Two questions: Is it permissible to raise rents now? If so, should landlords raise the rent just because they can?

To offset losses from the eviction moratoriums, some landlords are raising rents on the properties, reasoning that demand in the market will support the increases. 

Whether or not landlords could raise the rent will depend on where the property is located. Several municipalities have enacted rent freezes during the pandemic, making rent hikes illegal. Of course, rent-controlled jurisdictions have always had their own limits on how much rent can be charged and how often it could be raised. 

What about state limits? 

California did not institute a statewide rent cap but raging fires, heat, and drought have triggered anti-price gouging laws making it illegal to charge a price that exceeds, by more than 10%, the price of an item before a state or local declaration of emergency was implemented. 

When we talk about goods and services sold or offered to be sold, this includes rental housing. The whole public policy behind this, of course, is that Californians who lose their housing because of a calamity should not be victimized twice by paying an exorbitant amount in their next living arrangement. 

The ban makes no distinction between existing tenants and a unit turnover and is blind to the size, location, and age of the property.

So, let’s say the landlord owns a single-family home and is not a corporation, real estate investment trust, or LLC in which at least one member is a corporation. Or the landlord owns a newly-constructed building. Another scenario: the rental unit is vacant. In these instances, landlords could ordinarily raise the rent to their heart’s desire - there traditionally would be no cap on how much the rent could be raised. 

Enter a state of emergency and the rent cannot be raised by more than 10% in those locales where there is an anti-price gouging law until the emergency is lifted. How long a locale is considered a disaster area is uncertain. Emergency typically lasts 30 days but can be extended over and over again, as has been the case in fire-ravaged areas. Sonoma County, for example, has had an anti-price gouging law on the books since October 2017. This means that the rent could only be increased a total of 10% during that entire timeframe, rather than each year. 

[From our industry partners: CAA explores possible reforms to anti-price gouging laws]

The Tenant Protection Act of 2019 (AB 1482) - a refresher is in order

The year 2020 rang in statewide rent and eviction controls and we thought we would spend a lot of time educating our community about the new law. This agenda got totally shelved once a global pandemic hit and we were forced to digest an ever-changing regulatory regime as politicians grappled with how to deal with the economic fallout of a public health crisis. 

Let’s hope there are no more extensions or surprises and we should put an asterisk on that - we are concerned that protections will be further extended if the delta variant continues to trend in the wrong direction. 

Unless the rental property is situated in a local jurisdiction with more restrictive rules or an improvised rent freeze, AB 1482 throttles rent increases at 5 percent plus the annual increase in the cost of living/consumer price index (CPI) from April 1 of the prior year to April 1 of the current year, or 10 percent, whichever amount is lower. Taking into account the CPI anywhere, the amount has been under 10 percent and, barring an uptick in inflation, will remain under that threshold. 

Exempt from AB 1482 or not?

We have to compartmentalize properties that are already subject to rent control, owners of single-family homes and condominiums who are "natural persons," and newly constructed buildings with a certificate of occupancy issued within the past 15 years.

On this last point, keep in mind that this 15-year window is a rolling target. Upon the 15th year anniversary of when the first certificate of occupancy was issued, landlords will be subjected to statewide rent control.

In an oldie but goodie, Daniel Bornstein delves deeper into AB 1482 in this webinar.

[Don’t have time to watch the webinar? Visit our web page on AB 1482]

The timing of rent increases

Under AB 1110, gone are 60-day notices for rent increases greater than 10 percent. If a landlord wants to raise the rent by more than 10 percent, tenants must be given 90 days' written notice.

If the rent increase is less than 10 percent, owners must provide tenants with at least 30 days' advance notice.

It gets interesting when owners give more than one rent increase in a 12-month period. If the total of those rent increases exceeds 10 percent, the landlord has to provide 90 days' advance notice. For instance, the first rent increase is, say 7 percent. 30 days' written notice is required.

Yet in less than 12 months, the landlord wants to raise the rent another 5 percent. Because an additional, incremental increase brings the total sum to a 12 percent increase within one year, the tenant must be afforded 90 days' advance notice for the second rent hike.

Of course, AB 1110 only applies to rental units exempt from the statewide rent caps of AB 1482, since rent increases in excess of 10% are prohibited if the property is covered by AB 1482. 

Summary 

When contemplating a rent increase, the first and most compelling question is whether the property is subject to local rent control rules. If so, how much the rent can be raised and when it is prescribed by the local ordinance and due to the pandemic, the landlord may not be able to raise rents at all.

If the property is not subject to local rent control, it may be nonetheless covered by statewide rent and eviction controls spelled out by AB 1482. While landlords of single-family homes, condominiums, and newly constructed buildings have traditionally enjoyed wide latitude to raise rents, we have to consider if a state of emergency is in place that prohibits exorbitant rent hikes.

At any rate, proper notice must be served whenever the landlord exercises his or her prerogative to raise the rent.

If it is determined with proper attorney counsel that you can raise the rent, does it mean you should? There's a host of considerations to make an informative decision.

This is the topic of our next article.