Periodically raising the rent may be an unpopular move with your tenants, but it is a necessary action, as doing so will help you keep up with inflation and the ever-rising costs of living. However, California law regulates how and when you can raise the rent. The following overview will help you raise the rent on your property without violating cap limits.
How Does California Regulate Rent Increases?
Whether you oversee your rental property personally or you employ professional property management in San Diego, you should know how California laws regulate rent costs. The Tenant Protection Act of 2019 (also referred to as California Assembly Bill 1482) places a cap on how much landlords can raise the rent within a given year.
The regulation requires that rent may only be raised by 5% plus the percentage by which the cost of living has gone up within that same 12-month period. The law also states that the total percentage rise in rent can’t exceed 10% of the renter’s current rate.
The state of California also regulates when rent increases can occur. While most property owners raise the rent on an annual basis, it’s important to know you can divide the rent hike into two semi-annual increases on leases that are shorter than one year, or on a month-to-month basis. You cannot raise the rent more than two times within a single year. However, you can only raise the rent one time per year for a lease that is one year or longer.
How Do You Calculate a Legal Rent Increase?
To calculate your rent increase cap in California, you will need to know how the cost of living has risen within the previous 12 months.
The Consumer Price Index, or CPI, works to measure the changes in rent prices over time and thus measures the cost of living. There’s some confusion among newer property owners since there are several different indexes that measure the CPI, and rates can vary from one to the other.
Most companies that offer property management in San Diego follow the California Association of REALTORS®, which uses the CPI-U chart. (The chart for any city is available on the U.S. Department of Labor Statistics website.) You can calculate the rate of change by finding the difference between March of the current year and March of the previous year.
If the CPI change is 7.9%, for instance, adding that to the 5% base increase will bring you to a percentage that is higher than 10%. Remember, the most you can raise the rent in that year is a 10% increase, so you can only raise the rent up to that point, nothing further.
Property owners or landlords must provide written notice of a rent increase. For increases of up to 10%, only 30 days’ notice is required, unless the tenant has lived in the unit for more than one year, then 60 days notice is required.
When Is Property Management in San Diego Exempt from Rent Cap Laws?
There are a few situations in which rent cap laws do not apply. For example, a single-family residence or condo that falls under the ownership of a lone individual without corporate ties is exempt from the law.
The owner must not be a part of a real estate investment trust, corporation, or limited liability corporation (LLC), and upon issuing a new lease, they must inform their new tenant that the property isn’t required to comply with rent cap laws.
Additionally, a single-family house that is 15 years old or newer is exempt. A property owner of a duplex where the owner lives in one unit and rents out the second unit is also free from complying with the rent cap restrictions, and low-income units and school-owned housing are exempt from complying with these regulations as well.
The only other exemption to rent cap laws applies to housing that falls under stricter rent control rules, in which the rent cap would be redundant.
The current rent cap laws will remain in place until the end of business on January 1, 2030. As that deadline nears, the California government will make plans to either renew or replace them. As a property owner, staying alert to the impending changes will help you to remain compliant.
Get Your Tenants Comfortable with Rent Increases
Once you know how to legally raise the rent, you can set up a schedule for increases that will help you keep up with rising costs while acclimating your tenants to those periodic changes. Your tenants will feel less disgruntled about the rising rent if they know when to expect those changes in advance.