Rent Increase Law

Rent Increase Law

Rent Increase Law

Now that 2020 is finally here, there is a new rent increase law all San Diego landlords should be aware of. With the new tenant protection laws now in effect, many California rental properties are now subject to a rent cap. Specifically, the new rent increase law caps rent increases at 5 percent plus inflation. In San Diego, that amounts to roughly 7 to 7.5 percent. And, the rent may only be raised once over any 12 month period. However, a rent increase is not subject to the same laws after a tenant leaves. 

In fact, rental property owners are permitted to establish new rent at any amount upon a tenant vacancy. In other words, a rent increase beyond the amount permissible is not capped when signing a new tenant. This means, a new tenant can be charged what ever rent rate is set by the landlord. But it does control future increase amounts. For this reason, here is some insight that might help you understand California’s new rent increase law.

The information in this article is not a substitute for legal advice.

Does The Law Apply To Me?

The answer generally depends on the type of property, its age, whether the owner is a person or business entity and how long a tenant has occupied the unit. Below we have listed the general rules on when the rent cap does not apply.

The rent cap does not apply to the following:

  • Affordable Housing: properties that are already subject to a local rent control
  • Speciality Housing: such as nonprofit hospitals, religious facilities, licensed care and health facilities, school or college dormitories operated by the school or college, government sponsored public and affordable housing, hotels, and other transient housing properties
  • New Construction: housing that has been issued a certificate of occupancy within the previous 15 years
  • Single-Family Homes & Condos: provided that the owner is not  (1) a real estate investment trust, (2) a corporation or (3) a limited liability company in which at least one member is a corporation
  • Owner-Occupied Duplex: a duplex in which the owner occupies one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy
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Understanding Rent Increase Limitations

If you are a landlord, make sure to carefully review your rental rate and leasing strategy in light of the new requirements. Although the rent cap law will not cancel existing rent control, it will however, cap rent increases at 5% plus inflation. And, the rules governing the maximum rent increase are retroactive to March 15, 2019. Which means, if your rent increase was less than the maximum permissible amount, you can increase the rent to reach the maximum amount (in no more than two installments). On the other hand, if your rent increase was above the legal limit, you must reduce the rent to the maximum amount as of January 1, 2020. Because the rules are a bit abstract, we offer some examples of each scenario below.

Rent Increase Above The Limit

For example, Mr. Smith (landlord) raised the rent by 11% on Mr. Doe (tenant) for his one bedroom apartment in San Diego, effective May 1. Because it was an 11% increase, it exceeds the maximum permitted rent increase. In fact, under the new law, the most Mr. Smith could have legally raised Mr. Doe’s rent was 7% (CPI of 2% + 5% = 7%). Which means, as of January 1, 2020, Mr. Smith would need to decrease the rent for Mr. Doe to the maximum allowed (7%). But he does not have to refund Mr. Doe (the tenant) for any prior overpayments.

Rent Increase Below The Limit

Suppose Mr. Smith (landlord) only raised the rent by 4% on Mr. Doe (tenant) for his one bedroom apartment in San Diego, effective May 1. Because it was only a 4% increase, it was below the maximum permitted rent increase. So, under the new law, Mr. Smith can legally raise Mr. Doe’s rent by another 3% (initial increase of 4% + 3% = 7%). 

Rent Increase Law

Still Confused?

Because of this “use it or lose it” provision, landlords should raise the rent to the maximum permitted level every year. Because if they do not, they risk never being able to completely catch up to market rates. For this reason, it may be wise to hire a property management company who understands how to deal with the new laws. At Rancho Mesa Properties, all of our property managers  are trained to understand and abide by all federal, state and local laws. This means, we can help you navigate all the new laws while ensuring you stay profitable. 

We can even customize our property management services to your needs. Whether you need leasing, consultation, or are in search of monthly management services, we can help. From North County San Diego to Downtown, we manage all types of rental properties throughout San Diego including homes, condos, multifamily such as duplex and triplexes, and even small apartment buildings. Let us manage your rental properties so you can enjoy your life! Call us today at (858) 576-2176