As property values continue to rise to unprecedented levels, it is tempting to tap into the value of your rental property by raising rents. However, the California rent increase laws set out specific guidelines for how often you can raise the rent and by how much. Whether you are a rental property owner or property manager in California, you’ll need to stay abreast of the latest laws and regulations governing rent and rent increases. In addition, you’ll need to ensure that you provide an appropriate rent increase notice and that you communicate early and effectively with your current renters.
California’s Tenant Protection Act
In response to rising housing prices throughout the state, in 2019 the California legislature passed the Tenant Protection Act (AB 1482), which took effect on January 1, 2020. Sponsored by tenant advocates throughout the state, the bill was designed to protect tenants from unjust evictions and unfair rent increases.
Under the provisions of the TPA, landlords are allowed to increase rents each year by 5% plus the applicable average increase in the cost of living in order to allow for inflation. There is a maximum increase of 10% allowed in any given year, thus the Act’s provision is often referred to as a “rent cap.”
To calculate the cost of living increase that is applicable to your market, use the Consumer Price Index (CPI) published by the Bureau of Labor Statistics. According to AB 1482, landlords are required to use the CPI from the previous April for their specific market area to calculate the allowable rent increase.
Properties that are exempt from rent control
In general, California rent increase law is aimed at multi-family apartment complexes and provides a number of exemptions, including the following:
- SFRs (single family residences)
- Owner-occupied duplexes
- Mobile homes
- School, college, and university dormitories
- Rental properties built within 15 years prior to the Act, including ADUs (accessory dwelling units)
- Properties that are not owned by a corporation, REIT (real estate investment trust) or LLC where one member is a corporation
- Property provided by non-profit organizations
- Property that is subject to pre-existing local ordinances
Landlords for exempt properties must provide a notice of exemption from AB 1482 to their tenants. If you believe that your property is exempt, check with your real estate attorney to draft a notice of exemption or consult with a professional organization like California Apartment Association or California Association of Realtors for up-to-date forms and information.
Analyzing the market to time rent increases
Evaluating current market conditions and looking ahead to projected trends in the market will allow you to time rent increases appropriately.
If the vacancy rate is going up in your local market, if a major employer is leaving, or if a new rental community is being built, it may be time to hold rent steady or even decrease the rent to bring in new tenants.
If the vacancy rate is going down, a major employer is coming into the area, or if a new commercial complex is bringing in more renters, it may be time for a rent increase.
There are some times during which you may simply want to keep rent the same. This is especially true if you have current tenants who are reliable, pay the rent on time, and take good care of the property. In this case, tenant retention may trump maximizing rental rates for your market.
Providing tenants with a rent increase notice
It is important to be clear and timely in communicating with your tenants if you decide to increase your rent. Check with your attorney to see if there is specific information you should include in your market and to determine what the timeline is for notification. In general, a California rent increase notice will include the following information:
- Names of each tenant
- Property address
- Your name and contact information
- The date of the rent increase notification
- Rental amount for the previous tenancy
- New rental amount per month
- Effective date of the rent increase
- Section of the lease agreement relating to rent amount
- Requirement for non-renewal notification
- Section of the lease agreement relating to non-renewal notification
Staying current on market conditions and trends in your area helps you make better decisions about acquisitions, property management, and more. With RentSpree’s rent estimate tool, you’ll have all of the information you need, including insights on comparable properties and market data so that you can better determine whether a rent increase is the right choice.