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 circ*mstances.
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 rent increase 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. 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’s new for 2024
Here’s what you should know about the changes coming to California this year.
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 Assembly member 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. The new law, effective from July 1, 2024, 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
In addition to Assembly Bill 12, a new law regarding screening fee receipts is now in effect. AB 1764 allows landlords to provide receipts for tenant screening fees via email, provided both the landlord and applicant agree to it. The legislation, signed by Governor Newsom, offers the option of electronic receipts in addition to the existing methods of personal delivery or mail.
The change aims to simplify the rental application process, reduce paperwork, and aligns with the existing law that provides that the application screening fee should not exceed the landlord's actual out-of-pocket costs, as outlined in existing law.
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
Rent increases for properties subject to the Rent Stabilization Ordinance are prohibited through January 31, 2024, with a 4% increase approved from February 1, 2024, to June 30, 2024.
San Francisco
Beginning March 1, 2023, the permitted rent increase percentage in the Bay Area is 3.6%, effective until February 29, 2024. From 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
The San Diego Housing Commission, responsible for distributing approximately $300 million annually in vouchers to assist low-income tenants with rent payments, recently suggested implementing a maximum cap of 10% for rent increases over a 12-month period in the federal safety net program.
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.
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.
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