For California Homeowners Who Need to Raise Rents to Keep up With Inflation – Below are Common Pitfalls we’ve seen with the Tenant Protection Act
Are you a homeowner in California or San Luis Obispo County who wants or needs to raise rents because of the impacts of inflation?
What is the Tenant Protection Act?
In 2019 the California State legislature enacted the Tenant Protection Act (AKA AB 1482). This law went into effect in January 2020. What it did broadly was to ensure tenants who were good renters the right to stay in their rental homes and not be evicted without a valid reason. Right now, this is the common act homeowners are reviewing and considering when they want to get their property back, as most of the remaining COVID-19 eviction restrictions have been lifted in California. (For more information on the sunset of those laws, see our previous article here). AB 1482 also put caps on rent increases on rentals statewide, which is the subject of this article.
Understanding the Rent Cap and the Maximum 10% Rate Increase
According to the law, over a 12-month period, the gross rental rate for a unit should not increase more than the lower of two percentages. The first percentage is a calculation made by adding 5% to the percentage change in the cost of living (i.e., 5% + the increase in COL). The second percentage is a flat percentage of 10%. In 2023, the maximum rate a landlord can increase a tenant’s rent is 10%.
(This is because the change in cost of living for 2022-2023 was around 6%. Thus, 6% added to the 5% base is 11%. (5% + the 6% increase in COL). As 10% is the lower percentage this year, a landlord can only raise a renter’s rent rate by 10%).
Recently, we have been seeing owners struggle with the following pitfalls:
- Not including the proper language in the lease agreement that indicates their real property is exempt from the Tenant Protection Act.
- Real property with only one dwelling unit on the property is generally exempt from the Tenant Protection Act, provided it is not owned by a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation, or by management of a mobile home park.
- If an owner owns this type of property, the owner must put a separate and distinct notice in all new or renewed leases entered into after July 1, 2022 to qualify for the exemption.
- The language of the notice should specify that the property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code, as the property is not owned by a: : (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.
- Thinking that their property is not subject to the law, when it actually is. (For example, a single family home owned by an LLC in which at least one member is a corporation, even if the trust or corporation was formed to keep the house in the family).
- Your local ordinances- Other local ordinances may still have provisions related to the Tenant Protection Act that might be more restrictive. Please always check with your local government agency before making any decision on whether and by how much to raise your tenant’s rent.
- Not properly notifying the tenant about the rent increase.
(Cal. Civ. Code § 1947.12)
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