by local rent control laws. In some cities, rent increases may be capped at a percentage of the current rent or tied to inflation, so it’s essential to check the current legal guidelines before proceeding.
5. Notice Requirements: As required by law, you must provide tenants with a 30-day written notice for a rent increase under 10%. Ensure the notice is delivered in writing and includes the effective date of the increase.

Scenario 2: Managing Rent Increases for Long-Term Tenants

Background: You’ve had a long-term tenant for over five years, and they’ve been reliable in paying rent. Their current rent is below market value, and you are considering a rent increase to bring the rent closer to current market rates while remaining fair and compliant with local rent control laws.

1. Determine the Legal Rent Increase Cap: Review the local rent control laws, which may limit annual rent increases to a specific percentage (e.g., 4%) or allow increases tied to the CPI. In this case, the allowable increase is 4%.
2. Consider a Gradual Increase for Long-Term Tenants: If the market rent is significantly higher than the tenant’s current rent, consider implementing a gradual increase over several years rather than a large hike all at once. For example, you could raise the rent by 4% per year over the next few years, staying within the legal limit, but still helping you close the gap with current market rent.
3. Factor in Market Conditions: Evaluate the local rental market to determine whether your rent increase is in line with the area’s average. If your long-term tenant’s rent is far below market value, you may be able to justify a larger increase while still staying within the legal limits. However, balancing affordability with profitability is key to retaining tenants in high-demand areas.
4. Provide Adequate Notice and Transparency: Given the long-term nature of the tenant’s lease, it’s important to provide ample notice—preferably beyond the required 30 days—to give them time to adjust their budget and seek alternative housing if needed. Also, consider providing a detailed explanation for the increase, including rising maintenance costs or changes in local laws, to show transparency and fairness.
5. Offer Rent Stabilization Incentives: To soften the impact of the rent increase, consider offering incentives like minor repairs, upgrades, or even rent reductions for a limited time. These gestures can help maintain a positive relationship with your long-term tenant while balancing your own financial goals.

Scenario 3: Rent Increase in a Rent-Stabilized Area

Background: You own a rental property in a city with rent stabilization laws. The law caps rent increases to a specific percentage annually, typically linked to inflation or another index. The local government has issued an allowable rent increase of 2% for rent-stabilized units this year.

1. Calculate the Rent Increase: If the current rent is $1,000, the 2% increase would be $20 ($1,000 * 2%). This would bring the new rent to $1,020.
2. Understand Additional Allowances for Services: Some rent-stabilized areas allow additional increases if the landlord provides certain services like utilities. For example, if you also cover the cost of water or heating, you may be able to add a small surcharge to the rent.
3. Legal Documentation and Notice Requirements: In addition to the rent increase notice, ensure you provide the appropriate documents. These may include a detailed breakdown of the new rent and the legal formula used to calculate the increase. The notice should be issued well in advance—often 30 to 60 days, depending on local laws.

Simplify your rent collection with RentSpree Rent Payment

Even after you raise rent prices, you still have to collect rent from your tenants. With RentSpree Rent Payment, you can streamline and simplify the entire rent collection process. It’s a secure, convenient, and efficient solution that enables you to set up automated reminders so tenants never miss a payment. The result? You benefit from a more reliable and consistent rental income.

Ready for a hassle-free rent collection experience? Sign up to use RentSpree now.